What Are Sunset Dates?

Ensuring Corporate Documents' Enforceability - What to Know


Article by Peter Lee, Property Law Accredited Specialist  

There has been plenty of public debate lately about sunset dates and the termination of contracts. Mainly these focus on the plight of buyers who signed a contract years ago at what was then market prices, which price has now turned out to be a bargain for those buyers. The narrative generally continues that the evil property developer with glistening green eyes is now gazumping buyers in droves so that they can seize the windfall profit from the sale of these properties.

I think it’s important to look at this rationally and put things in perspective. 

In large part, I see these problems as a failing of Government arising in two primary areas:

1. There is a statutory mandate that all real estate contracts must have a sunset date:

  • for broadacre real estate this is limited to 18 months from the date of the contract under the Land Sales Act; and

  • for off-the-plan strata title purchases the longest period permitted is 5 and a half years, but in the absence of a specific date the default date is 3.5 years.

These timeframes are far too short in view of the Government’s inability to stop rogue elements interfering with the delivery of new product arising through delays and protests, holding up land clearing and/or subdivision and/or building works. This is quite apart from the standard delays in council, appeals against approvals or “LAWFARE” conducted by organised and well funded environmental groups against developers of all sorts.

There is no surprise that a large number of these projects simply cannot get across the line within the time mandated by the Government. Why then are the developers being criticised for this failing of the Government?

It is no surprise then that many of these contracts will approach or indeed pass the mandated sunset dates.

In my experience, all of my developer clients adopt the longest sunset date they’re allowed under the law and indeed most banks will insist on this. Neither the developer nor the bank want to see the project 90% completed and find that the buyers can exit the contract just before completion leaving insufficient funds to repay the bank and all the development costs

2. Increasing Costs

It will come as no surprise that the costs of delivering these broadacre land subdivisions and apartment developments have increased dramatically, and in many cases doubled over the cost which was originally anticipated. Many of my developer clients find themselves completing projects simply to meet their contractual obligations to their valued buyer clients, even though the anticipated profit has simply evaporated through cost escalation over the past couple of years.

Every developer knows that time is money. If they can’t deliver the project within the specified sunset date, it is extremely likely that the costs of delivering the project will be substantially more than initially anticipated. They must have an opportunity to exit an overly burdensome arrangement where the anticipated project timeframe and consequently, anticipated development delivery costs no longer match that which the parties intended at the time of making the contract.

Apart from these statutory dictated sunset dates, many contracts do contain sunset dates because the parties agree at the commencement what is a reasonable time for them both to be bound to that agreement. It is common sense to provide in any contract that if the thing contracted can’t be done or delivered within a specified time i.e. 3 or 4 or 5 years, then either party should be able to walk away. This is not unreasonable.  

I often advise my buyer clients in off-the-plan contracts that they are committing to one or two million dollars and won’t know for 3 or 4 years whether their project is going to come out of the ground. Those buyers are precluded from buying anything else in the interim, and if there wasn’t a sunset date they could be bound forever? Obviously there has to be a sunset date and it’s only fair that both the buyer and the seller have the opportunity to rely on that date.

As it turns out, in recent times land prices have gone up so there is a windfall gain for someone. However, almost invariably at the commencement stage of these projects it’s the downside that is the biggest worry to everybody including the developer, the bank and the buyer. They all work together to lock in a fixed price agreement that enables the developer to deliver the project in a reasonable time at a reasonable cost with a reasonable profit margin and for the bank to be repaid. Without this certainty there simply won’t be any developers and there certainly won’t be any banks providing funding for development work.

So, to all those who say that there should be no sunset dates or that buyers can unilaterally decide whether they can be relied upon, “be careful what you wish for, it might just come true”. If that rules out more developers and more construction financiers that will mean less housing for all, higher costs, higher rentals and more disappointed first home buyers.

To book an appointment with our property team, please call (07) 3161 9555 or email info@glglegal.com.au.


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