Off-the-plan contracts contain within them a Sunset Clause, a mechanism allowing the contract to be terminated if the development is not finalised within an agreed time frame or if the promised property cannot be delivered to the standard agreed.
Most sunset clauses’ allow the vendor or developer to rescind the contract if the construction runs over the expected completion time. The NSW Government has stated that it would appear some developers are using the sunset clause to cancel the contract and re-sell apartments at higher prices. These clauses’ are also usually constructed in favour of the vendor/developer.
Innovation and Better Regulation Minister, Victor Dominello, and NSW Department of Land & Property have held a meeting with industry experts to outline potential methods to combat the situation.
“There is significant concern about the way sunset clauses are being used to rescind off-the-plan contracts,” Dominello said. “Purchasing a property is a life-changing decision, and we need to ensure consumers are protected against exploitative practices.”
This meeting comes at a time when multiple class actions are being brought against developers.
“This issue is being largely driven by current market conditions which have seen housing prices rise rapidly and in turn we are now seeing developers using property purchasers’ deposits to fund building works and are then intentionally slowing works in order to rescind contracts and then resell to gain greater profits,” said Estate Agents Co-operative CEO, David Crombie. “Estate Agents Co-operative commends the Minister for taking action.”
“Changes to stamp out the practice can be expected early in 2016,” said David Crombie.
