Understanding sunset clauses

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A sunset clause is a statement that refers to the maximum time in which a property developer has to finish a development project. This time frame can vary across developments, depending on the size of the property.

If the property is not finished by the nominated time or date, buyers are legally entitled to leave their contract and have their deposit fully refunded to them.

Many buyers who purchase off-the-plan properties often become concerned when they see a sunset clause included in a sale contract. However, they are simply included as a way of protecting the interests of both parties when it comes to the sale of a property.

Sunset clauses are often exaggerated time frames so they can allow for any delays the property developer may experience i.e. inclement weather or development funding delays.

Before signing a contract, is it often worth confirming with the developer that all permits for the development are obtained, as this area can extend delays if the development gets held up in the planning process.

Sunset clauses are activated when developers run over time with construction. Developers then must cancel a contract and refund the buyer’s deposit.

A risk associated with sunset clauses is the rise of the property market. If a developer does default on the sunset clause, the market and property values may have risen since the contract was signed, meaning that the deposit the buyer receives back is less than the property’s current value.

However, developers defaulting on a sunset clause is a rare occurrence. Nonetheless, it is important for buyers to conduct proper research. Making sure a developer has a good track record, is a trusted presence in the industry and has successfully completed similar developments in the past can ensure peace of mind to the buyer.

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