Attwood Marshall Lawyers’ Commercial Litigation Senior Associate, Jade Carlson reviews recent contract disputes between developers and builders which are stalling the completion of local developments and leaving buyers in the lurch, or worst, losing out on their investments without the ability to re-enter the market.
As property prices have soared post Covid, so have unit developers’ abuse of so called ‘sunset clauses’. There is a renewed call for greater protections for buyers in Queensland as developers take advantage of sunset clauses to the detriment of buyers.
Sunset clauses in off-the-plan contracts allow either party to terminate the contract if the completion of the property and registration of the plan does not happen by the ‘sunset date’. In other words, the sunset clause effectively puts an expiry date on the contract and allows either party to terminate if the building isn’t completed by the due date or the building costs increase dramatically etc – the clauses in the contracts are fairly extensive and vary between projects. That date usually falls within 18 months for a land contract or up to 5 ½ years in an off-the-plan development contract, as provided by the Body Corporate and Community Management Act 1997 (Qld).
A sunset clause can be beneficial to a buyer, providing an opportunity to pull out of a contract if their circumstances change or the development is taking too long. A sunset clause may also be beneficial to the seller or developer, providing them an opportunity to put their property back on the market if the buyer is delaying the process.
However, there has been a recent surge of developers using sunset clauses to take advantage of sky-rocketing property prices during the course of the build, allegedly unscrupulously delaying building to ensure original buyers will forgo their stake in the development so that they can resell the properties at a higher purchase price in line with recent market values.
The latest building dispute in the spotlight involves Sydney developer-builder, Draycon. Buyers in a 42-unit project at Chevron Island on the Gold Coast under construction by Draycon, fear their contracts, subject to sunset clauses, will be cancelled. They say little work had been done on the site this year. Many had signed contracts for between $500,000 and $1.7 million in 2021 however, with the average unit price in the area increasing by more than 60 per cent in that time, the apartments could now fetch the developer $20 million or more extra if resold at today’s prices.
In another case, work had stopped amid a dispute between builder Tomkins and developer of the $100 million Midwater Tower at Main Beach, on the Gold Coast where buyers signed $1 million-plus contracts in 2021. The developer, Heran Group, has so far refused to rule out triggering sunset clauses on the 119 apartments, which are now potentially worth $100 million or more above the value when contracts were signed.
Also at Main Beach, developer Andrews Group invoked the sunset clause for some multi-million-dollar contracts in its Dune project. One buyer, who had signed a contract for $5.5 million, had their contract cancelled by the developer. The buyer stated their apartment had since “been back on the market from $8.5 million”.
Sunset Clauses – what are your rights as a purchaser?
Despite leaving committed buyers in the lurch, it is entirely legal for pre-sales contracts to be terminated if some projects have not been completed by the “sunset” date.
Last year legislative changes were brought in aimed at limiting the use of sunset clauses in off-the-plan contracts.
A parliamentary committee approved the passage of a new Bill in Queensland that resulted in an overhaul to the state’s body corporate legislation, The Body Corporate and Community Management and Other Legislation Amendment Bill 2023, introduced to Parliament on 24 August 2023, with the amendments taking effect on 22 November 2023. These provisions will also apply to existing contracts that were signed before 22 November 2023, which had not settled.
The Bill included a move to better protect buyers by limiting the use of sunset clauses for ‘off-the-plan’ contracts.
The new legislation provides that a seller under a sunset clause cannot automatically terminate an off-the plan-contract using a sunset clause. If a seller wishes to terminate the contract under the sunset clause (in respect of land sales), the buyer must consent in writing to the termination. Previously, a seller could have terminated an off-the-plan land sales contract automatically after the sunset date expired without consent of the buyer.
Buyers had hoped the legislation would provide greater protections when entering an off-the-plan contract, and that they will not risk unilateral termination of the contract if they still wish to proceed with the purchase at the agreed price (which is within their rights to do so).
However, whilst developers can no longer rely on controversial sunset clauses in respect of off-the-plan land sales, as it stands, pre-sales contracts on off-theplan units canbe terminated if a project has not been completed by the “sunset” date. Crucially, the recent Queensland Government changes to sunset clause laws only affect land purchases, with “reviews” to consider expanding to apartments not due for “one to two years”.
Developers in New South Wales and Victoria cannot use sunset clauses for financial gain after the states changed their legislation in recent years. Developers who want to rescind contracts on sunset clauses must have the buyer’s permission to do so.
In addition, the developers need to explain why they are seeking rescission and specify why they cannot complete the project as per the sunset clause. If the buyer disagrees with the developer’s reasons, the developer must obtain an order from the Supreme Court to rescind the contract.
It is important that both buyers and sellers understand their respective obligations and rights in respect of sunset clauses under ‘off -the-plan’ contracts, to avoid the cost of litigation.
If you are concerned that the seller has inappropriately used the sunset clause, then it is important that you seek legal advice to ensure that any deposit paid is fully refunded, and if appropriate, seeking damages for unlawful termination of a contract.
Attwood Marshall Lawyers – experts in dispute resolution
If you are involved in a dispute which has arisen because of the use of a sunset clause, you may be able to pursue your rights for losses. We have a dedicated commercial litigation team that handle property disputes and building and construction disputes. Our team is well-versed in alternative dispute resolution strategies to help anyone involved in a building dispute resolve their matter quickly and cost-effectively.
Equipped with a Law Society Dispute Resolution Accredited Specialist, our dispute resolution and litigation team have an enviable track record of assisting our clients throughout Queensland and New South Wales to achieve satisfactory resolutions without having to embark upon an expensive, lengthy, and uncertain court process.
We will assess your case immediately to be able to advise you on your prospects of success and explain what the next steps are to take. We want to reduce your risk as much as possible as we know you have already suffered enough loss and stress. It is our intent to help you find the best possible solution so that you can recoup your losses and get your life back on track.
If you need help or advice please contact our Commercial Litigation Department Manager and Senior Paralegal, Chloe Smith on 07 5536 9777, email csmith@attwoodmarshall.com.au or free call 1800 621 071 any time to find out where you stand.
