Buyers Advised To Insist Sunset Clauses Be Removed

The so-called ‘Sunset Clause’ used by some developers to cancel off-plan property contracts and refund deposits should be removed from the sales contract. Any developer insisting on its use should raise alarm bells, says a financial and real estate business owner.

CEO of financial advisory firm The Advice Hub and owner of a Harcourts Franchise in Auckland, Dylan Mann says the ‘Sunset Clause’ is supposed to protect the interests of the buyer, not developers.

"If you are buying off-plan and the contract includes a Sunset Clause favouring the developer, you should insist it is removed. If the developer won't remove the clause, run a mile.

"A good lawyer, who is experienced in handling off-plan property purchases, will cross it out. The real estate agent should not allow a Sunset Clause favouring the developer to proceed."

Mann says that while the odd developer may be hoping to cash in because property prices will have increased since the contract was first signed, this is not standard practice and should be considered unethical.

"Most developers have every intention of finishing on time. They have costed their development and are acting in good faith.”

Covid-19 disruption to the building industry has, however, put pressure on prices and availability issues with building supplies are delaying projects. Although this could tempt more developers to invoke their Sunset Clause as a possible short term fix, it could ruin the developers reputation within New Zealand.

"We removed the Sunset Clause in the sales agreement for one of our buyers with the developer’s consent. After delays in completing the project, that developer did attempt to invoke the Sunset Clause, but was unsuccessful with our client. The client told them to carry on building because they do not mind waiting."

He offers the following advice on how to safely buy off-plan:

1. Buy from reputable developers

His company policy is to research developers and he recommends all buyers do the same.

"What is the developer’s track record? How good is the quality of their work? Have their properties sold for more once completed? A higher price for the completed property versus off-plan is an indicator of quality."

2. Use experienced off-plan solicitors

"Not every solicitor is experienced at working with off-plan contracts, which means they may not realise that a Sunset Clause favouring the developer is highly unusual and should not be allowed to go through."

3. Delete the Sunset Clause

The Sunset Clause is meant to allow only the buyer to exit the contract in the event of unacceptable delays. It is not, and should not, be used to allow developers to escape their obligations.

"Cross it out. If the developer objects, don't buy."

The best outcomes are achieved when buying off-plan, if all the professionals are working together.

"Make good use of your financial adviser, real estate agent, solicitor and accountant when making big financial decisions."

For more information https://www.theadvicehub.co.nz/services-investing

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