A Sunset Clause is a special condition of a contract that allows the seller to have the option to continue advertising their property and to consider accepting more favourable offers from second buyers.
In real estate terms, you can use a Sunset Clause in:
- Existing or established properties
- Off the plan purchases
When purchasing an established property, a purchaser may make an offer under the condition that their previous house is sold. The seller commonly will add in a Sunset Clause giving the buyer a timeframe to sell their home. Should the home not sell in the desired period, the seller has the right to be released from the contractual obligations should the purchaser fail to sell their home by the stipulated expiry date.
The clause primarily protects the seller and allows them to place their property back on the market should the purchaser be unable to complete the sale. The purchaser can also add to the contract a clause that will allow them to recover their deposit if they cannot meet the deadline.
Purchasing off the plan properties is one of the most commonly known usages of the Sunset Clause. Specifying the date the developer must have the project completed, the clause may allow either the purchaser or seller to terminate the contract upon the sunset date expiring. The statutory sunset date is five and a half years from the contract date in an off-the-plan purchase. At this point, unless another date is specified in the contract. Most commonly, sunset dates in off the plan contracts could be anywhere between 12 months – 3 years and anywhere up to 5 and a half years. As you can imagine, this gives the seller a long time to complete the development. In this instance, unless the sunset date has passed, the buyer has little to no rights to dispute the time of completion.
So, what does this look like for you for a registered purchase?
Let’s use Jane and Ian as an example.
Jane and Ian have a mortgaged home but are desperately looking to upsize with a growing family. They have found a house they love and can afford.
They make an offer subject to finance, building and pest and the sale of their own home. The seller accepts the offer and terms but adds in a Sunset Clause allowing them (the seller) to accept other more favourable offers on the property and provide notice to the buyer to go unconditional within 72 hours, or the seller has a right to terminate the contract.
Jane and Ian accept the contract with the sunset clause.
Two weeks later, the seller obtains a second, more favourable contract from Mr and Mrs Rich and gives notice advising the buyer that they have obtained a second contract and give the buyer 72 hours to go unconditional.
Jane and Ian work overtime, but unfortunately, they do not sell their home and do not have their finance approved. Therefore they cannot go unconditional, and the seller sends them a termination notice under the sunset clause and proceeds with the second contract to Mr and Mrs Rich.
In this instance, the deposit is refunded to Jane and Ian, and they have to find another house to buy.
What does this look like for you in an off the plan purchase?
Jane and Ian decide that they love the look of an apartment building in Main Beach. It is right on the beach and looks like it will be a beautiful lifestyle for them. They sign a contract off-the-plan with a sunset date set at 5 ½ years, which is the standard for off-the-plan purchases they are told under the legislation.
The agent assures them it is an 18-month construction, and they should be living their waterfront dreams within 18 months.
After waiting two years, Jane and Ian call their Solicitor and ask if they sue the seller for the delay, they are sick and tired of waiting, and they have had enough.
Their Solicitor reminds them that the sunset date is 5 ½ years and that until this date has passed, the seller is entitled to take this long to complete the construction and obtain registration.
It is crucial to understand sunset dates when signing and off the plan contract, as you must be willing to accept the risk of the long wait ahead.
If you are purchasing an established property or an off the plan property, it is essential to understand what you are agreeing to. If you need help understanding your contractual obligations, call our friendly team today.