It is common practice that apartments are sold without having a registered subdivision plan or an issued occupation certificate.
How does that work?
A subdivision plan allows the owner to build apartments, duplexes, centres, etc. The Developer is not required to wait for the subdivision plan to be registered in order for the Developer to commence selling its subdivided lots. On the contrary, in the case of apartment complexes, owners often commence selling apartment units before they have been built.
The Owner relies on the Sunset clause in the contract to provide itself with security.
What is a Sunset clause?
A Sunset clause is a provision in the contract that says the following:
- The sale of an apartment is subject to the registration of the subdivision plan;
- The Developer/Owner is not required to complete the sale transaction until such a time that the subdivision is registered;
- The contract often specifies a time estimate for the registration to occur – this is known as the ‘Sunset Date’;
- If the Sunset Date passes without the subdivision plan being registered, the Developer/Owner often have the right to extend that date;
- If the Sunset Date passes without an extension, then the Purchaser or the Owner can cancel the contract and the purchaser shall receive back its deposit in full.
How can the Sunset Date be extended?
The Sunset Date’s extension if dependent on the provisions of the contract. Most contracts allow the owner to extend the Sunset Date if some disturbance outside of the Developer’s control has happened. The Owner then must notify the Purchaser in writing of the nature of the disturbance and the extended time period.
The Purchaser has the right to dispute the timeframe proposed by the Owner if the Purchaser so chooses.
What if the contract can be cancelled?
If the Sunset Date passes without extension, this does not automatically lead to the cancellation (that is, the rescission or termination) of the contract. On the contract, a cancellation of the contract will only take place if either party elects to cancel the contract by providing the other party with a notice in writing to that effect.
Current changes in the law now pose greater difficulties for owners to cancel a contract after the expiry of the Sunset Date. Now, owners are required to make an application with the Supreme Court of New South Wales in order to get the approval of the Court before being able to cancel a contract.
How does this affect you?
If you are subject to an off-the-plan contract, or about to be, ensure that you understand the full implications of the Sunset clauses and the wording of the contract as to their extensions.
