Understanding Sunset Clauses in Property Purchase Agreements

What is a Sunset Clause?

A sunset clause is a provision in a property purchase agreement. It sets a specific date by which certain conditions must be met. If these conditions are not met by the set date, either party can terminate the agreement. This clause protects both buyers and sellers in property transactions.

In most cases, sunset clauses are used in off-the-plan property sales. These are properties that are sold before they are built. The clause ensures that the development is completed within a specified timeframe.

On the other hand, the seller is also protected. If the buyer cannot complete the purchase by the sunset date, the seller can cancel the contract. This allows the seller to find another buyer.

Steps Involved in a Sunset Clause

1. Inclusion of the sunset clause in the contract.
2. Setting a specific date for the clause.
3. Monitoring the progress of the property development.
4. Exercising the clause if the conditions are not met.
5. If the buyer cannot meet the deadline, the seller can find another  buyer. This helps in maintaining the cash flow and financial planning of the seller.
   

Potential Risks

While sunset clauses offer protection, they also come with risks. Buyers may face the risk of the property market changing. If the market value of the property increases, the buyer might lose out on potential gains. Conversely, if the market value decreases, the buyer might benefit.

Sellers also face risks. If they cannot complete the property on time, they may need to refund the deposits. This can impact their cash flow and project timelines.

UPDATE:

This has now changed since the introduction of new laws came into force on 22 November 2023 and apply to all new off the plan land sales contracts and also retrospectively to all existing off the plan land sale contracts not yet settled.