Beware of Sunset Clauses in off the plan contracts

There has been recent media attention brought to the fact that currently some developers are relying on sunset clauses to terminate contracts, only to then resell for a much higher price. This is becoming more and more prevalent where the housing market in Queensland has been under considerable growth.

If a developer terminates an off the plan contract under the sunset clause, although the Buyer is entitled to a refund of the deposit, they are sometimes priced out of a rising market which has skyrocketed since they signed the Contract.

Sunset clauses offer benefits and drawbacks – a shorter Sunset Date may provide a Buyer with a greater level of certainty and ability to terminate the Contract and have their deposit refunded if a developer does not deliver within a certain timeframe. However, the converse can occur where the market increases significantly, and the developer can utilise the Sunset Clause to their advantage to terminate the Contract and resell in a booming market.

Other states in Australia have moved to put more protections in place for buyers when buying off the plan. In New South Wales and Victoria, special laws have been introduced requiring Sellers to get consent from a Buyer or the Supreme Court before using the sunset clause to terminate an off the plan contract. We understand that Queensland is looking to review the legislation and we look forward to legislative reform on this issue.

Off the plan contracts can span across years and are generally drafted by the Seller’s solicitor and as such, they will often be drafted in the Seller’s favour. It is critical that Buyers seek appropriate legal advice to ensure they understand that their rights and risks before signing a contract.