Buying off the plan? Beware of sunset clauses

The sale and purchase of property “off the plan” has long been a staple of the Queensland property market. With continued population growth and housing demand, the volume of ‘off the plan’ property transactions are unlikely to decrease any time soon.

Buying off the plan can be a great way to secure your property, but there are some fundamental aspects of buying off the plan that you need to consider carefully. In particular, the operation of sunset dates and sunset clauses.

The sunset date is the date by which settlement of the contract of sale must occur. If settlement has not occurred by the sunset date, then the buyer will be able to terminate the contract. In Queensland, there are statutory sunset dates that apply to contracts of sale for “off the plan” property.

The statutory sunset date when buying a lot within a community titles scheme (e.g., apartments / units / townhouses) is 5 and a half years after the contract is signed. If you are buying land, the statutory sunset date is 18 months after the contract is signed (however there are certain scenarios where there will not be a statutory sunset date for land).

In addition to the statutory sunset dates, it is common for off the plan sale contracts to include a sunset clause and its own non-statutory sunset date, which will generally be either the same timeframe as the statutory sunset date, or a lesser timeframe if the developer is trying to make its project more enticing to prospective buyers. These sunset clauses will generally provide that either party can terminate the contract if settlement has not occurred by the sunset date. This is particularly important from a developer’s perspective as the legislative provisions for the statutory sunset date only allow a buyer to terminate.

The right for a developer to terminate a sale contract pursuant to a sunset clause has been thrust into the spotlight in recent years. This could be attributed to the concern that in a rising property market, some developers may rely on this right and let sunset dates pass so that they can terminate contracts signed a number of years ago and re-sell the property to a new buyer at a higher price.

The increased attention in this space has led to the Queensland Government amending the statutory sunset date provisions for off the plan land sales (but not apartment sales). These amendments took effect on 22 November 2023 and provide that a developer cannot terminate a contract using a sunset clause unless they obtain the consent of the buyer, or otherwise obtain an order from the court allowing the termination. To obtain an order from the court, the developer would need to satisfy the court that it is just and equitable for the contract to be terminated in the relevant circumstances. Notably, these provisions also apply to existing contracts that were signed before 22 November 2023 but had not settled by that date.

Sunset clauses are but one of the complex aspects that are dealt with in ‘off the plan’ sale contracts. As a buyer, it is critical that you are aware of the terms of these contracts prior to signing the contract.  For developers, it is critical that your sale contracts provide you with sufficient flexibility to account for unforeseen variables that may arise when completing the project.

If you are a potential buyer looking to buy off the plan or a developer preparing for a new project, our experienced team are here to help.

“The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.”
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