What Is a Sunset Clause? Understanding Your Off-the-Plan Contract

Canberra’s property market has seen a shift in recent months, with first-time buyers increasingly turning to apartments and townhouses as affordable entry points into the housing market . When purchasing apartments, buying off-plan remains a popular option. Understanding the details of your contract is a crucial part of off-the-plan contracts. One key element of your contract is the sunset clause — a provision that can have major financial and emotional consequences if not fully understood. This blog is a clear, practical guide to help buyers and investors protect themselves. 

For smaller developments, the sunset period could be as short as 12 months. Larger, high-rise developments may have longer sunset periods spanning 2-4 years. 

An important part of a sunset clause is defining delay events , which are events that prevent the contract from being completed. It could include delays in the supply of building materials or delays in construction (for example, due to bad weather, stop work orders, etc.). A delay event allows the contract to be rescinded if a delay occurs.

When are Sunset Clauses Used? 

Sunset clauses are commonly included in contracts for new builds and upcoming off-the-plan properties , such as apartments and townhouses. If the sunset date passes, buyers may reclaim their deposit, or in some cases, developers may cancel the contract and resell the property. These clauses are intended to protect against indefinite delays, but they can also create risks for buyers when used unfairly.

How Does a Sunset Clause Work? 

To understand buying off plan and a sunset clause in contract, read about their four key parts:

• Inclusion in the contract: The clause specifies terms, the sunset date, and what happens if the project is not completed on time (also known as a delay event).
• Monitoring: Buyers should regularly check the progress of the build against the contract’s milestones.
• Activation: If delays occur, the clause may be triggered once the sunset date passes.
• Termination: If the property is not delivered on time, the contract can be rescinded, with deposits refunded.

What Happens when Someone Triggers a Sunset Clause?

If the deadline arrives and the project isn’t ready, either the buyer or the property developer can trigger a sunset clause. In this case, some or all of the following can happen:

• The contract may be terminated.
• The buyer is refunded their deposit (and sometimes interest, depending on terms).
• The developer may resell the property, often at a higher price in a rising market.
• Buyers may miss out on other property options due to market movement.

Types of Sunset Clauses in Off-Plan Properties

There are two main types of sunset clauses when it comes to off-plan properties:

• Construction-based sunset clause: It specifies a deadline for construction to be completed, known as the sunset date.
• Registration-based sunset clause: It specifies a deadline before which registration must be completed.

Changes to the Legislation in Canberra and the ACT 

In November 2021, legislation in the ACT was updated to provide stronger protections for buyers under sunset clauses. Developers can no longer unilaterally rescind contracts after the sunset date. Instead, they must receive the buyer’s consent or apply to the Supreme Court to allow a rescission. This ensures buyers are not left in the lurch, particularly in rising property markets where developers may be tempted to resell at higher prices. These changes align the ACT with protections already in place in states such as New South Wales and Victoria.

Pros and Cons of Sunset Clauses 

For Buyers

For Developers

How to Protect Yourself Before Signing 

Before entering into an off the plan contract, buyers should:

• Always get independent legal advice before signing.
• Research the developer’s track record and credibility.
• Watch out for red flags: unusually long sunset periods, vague or one-sided terms.
• Don’t be afraid to ask questions: How long have similar projects taken? What happens if approvals are delayed?
• Request clarity or negotiate on vague terms.
• Be realistic about how long the project should reasonably take to complete.

Conclusion 

A sunset clause can be both a safeguard and a risk, depending on how it is structured. Canberra buyers and investors should approach off the plan contracts carefully, ensuring they fully understand their rights and responsibilities before signing. 

At Independent Property Group, we can provide expert guidance on sunset clauses and buying off-plan , helping you make informed property decisions and avoid potential pitfalls. Contact our team to get started.