What is a Sunset Clause – and how can you use it to your advantage?

It sounds like a cocktail you’d enjoy on a tropical holiday, but a sunset clause packs much more punch than a summery beverage!

A sunset clause is a contractual term designed to protect both the buyer and the seller.

However, over the years reports of developers taking advantage of these clauses to make a larger profit in off the plan (OTP) properties have left buyers wary.

What is a Sunset Clause?

The basic premise of a sunset clause is to put an expiry date or time limit on the property contract. 

If settlement has not taken place by the end date included in the clause, both parties are legally entitled to walk away from the contract.

A sunset clause is generally used in one of two situations.

  1. Off The Plan Sales

It is routinely included in off-the-plan property contracts of sale. Estate Agent Shaking Hands With Customer After Contract Signatur

Here the clause stipulates the date by which the developer must finish the project, and it also stipulates that, if the property is not finished by this date, the buyer is legally entitled to walk away from the contract and receive their deposit back in full.

Generally, the project is finished well before the date outlined in the clause, as developers exaggerate the required timeframe, to allow for delays caused by industrial action, inclement weather or lack of funding.

In the past developers have come under scrutiny for using the sunset clause to their own advantage, particularly in a hot market.

There had been reports from disgruntled buyers of developers who purposely run over time in order to invoke the sunset clause and therefore nullify all contracts.

They then put the same properties back on the market at a higher price to increase their profit margin.

This scenario leaves the buyer at a great disadvantage because while their money has been tied up in the Off The Plan development, they have not been able to make offers on other properties and properties that they could afford at the time of deposit have increased in value and are now out of reach.

In today’s more challenging property markets, where investors are very wary of buying off the plan property, and on completion values for this type of property are slumping and often well below the original contract price, it’s unlikely that developers will use a sunset clause to their advantage.

In response to widespread abuse of the sunset clause, the New South Wales Government announced in October 2015 that it would pass new legislation that forced developers to get written consent from either the buyer or the Supreme Court if they wanted to terminate the contract when the project was delayed.

In Victoria the laws changed in 2019 and developers are now no longer allowed to use sunset closes to “rip off” buyers.

2. Purchasing established properties

A sunset clause can also be used when an offer is put on a property conditional to selling their previous home. Employer Showing His Employee Where To Sign A Contract

When a buyer makes such an offer, a seller often chooses to insert a sunset clause into the contract of sale so that they can pull out from the deal should the buyer fail to sell their current home within the timeframe outlined in the sunset clause.

In this context, a sunset clause protects the seller by offering them a way back onto the market, should the buyer take too long to get their finances in order.

It can be used when a vendor is putting an offer on a property in order to force a decision, and hopefully commitment, out of the seller.

The bottom line:

Make sure you enter any agreement to purchase a property with your eyes wide open to ensure that you sign a contract that works to your advantage and doesn’t unfairly benefit the developer or vendor.

This means get your solicitor (not one recommended by the project marketer, developer or real estate agent) to check any contract before you sign  it.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au


'What is a Sunset Clause – and how can you use it to your advantage?' have 16 comments

    Avatar

    August 14, 2020 Phil Taphouse

    Is there an unreasonable time for a sunset clause. Ours is 5 and a half years. We didn’t check on this at the time of signing but can we get out on the basis that 5 and a half years is too long?

    Reply

      Michael Yardney

      August 14, 2020 Michael Yardney

      That seems an extraordinary length of time – however a lawyer for the other side would argue that you knew what you were getting yourself into

      Reply

    Avatar

    May 16, 2019 Yasmin

    Is there a specific time in which the developer needs to return the money paid once the sunset clause is used? We have requested that our contract be terminated as the land we purchase has taken too long to settle. Registration period was 24 months (we are now passed that date) our solicitor has sent a letter requesting our deposit back and is yet to hear anything – is there a specified time (nothing in the contract) or do we just need to wait it out until the developer and their solicitors are ready?

    Reply

      Michael Yardney

      May 16, 2019 Michael Yardney

      The time to return the deposit should have been written int he contract – if not – then they will need to be reminded by your solicitor – the law would allow a “reasonable time”

      Reply

    Avatar

    April 15, 2019 sam

    Hi
    The contract is conditional upon registration of the draft plan by the Sunset Date, which is defined to be 30 July 2019.
    Now the land is registered and settlement is done on 18th April 2019 and building to commence end of june 2019 i would like to know will the Sunset date have any effect please ?? will the builder charge extra

    Reply

    Avatar

    February 20, 2019 Sandeep

    Had entered in a OTP contract in June 2016 with 42 mths sunset date. Haven’t started to build yet and doesn’t appear that they will be able to settel within the sunset date. And we are not in a mood to extend the contract if the builder wishes to. What are the grounds that a builder can ask for to extend the sunset date?

    Reply

      Michael Yardney

      February 21, 2019 Michael Yardney

      THis could be good news for you – your chance to get out – I don’t know the wording of your specific contract – so please ask your solicitor

      Reply

    Avatar

    August 17, 2018 Chamained

    Hi Michael,

    We purchased a house and land package and the Da approval got rejected by council we were told when purchasing that registration will be dec 2017 but it’s now August 2018 and land hasn’t even been DA approved. Developer is appealing council decision and are in the process of coming to an agreement in Land and Environment court. We have been lied to and even if the Da is approved we won’t be in our property until at least 2020 three years after the fact. Our sunset clause is December 2018 I am sure the developer is going to try and extend the sunset how can we get out of this as we don’t won’t to wail until 2020 to be in our house that’s not was promised and if we don’t build before July 2019 the builder will charges fees for every month build is delayed this isn’t fair as we purchased a house and land package it isn’t our fault that the land isn’t ready. What can we do in this situation.

    Thanks Charmiane

    Reply

      Michael Yardney

      August 18, 2018 Michael Yardney

      Charmaine – I can understand your concern – this is a legal issue and your solicitor should have put in clauses to protect you from delays so you can get out of your contract and so the developer can’t extend his contract.
      I hope you’ve got your own solicitor and didn’t use the developers one

      Reply

    Avatar

    May 22, 2018 Worried Parent

    Hi Michael, our daughter and partner have signed an OTP agreement that contains a sunset clause. The clause date has now passed and there is no sign of any work commencing. There seems to be a lot of interesting connections between developer, agent, lawyer etc.and I think changes to the directors of the company too. But to sum it up, the builder has offered and additional bedroom and and garage, at no extra cost, if they will sign a variation that includes progress payments. The original agreement is ‘turn key’, pay deposit, and balance on completion etc. They don’t want to sign this, and to be honest, their lending approval might not even permit it. But the most concerning part, is that the have recently discovered (and this was not highlighted by the lawyer) that the sunset clause applies to the completion of the subdivision, not the actual house-build itself. They are now stuck in ‘no mans land’ as the subdivision has been completed. The developer wont allow the contract to be cancelled, and the lawyer (actually conveyancer) seems to be offering no sign of hope either? Would you have any recommendation as to where they could go for advice? They are first home buyers, who have had their dream shattered, and their kiwisaver deposit stuck in limbo 🙁

    Reply

      Michael Yardney

      May 22, 2018 Michael Yardney

      As you say, their bank may not allow progress payments.
      Your children need independent legal advice and the question they should ask is “How can we get out of the contract?” which is very different to “can we get out of the contract?”
      They need their own solicitor, never use the developers solicitor

      Reply

    Avatar

    March 5, 2018 Raj

    hi,
    i sign a contact with one company & my contract’s sunset clause till March 2019, what we do if they make more delay like is any option we can push developer to complete with in time. like they always take advantage of this. sell land on lower price use our money& then sell on high price. its like blackmailing…

    Reply

      Michael Yardney

      March 5, 2018 Michael Yardney

      Raj
      You are right – some unscrupulous developers take advantage of this type of clause if it suits them.
      Your contract is a legal instrument, and each sunset clause is worded differently, so this is something you should ask your lawyer

      Reply

    Avatar

    October 9, 2017 Jen

    I have bought a property Otp and the sunset period ends and the vendor want to increase the price. The property has completed before the sunset period but they haven’t got the plan of subdivision. I think they purposely delay so they could ask for higher price after the sunset period ends. I disagree and they wish to refund the full deposits and put the property back to market. What is your best advice?

    Reply

      Michael Yardney

      October 9, 2017 Michael Yardney

      Jen
      That sound terrible – you’re right some developers take advantage of purchasers.Ont he other hand first make sure of the value of the property you’ve committed to – you may find it is worth less than the contract price and then the developer is doing you a favour

      Reply


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