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Contracts, Property

Sunset Clauses in NSW

There has been a great deal of media attention in recent months about sunset clauses in property contracts. The stories usually involve a developer has relied on the ‘sunset clause’ in a contract to get out of the deal, resulting in a significant loss to the purchaser, who has wasted years locked into the contract and lost the substantial equity they would have gained had they owned the property at the end of the build. The developer is then able to on-sell the property for a much higher price than the initial purchaser would have paid due to the ever-increasing value of property in recent years.

‘Sunset clauses’ are very common in property contracts involving a subdivision of some sort, and sometimes also include a house or unit as well (known as ‘off the plan’ purchases’). A standard sunset clause allows the purchaser and the developer to exit the contract without penalty after a certain period of time has elapsed on a future date (the sunset date) if the development has not yet been completed. Sunset dates can usually be extended by the developer if they or the builder have encountered delays due to factors outside of their control, such as weather or supply issues.

Sunset clauses are a protection for purchasers as well, so that they are not strung along for years and years by the developer if the project is not completed in a timely manner.

Most of the media attention has focused on situations outside of NSW, where either party may exit the contract once the sunset date comes along without the consent of the other party and no justification for the decision is required.

In NSW, however, legislation changes which took effect on 2 November 2015 mean that a developer wishing to exit the contract using a sunset clause needs to notify the purchaser and provide reasons for their decision. A purchaser would then need to agree before the developer can be released from the contract. If the purchaser does not agree, then the developer would need to apply to the Supreme Court to seek an order allowing them to exit the contract. This legislation also applies to contracts entered into before 2 November 2015 but which have not settled or been completed.

If you’re looking to purchase a property, we would be pleased to assist you to understand the terms of the contract and assist you through the conveyancing process.

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