In recent years, Queensland has witnessed a surge in housing prices, driven not only by economic factors but also by the impact of COVID-19. The pandemic has sparked significant interest in off-the-plan (OTP) developments, with record low interest rates and government incentives giving rise to property buyers looking to move in on the Southeast Queensland property market.
While the allure of securing a brand new property off the plan is strong, it comes with inherent risks that both buyers and developers in Queensland should be aware of.
The current building landscape in Queensland has experienced an unprecedented increase in construction costs over the past year, potentially leading to developments coming to a standstill unless the contracted buyers agree to a contract variation that was already signed pre-COVID-19.
Before understanding what exactly a sunset clause is, our property lawyers first examine the situation which give rise to the inclusion of sunset clause in an off-the-plan property contract.
What is an Off-The-Plan (OTP) Property Contract?
When you enter into an “off the plan” contract you are effectively entering into a contract with the developer before the construction of the building is complete, typically, constructions have not even begun. The title of the unit would also be unregistered meaning that the developer cannot legally transfer the property to you.
What is a Sunset Clause?
Sunset clauses, commonly included in contracts for off-the-plan developments, specify a timeframe for the developer to obtain all necessary approvals from local government, obtain all certifications for the occupation of the property (“the approvals”) and complete construction. While these timeframes are generally lengthy, allowing ample time for development, they permit either party to rescind the contract if the approvals are not obtained and construction is not completed within the stipulated period.
The clause is designed to protect buyers from uncertainty by giving them a defined timeframe for project completion.
The Land Sales Act 1984 (Qld) provides the maximum timeframe for sunset clause provisions to be capped at 18 months for vacant land sales.
The Body Corporate Community Management Act 1997 (QLD) allows the contract to specify the maximum timeframe for sunset clauses to be capped at 5½ years for all other off-the-plan developments. If the contract does not specify a period, then the maximum timeframe is 3½ years.
In practice, this mean that off-the-plan development purchasers can wait up to 18 months for their vacant land purchase and 5½ years after signing the contract to be handed access (or keys) to their property.
Risks Associated with Sunset Clauses
With soaring property prices in Queensland, there’s an incentive for developers to intentionally delay projects to take advantage of the contracts’ sunset clause. By rescinding the contract, developers can relist the property at a higher market price.
The Supreme Court of New South Wales case, Silver Star Fashions Pty Ltd v Dal Broi [2018] NSWSC 1445, exemplifies this issue. The developers attempted to scare purchasers into rescinding their contracts so they can resell the properties, aiming to gain a substantial market price increase. The Court dismissed the attempt, emphasising unjust and inequitable actions.
Legal Changes to Sunset Clause from 22 November 2023
Effective 22 November 2023, to safeguard the exploitation of sunset clauses, the Queensland Government passed laws to strengthen protections when signing off-the-plan contracts for vacant land sales.
From 22 November 2023, off-the-plan contracts for vacant land sales can only be terminated using the sunset clause by the sellers:
- with the written consent of the buyer
- pursuant to an order of the Supreme Court, or
- in certain specific situations prescribed by regulation.
However, the changes do not include off-the-plan contracts governed by the Body Corporate Community Management Act 1997 (QLD) .
Looking to Purchase or Sell an Off-The-Plan Development?
📞 Contact HTW Legal Group today. HTW Legal stands as the top choice for property law enquiries in Queensland. Whether you are a buyer or a developer, our team ensures fair and equitable resolutions tailored to your specific needs.
