What is a sunset clause and why does it matter?

Buying off-the-plan has been difficult for some purchasers missing out if a developer/vendor terminates the contract after a Sunset Clause expires.

A sunset clause is a special condition that provides the parties to a contract to rescind (0r end) if the plan of subdivision has not been registered or occupancy permit has not been issued by the sunset date. The sunset date is either a date or so many days from the contract date.

A sunset clause is in residential off-the-plan sale contracts. If you are buying a property off-the-plan understanding what the sunset clause is and how it operates is crucial. Not only should you know the date, but also the termination process. This overview relates to Victorian property law and whilst similar legislation may operate in other states the law regarding sunset clauses is distinctly different for each jurisdiction.

Changes to legislation regarding Sunset Clauses

Prior to 2019 developers (vendors) could (and were) deliberately delaying the completion of development beyond the sunset date in their contracts. This allowed them to terminate the contracts and resell the property at the current market price. This was a real advantage in a real estate market that was seeing significant price increases year on year.

Unfortunately, many purchasers lost a significant opportunity to secure a property and had no other options. As sunset clauses are typically three years or more this was a major loss of opportunity to purchasers. The amendments seek to prevent this type of opportunistic behaviour from developers and protect consumers.

The Sale of Land Act Amendment 2019 (VIC)

Before the Amendment Act the vendor could rescind the contract with little recourse from the purchaser. If the date passed the vendor could simply the contract and return the purchaser their deposit monies.

• The law now states that the vendor cannot rescind the contract without:
• at least 28 days’ written notice to purchaser
• a purchaser’s consent.

From 23 August 2018 the ‘notice’ and ‘consent’ provisions apply to sunset clauses in ALL off-the-plan contracts.

I want to get out of my contract – what should I do?

You should get advice if you are going to terminate your contract or rescind. Many property disputes arise because of properly terminated or rescinded contracts

It is important that the process is followed so that you can end the contract effectively without breaching the contract and exposing yourself to liabilities.

The process to rescind a Contract

The amending Act introduced five provisions into the SL Act for regulating sunset clauses in ROTP contracts to prevent a vendor from unjustly rescinding such contracts.

Section 10A

A sunset clause in a ROTP contract on foot at 23 August 2018 that purports to automatically rescind the contract on the part of the vendor will be taken to permit the contract to be rescinded only in accordance with new sections 10B – 10E.

Section 10B

Section 10B prohibits a vendor from rescinding a ROTP contract under a sunset clause unless the written consent of each purchaser to the rescission has been obtained and each purchaser has been given at least 28 days’ written notice before the proposed rescission.

The notice must specify:

the reason why the vendor proposes to rescind the contract

the reason for the delay in registering the plan of subdivision or the issuing of the occupancy permit

that the purchaser is not obliged to consent to the proposed rescission.

Section 10C

Any attempt to contract out of sections 10A and 10B will be of no effect.

Section 10D

Any attempt to rescind an off the plan contract in contravention of the above provisions will be taken to be a breach of the contract. This entitles the purchaser to take all contractual remedies available to them for a breach of contract such as issue a default notice and rescind the contract and claim damages.

Section 10E

A vendor can apply to the Supreme Court for an order permitting rescission of a ROTP contract under a sunset clause if it is just and equitable in the circumstances. Section 10E details matters the court must take into account when determining whether it is just and equitable to order rescission of the contract.

Section 10F

All new ROTP contracts entered into after 1 March 2020 (proclamation of the amending Act) must include a statement that:

• the vendor is required to give notice of a proposed rescission of the contract under the sunset clause the purchaser has the right to consent to the proposed rescission but is not obliged to consent
• the vendor has the right to apply to the Supreme Court for an order permitting the vendor to rescind the contract the Supreme Court may make an order permitting the rescission of the contract if satisfied that making the order is just and equitable in all the circumstances.

Failure to provide the statement in the contract will expose the vendor to a penalty under the SL Act.

Getting the best legal advice on your property investments.

If you are considering buying a property off-the-plan in Victoria you should get expert advice on the contract of sale and understand your rights and obligations under the contract.

The sunset clause is a key clause as this is potentially how long you will be obligated under the contract. We advise all clients and investors to get informed and understand what they are committing to.

To make the best investment decisions, consult our conveyancers or property lawyers.

About The Author - Glenn Duker

Glenn Duker is Managing Partner, and founder, of PCL Lawyers. Glenn has a Bachelor of Laws / Arts from the University of Melbourne and was admitted to practice more than 25 years ago. He has...