Off-the-plan property comes with its own language. For buyers and newer agents, it can feel completely foreign.
But one term in particular deserves close attention, because misunderstanding it can cost a buyer years of time, a missed market, and in some cases, the property they thought they were buying.
That term is the sunset clause.
What is a sunset clause?
At its most basic, a sunset clause is a deadline written into an off-the-plan contract and it specifies the date by which a developer must complete a project.
If the project isn’t finished by that date, both parties, the buyer and the developer, have the right to walk away from the deal.
Lloyd Edge, Managing Director of Aus Property Professionals and an experienced buyer’s agent and developer, said it’s an important concept to understand.
“The sunset clause is essentially the date that the developer needs to finish the project by,” Mr Edge says.
“If they don’t finish it by that date, the buyer can rescind from the contract and get their deposit back, whether that was a 5% or 10% deposit they paid.
“And the developer, if they haven’t finished by that date, can also get out of the contract.”
On paper, it sounds fair. In practice, it’s more complicated.
When sunset clauses go wrong
In a stable or falling market, a sunset clause is largely a protective mechanism for the buyer.
If a developer runs over time or a project collapses, buyers can retrieve their deposit and move on, but in a booming market, that can shift, and not always in the buyer’s favour.
Mr Edge has seen this play out firsthand.
“One of the issues we have seen a fair bit in recent years, particularly in markets that are booming, is that developers have, what looks like to have been intentionally, extended the amount of time a development is taking, and then gotten to that sunset clause and cancelled the contracts, then resold the properties at a higher price because the market boomed.”
In other words, a developer who is no longer happy with the original sale price finds a way, through delays, to reset the deal.
The buyer gets their deposit back, but they also lose the property, often the time they spent waiting, and frequently any capital growth they might have accessed if they had bought elsewhere.
It is a scenario that has led to legislative changes in several states, including reforms in New South Wales and Victoria that restrict a developer’s ability to rescind under a sunset clause without buyer consent or court approval.
Agents working with off-the-plan buyers should be familiar with the rules in their own state.
The hidden costs
Even when a sunset clause is never triggered, off-the-plan purchases carry a risk that is easy to overlook – the opportunity cost of waiting.
“If you’ve got money tied up in an off-the-plan that may not settle for three or four years, that’s time out of the market that you could be using those funds to actually buy something else that’s already existing,” Mr Edge said.
“If you tie up a 10% deposit on a property that doesn’t end up being built anyway, then you’ve just lost a lot of time.
“Even if you get your money back, you could have bought something else in that time, and the market might have got away on you as well.”
Mr Edge believes a deposit held in a trust account for three or four years is a deposit that is not working anywhere else.
What agents and buyers should actually do?
Understanding the sunset clause is step one. Knowing how to act on that understanding is step two.
1. Read the clause carefully, and have your client ask their solicitor to do the same
The sunset date, and any conditions around it, will be written into the contract of sale.
Key things to look for include how long the sunset period is, whether there are any provisions allowing extensions, who can trigger a rescission and under what conditions, and what the buyer’s rights are if the developer initiates an exit.
2. Research the developer’s track record
Due diligence on the developer is as important as due diligence on the property itself.
“The first step is doing your homework around who’s doing it, what sort of track record they have,” Mr Edge says.
A developer who has completed similar projects on time in the past has a different risk profile from one who has not.
To protect your client, look at their previous developments; talk to other agents who have sold their stock and check for any history of disputes or unfinished projects.
The key takeaway
A sunset clause is not a red flag on its own and it is a standard feature of off-the-plan contracts; in most cases it functions exactly as intended, as a backstop that protects buyers if a development does not proceed.
But like many things in property, context matters enormously.
In a rising market, a sunset clause can become a mechanism for developers to exit deals that no longer suit them.
And regardless of market conditions, the time locked up in an off-the-plan purchase is time that is not being used elsewhere.
For newer agents working with buyers in the off-the-plan space, the sunset clause is one of those details that separates informed advice from a transaction.
Understand it, explain it clearly, and make sure a good solicitor reviews it before anyone signs.