The Australian property market is on fire, and listings simply can’t keep up with demand. Many new migrants and local young buyers are shifting their attention from established homes to off-the-plan properties. When buying off-the-plan, the biggest worry is usually not being able to take possession on time, or endless delays that wear you out.

Stories of developers failing to deliver for years — or even abandoning projects outright — are not uncommon overseas, and similar disputes have played out in Australia too. Thankfully, the “sunset clause” has brought a warm ray of sunshine to this situation.

# That’s Sunset as in sundown, and also Sunset as in the setting sun #

The “sunset clause” is a common provision in commercial legal contracts. In abstract terms, it refers to a period granted by law — just as the sun eventually sets, some or all provisions of a law or contract also have a termination date.

In Australia, sunset clauses are frequently seen in off-the-plan purchase contracts. A sunset clause can protect either the vendor or the purchaser. If the set final settlement date (the sunset date, typically within 24 to 48 months from the date the contract is signed) passes and the property still cannot be delivered, either the vendor or the purchaser can terminate the purchase contract or walk away from the transaction. As a purchaser, you can recover the funds you have already paid, avoiding an open-ended wait for settlement.

The Sunset Clause Works Both Ways

Standard Use

The sunset clause sets the date by which the vendor must complete the property. If the property is not completed by that date, the purchaser is legally entitled to terminate the purchase contract or walk away from the transaction, and can recover funds already paid. This is generally viewed as protecting the purchaser’s interests.

It Can Also Be Used This Way

If a purchaser is buying a property subject to the sale of their existing home, a sunset clause is often used as well. This is usually inserted by the vendor, who will include a sunset clause in the sale contract so that if the purchaser fails to sell their existing home within the timeframe set by the sunset clause, the vendor can withdraw from the transaction. This is typically used to protect the vendor’s interests.

The squeaky wheel gets the grease — and that wheel is New South Wales.

Sydney’s property shortage and rapid price growth have pushed NSW to the forefront of Australia in property-related laws and regulations, particularly when it comes to protecting purchasers (home buyers).

New South Wales

As early as November 2015, NSW passed legislation imposing new, detailed requirements on vendors seeking to terminate a contract under a sunset clause:

– If the vendor wishes to terminate the contract, they must give the purchaser at least 28 days’ written notice, setting out the vendor’s intention to terminate and the reasons for doing so;

– Termination requires the purchaser’s consent. If the purchaser does not consent or does not clearly respond, the vendor must obtain an order from the Supreme Court of NSW before they can proceed with termination;

The scope of the sunset clause has also been extended. In addition to covering situations where the developer fails to register the plan of subdivision before the sunset date, it now also covers failure to provide an occupation certificate by the specified date. Furthermore, if a developer seeks to rely on the sunset clause to rescind the contract, the court may order the developer to pay compensation to the purchaser. The sunset clause provisions also have retrospective effect and can apply to contracts already in force.

Victoria passed similar purchaser-protective sunset clause legislation in 2018.

In short, a vendor cannot unilaterally and lightly rely on a sunset clause to terminate a contract. To do so, they must prove that the delay in completion was due to force majeure beyond their control, thereby safeguarding the purchaser’s interests.

Note: aside from specifying the Sunset Date, developers will often also specify a Sunset Date Extension. The extension is typically 6–12 months, meaning the developer has the right to extend the sunset date by 6–12 months.

Money, Big Money — Always Proceed With Caution!

Although the sunset clause is designed to protect the interests of both vendor and purchaser, in practice — given the significant imbalance between buyers and developers — we still see negative news about developers abusing sunset clauses for profit, and in such cases the heavy losses are usually borne by the purchaser. In extreme cases, a developer who sees prices climbing may become driven by greed and maliciously invoke the sunset clause to terminate contracts.

In summary, when signing a contract, it is essential to carry out thorough background checks on the developer, understand their reputation, do your homework, and read through every clause in detail. Have a lawyer review the contract before you sign. Even if a sunset clause looks reasonable on its own, you could easily miss other important matters. These are important and worthwhile steps to take before buying, because few transactions are more significant than purchasing a home.