If you are thinking of buying property off the plan, there are things you must consider. You may have heard reports of developers taking advantage of buyers through ‘sunset clauses’, essentially re-selling property after delaying construction for a higher price. This has been referred to as ‘sunset clawback’.
Before amendments to legislation, issues originally occurred when a buyer who bought ‘off the plan’ would sign a contract with a developer to construct property to the specific terms set out in the contract. Developers were accused of taking advantage of sunset clauses by breaching them intentionally, regaining the rights to the property and then re-selling through with an improved property value. This led to buyers without property and developers making large profits after constructing the property at a lower cost.
What is a Sunset Clause?
A sunset clause is a provision within a document that provides the maximum time that a developer may take to complete a project. For example, a sunset clause for the construction of a house might state 2 years or a specific date, if the construction of the house is not completed by the time the ‘sunset’ is hit, the clause will usually implement the possibility for either party to cancel the contract.
Sunset provisions were originally designed to provide protection from buyers for slow property developers, however a recent increase in the property market has led to developers using the provisions for their own gain.
Amendments
In 2015, NSW Parliament passed the Conveyancing Amendment (Sunset Clauses) Act 2015 (NSW) now requiring the developer to notify and receive agreement from the purchaser if the developer wishes to cancel the contract under a sunset clause. If the purchaser does not agree, the developer would then have to take them to court to argue that the cancellation is necessary.
Therefore, the amendments were designed to stop developers from unreasonably using the sunset clauses in order to make a profit through re-sale.
Recent Supreme Court Case
September 2017 saw the first real test of the new legislation after a developer took a group of ‘off the plan’ purchasers to the Supreme Court after attempting to rescind their sale contracts. The apartments in Surry Hills were not completed by the date proposed under the contract’s sunset clause. The developer told the Court that there were a number of delays and issues leading to an impossible completion of the complex.
Ultimately, there was no resolution in the Court system. The developer eventually offered a payment to the purchasers along with their original deposits. Whilst there was no judgement by the Supreme Court, this is a sign for the future that it is more difficult for developers to use such a legal loophole in their favour.
If you a developer looking to start a new project, get in touch with a construction lawyer.
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