When buying property off the plan, whether it is new apartments, townhouses or even house and land packages, your contract will include a Sunset Clause.
Essentially a Sunset Clause provides a maximum time limit for the project to be completed by. If the project does not complete by this time frame (or known as the Sunset Date) then the contract is void and the buyer’s deposit will be refunded to them in full and they are free to walk away from the contract.
Every Sunset Clause will be slightly different and will depend on the project size. A boutique development is likely to have a shorter time frame compared to a high rise development. This is because a high rise development will have many more apartments and even some communal facilities that require much more work. However, what remains the same is the fact that if the property is not finished by the maximum time frame (or sunset date) then you can legally walk away and receive your full deposit back.
Typically, the sunset clause is around 18 months; however, for a development yet to start this could be 36 months, whilst a development nearing completion might only require a 12-month sunset clause. It’s therefore best to get your conveyancer or lawyer to carefully look through your contract to check this sunset clause and sunset date for you. It’s also worth noting that you should use a conveyancer or a lawyer who is familiar with off the plan contracts as established properties do not include a sunset clause, it is only off the plan projects.
The reason for having a sunset clause is that not only does it give developers some breathing space if there are delays beyond their control, but it also gives buyers an expected completion date and some more certainty.
Generally, projects will be completed well within this time frame. It is usual that there will be unexpected delays that the developer might experience along the way, for example adverse weather conditions, industrial actions or even development funding delays, so having a sunset clause will protect the developer as well as protecting the buyer.
Ideally, you want the project to go ahead and to be completed on time without running over the sunset clause date. Although you do receive your full deposit back if the development does not complete, it means that you would have wasted a few years in the property market and have nothing to show for it. During this time, property prices could have increased massively so you would miss out on all this potential capital growth. Look at the Sydney property market as an example: 2014 -2015 saw exceptional levels of growth in the double figures and you would be kicking yourself if you missed out on this capital gain.
It would also mean that by the time you get your deposit back, property prices are a lot more expensive than when you first put your deposit down, making it even harder to get a foot on the property ladder. This is why it is so important to check the sunset clause, research the developer and research the project to ensure that it is a viable option for you.
Another major risk to be aware of is that previously developers of off the plan properties would over-run on purpose in order to rescind the contracts, refund the deposit in full, only to resell these properties at a much higher price and cash in on this rising market.
Fortunately, there are now consumer protections in place to protect buyers against developers who purposefully do this. Developers will now only be allowed to rescind contracts under the sunset provision under carefully prescribed grounds and must also serve a notice to buyers outlining their reasons. However, if the purchaser does not consent to the rescission then the development will have to obtain a court order at their own cost.
If you are worried about your project potentially running over the sunset clause or working with a developer that does the dirty, then there are a few things you can do first to protect yourself.
It is important to note that if the development runs over the sunset clause time frame, you can have the contract re-written if both parties are still happy with the pricing and original contract terms. However, there is also the options to have the deposit refunded in full and walk away from the development.
If you do decide to have the contract re-written, we would recommend you speaking to your Property Consultants to see how far away completion is whilst you should also speak to your reputable conveyancer or lawyer to go over the new contracts.
To learn more about sunset clauses or to start your property hunt, why not get in touch with the iBuyNew team today. Call us on 1300 123 463 and speak to one of our expert Property Consultants.