Buying Off the Plan? What you need to know about the “Sunset Clause”
Sunset Clause in a Property Contract
A common approach to buying property is to enter into an Off the Plan Contract for the purchase of a unit or house that has not yet been built. An Off the Plan Property Contract allows you to lock in a purchase price based on the current property market and settle the contract once the development is complete. In some circumstances, it may take years before the development process is complete and settlement can occur. However, you have the benefit of a purchase price negotiated years earlier in a potentially lower property market. In order to ensure an Off the Plan Contract does not continue for an indefinite period with no development occurring, a standard “Sunset Clause” may be included in the Contract.
What is a Sunset Clause?
A Sunset Clause is a provision which sets out the latest date by which the development must be completed. If the development is not completed within this time frame the contract may be terminated and the Buyer can be left without a property.
What are the Risks?
The idea behind the Sunset clause is to give you and the Seller the opportunity to terminate the contract should the project encounter significant delays and it is not completed within the allotted time frame. However, the risks associated with terminating the contract under the Sunset Clause means you could potentially waste years in the property market and you are now stuck with purchasing a property dictated by the current property market.
For example, a property Buyer may have entered into an Off the Plan Contract and after waiting years is informed that the development will no longer go ahead. The Buyer is refunded their deposit and left with no further recourse against the Seller. If the Buyer now wishes to purchase a similar property they must pay the current market value for that property which may have potentially increased by tens of thousands if not by hundreds of thousands of dollars.
If you are considering purchasing a property off the plan and have any questions about the process (or about the Sunset Clause), please do not hesitate to contact Aylward Game Solicitors on 1800 217 217.