Why reading the sunset clause and fine print is a must

I’m sure all of us at some point in our lives have neglected to read the fine print of contracts, whether it’s the fine print for buying a new phone, or signing up to a new energy company. Generally, in these situations, things are good and there are no problems. However, purchasing a property is far different and is likely to be one of the largest purchases you will ever make so it pays to read the terms and conditions.

Whether you are purchasing your first home, or sixth home, it is essential you go through the contract with a fine-tooth comb to ensure you are not signing up for anything dodgy or unethical.

I recently heard that one such group of young families and first home buyers in Western Sydney have made this costly mistake, where an investment firm is demanding an additional $100,000 minimum from each of the buyers of the eight townhouses if they wish to proceed with the purchase whilst delaying the construction of a housing development.

The development based in Punchbowl had prices for townhouses around the $550,000 mark, with some buyers putting their deposits down in May last year believing that these houses would be ready by December 2014. The hope was that they could move into their new homes during February 2015 as the sunset date expired on February 10.

However, back in October 2014, this residential development was bought from Lynton Developments by the new developer AMIA Investments Pty Ltd. And on Friday 13 February, which turned out to be the ‘unlucky’ day for these Punchbowl buyers, they were informed that AMIA Investments were rescinding their contracts under the sunset clause.

So what exactly is a sunset clause?

A sunset clause is there to protect both buyers and vendors, allowing each party to pull out of the contract if the completion date has not been met during a certain time period. If the property has not been built within this timeframe, then the contract is void, meaning that the deposit will be refunded to the buyer who can move on.

However, it has also been seen that some property developers use this sunset clause to their advantage, particularly when the market is ‘red hot’. They use the tactic of intentionally running over the time limit so that they can refund the deposit to these buyers and then end up selling the properties at a much higher price.

In this situation, this extra $100,000 on top of the original purchase price of $550,000 would make these homes far overpriced for the location that they were in. The original buyers may not be able to secure this extra money, and might not even want to. The agent, LJ Hooker in this case is also set to lose up to $100,000 in commissions.

Fair Trading NSW has stepped in to investigate this case to determine whether there was a breach of consumer protection laws, and this is namely down to the contract that was signed. If the contract shows any evidence of misleading information then this may help the buyers.

It is therefore extremely important that when buying property or anything else of high value that you check and double check contracts, especially when buying off the plan property and read the terms and conditions in full. Having independent legal advice is also a must and a second pair of eyeballs doesn’t hurt.

However, for the buyers in this case, it will be very hard to prove that the development has been delayed long enough to set off the sunset clause. Without any solid evidence that states this, it would be hard to prove.

So, to avoid this happening to you here are five key things you can do:
  1. Check contracts and terms and conditions extremely carefully.
  2. Investigate the developer and agent to ensure they are trustworthy, with a good track record.
  3. Check the sunset clause is reasonable and see if there is a point in there that says something along the lines of “the developer will do everything possible to get the development done.”
  4. Check that the developer has obtained all the necessary approvals.
  5. Find out whether a minimum number of pre-approvals are required before construction can start as this may create delays.
Published on 23rd of February 2015 by Marty Stanowich
Marty Stanowich
Marty Stanowich


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