A sunset date contract specifies the deadline (the sunset clause) before which a builder or contractor must finish a project. A sunset date is the day a developer fulfils the final obligation prior to settlement, and registers subdivision plans.
However, because of the sunset clause’s extensibility, builders and contractors will have more time to address any problems that exist beyond their control. The sunset clause protects both the buyer and seller when the buyer is purchasing an established property from the seller.
Off-the-plan contracts typically end before the sunset provision as a result. Generally, unless otherwise specified in the Contract, the average sunset clause period of 18 months applies in a sunset date contract. In most cases, the sunset clause date can exceed or last up to 48 months from the date of the contract. The sunset date in a contract does not indicate the time between exchange and completion.
The buyer typically has the opportunity to withdraw the contract and receive a full refund of their deposit. This is if the developer fails to fulfil the contract requirements before the sunset clause. Moreover, this provides the buyer with project delay insurance. Read this article to know more about the sunset date contract or a sunset clause.
Example of A Sunset Clause:
A contract between Joey (the buyer) and Michael (developer/builder), specifies that Michael should finish the project before April 20, 2023. Michael should finish the project before the deadline so the sale can proceed. Joey also has the option of terminating the contract if he discovers that Michael hasn’t followed the sunset clause deadline which is April 20, 2023.
Using The Sunset Date Contract
1. Off-the-plan Property or Sales
A sunset clause is frequently used in contracts of sale for off-the-plan properties like apartments, homes, or townhouses in Australia. Contractors and builders also have the option to terminate the agreement if they are unable to complete the project before the sunset clause date. Therefore, the sunset provision gives them the option to void their contract and resell it to a higher price if they experience delays that are beyond their control.
This is why these clauses can sometimes make the buyers uneasy. Some builders and contractors can take advantage of a sunset date contract by delaying projects in order to increase their profit, terminate the contract, and resell the project at a higher price.
The Victoria Government made changes to the Sale of Land Amendment Act 2019 to provide security for buyers. The amendments make provisions such that the builders cannot make use of a sunset clause unless they have permission from the buyer or the Supreme Court of Victoria. This prevents the builders from using the clause unnecessarily to cause delays and as a result exploit the buyers.
What About New South Wales?
The Australian government has also passed new rules in New South Wales to stop developers from abruptly ending a sunset date contract. According to the Conveyancing Amendment (Sunset Clauses) Act 2015, a seller must notify all buyers and receive their written consent before terminating a project.
The seller cannot proceed with the termination if a buyer doesn’t respond. Alternatively, if the Supreme Court grants authorisation, sellers can break a contract for the sale of an off-the-plan property. The Court in NSW weighs a variety of considerations before deciding whether to let a developer end a project. These factors consist of:
- The conditions of the off-the-plan property sale contract;
- The cause of the hold-up;
- Whether the developer acted in dishonest faith or with unreasonable behaviour;
- If the property’s proposed building site’s lot value has grown;
- How the termination will affect buyers;
- If it’s possible to negotiate a reasonable sunset clause period with the builder/developer and reach a mutual agreement; and
- Other pertinent information that may affect the sunset clause
The Court will evaluate each request for termination on an individual basis. The proposed law also mandates that developers pay all fees and expenditures that may be associated with the termination process. This is if the court determines that the buyer unjustly withheld consent for the sunset date contract cancellation.
2. Established Properties
When a buyer makes a property purchase that is reliant on the sale of their current house, a sunset clause is usually applied. When a buyer submits such an offer, the seller often decides to include a sunset clause in the sales agreement. This is so that they can back out of the deal if the buyer fails to sell their current house within the timeframe specified in the sunset clause.
A sunset date contract protects the seller in this situation by allowing them to re-enter the market if the buyer takes too long to get their finances in order.
Using a Sunset Clause to One’s Advantage
Despite the chances of builders/developers taking advantage of a sunset clause, buyers can take precautionary measures. But, what are these precautionary measures? Before a buyer signs a contract of sale, buyers should first conduct their due diligence on the developer/buyer. Buyers should:
- Reach out to other buyers who have previously purchased apartments from the developer/builder.
- Request proof of previous projects from other buyers to see the developer’s progress
- Ask other buyers whether the developer displayed unethical behaviour before, during, or after the project.
- Examine the developer/builder’s website and evaluate the calibre of their work.
- Check if the builder regularly followed their previous client’s sunset clause
What’s Next After Completing a Background Check on the Builder/Developer?
Once buyers have established the developer’s dependability in adhering to sunset clauses, they can now focus on the particular structure where they want to put their property. Buyers should check to see if construction is proceeding according to plan and if it has already started. If not, buyers should see if the project has all the required permits and building approvals.
It’s also wise for individuals to avoid the project if it hasn’t received permits and building approvals since acquiring these can take a lot of time. Next, buyers can try to estimate how long the project will take. They can do this by taking into account the size and current status of the building and utilising earlier projects that were similar as a benchmark.
Seeking Legal Advice About Sunset Clauses
Buyers should also seek legal advice when experiencing disputes about a sunset date contract with a builder or developer. Our conveyancing solicitors at JB Solicitors know the ins and outs of conveyancing. We ensure that buyers are well-protected from builders or developers who do not follow the sunset clause in a contract.
Contact us today for more information on sunset clauses on contracts.
