Sunset Clauses in Housing Developments

techlead on 13/04/2023 - 14:49
Last edited 13/04/2023 - 15:04

Not sure if this is the right category for this topic, if not happy for this to be moved.

Just read this heartbreaking story about a developer activating a sunset clause to break a development contract and then on-selling the property to another person at a huge mark up.

Link to article: https://www.news.com.au/finance/real-estate/buying/qld-coupl…

TLDR: Guy entered into a development contract in 2021 for a townhouse in Brisbane for $645,900. Developer activates the sunset clause in 2023 breaking that contract then sells it to another person for $899,000.

Isn't a sunset clause supposed to protect the buyer? It seems to me that developers are just going to use the original deposits as cash flow to develop, then as the market moves up, they just drag their feet to activate the sunset clause and sell at a much higher profit.

Shouldn't there be penalties involved because technically it is the developer who hasn't fulfilled their end of the contract, so why are they rewarded? Possible solutions could be, the developer cannot get more than the original price for the property, so if they activate the sunset clause, any cream on top goes to the original buyer, not the developer.

How is this allowed? Just seems very very unfair to me.

I'm fortunate enough to never have to deal with this, I have the means to buy existing established houses and I will stick to that. Never going to touch off the plan townhouses, units, apartments etc, those things seem to be more trouble than they are worth. I may buy an existing old house and then do a knock down rebuild, which comes with its own set of risks, but at least I wouldn't be kicked off my own land.

Financial

Comments

  • Donaldhump on 13/04/2023 - 15:00
    +5

    this isn't news

    • techlead on 13/04/2023 - 15:03
      +1

      I never said its news, I'm sure this is an old trick.

      I just think its interesting to share and discuss. I think it is extremely unfair and I feel sorry for all those who need to interact with this part of the legal system.

      • thatonethere on 13/04/2023 - 15:36

        Very old trick, in 2002 I bought a townhouse off the plan and had to suck up some minor deficiencies as the conveyancer lawyer said "sure you could walk away but they will just resell it for $100k more now".

  • CyberMurning on 13/04/2023 - 15:02

    yes i dont get why gov. allow that stupid clause.
    so its to protect the developer then. full stop.

    because they give big donations to the politician so this is what they get in return.
    buyer? we get told to pay tax and shut up.

  • Crow K on 13/04/2023 - 15:08

    Isn't a sunset clause supposed to protect the buyer?

    It's a time limit that allows either party to terminate the contract when the time is reached (depending on the wording of the actual clause itself).

    The time was reached, the contract was terminated. The contract did exactly the thing it said it was going to, the thing that both parties agreed upon.

    The "$250k loss" is basically fictional ("we reckon it would be worth that much more now, not that we actually paid for the property itself. We did put a 10% deposit down (which we probably got back depending on the contract), but imagine if we'd paid the full amount by the due date and then listed it at this higher place and then sold it, boom, $250K instant profit and all it would have taken was us actually buying the house like we agreed and then also finding a seller at the same time. Doing all these things are really trivial and yet for some reason we didn't and now it's everyone else's fault").

    If you read the article it emerges that the would-be buyer was trying to make the sunset clause land sooner rather than later too, which runs exactly contrary to the "wait they suddenly ended the contract" narrative the story requires.

    • techlead on 13/04/2023 - 15:20

      The couple did suffer loss because the market has moved, they can't buy in the same area with the same money anymore.

      If you read the article it emerges that the would-be buyer was trying to make the sunset clause land sooner rather than later too, which runs exactly contrary to the "wait they suddenly ended the contract" narrative the story requires.

      Yea, not sure what that's about. Still seems pretty unfair.

      • Crow K on 13/04/2023 - 15:33
        -1

        The couple did suffer loss because the market has moved, they can't buy in the same area with the same money anymore.

        They could mount a civil case for that loss, of course. But if the newspaper article is representative of the facts (hmmmmm, news.com.au) then you've got someone who paid the absolute minimum for a house (10% deposit), didn't put any more funds in, and now is saying they 'just' lost out on $250K profit because they were "totally willing to 1. settle and buy it 2. had a prospective buyer already lined up but then we didn't for some reason your Honour"

        If they can convince a judge of that, sure, there's their W. I don't see that in this article. It seems to be "wait what did I sign" contract regret.

        Re: "not sure what that's about", the buyer has been revealed as attempting to make it sooner/faster/easier for the contract to end. Ask yourself if those are the actions of someone truthful who 1. didn't want the contract to end 2. was ready to pay the contract out in full 3. understand what the contract actually did.

        • djkelly69 on 13/04/2023 - 16:11

          They could mount a civil case for that loss, of course.

          No they can't, the contract has been validly rescinded.

          • Crow K on 13/04/2023 - 16:44
            -1

            @djkelly69: Doesn't prevent them mounting a case (a case I hasten to add that I think is doomed to fail for the reasons I outlined that it's apparent they weren't actually ready to settle and make the profit anyway).

            Get a lawyer, slap a suit on and insist the sunset clause renegotiation was in bad faith / had some deception in there and you're off to the races.

            This is all semantics, anyway. The reality is the buyer clearly didn't understand the nature of the deal they were making and is upset, but that's not anyone else's fault.

            • djkelly69 on 13/04/2023 - 17:09

              @Crow K:

              Doesn't prevent them mounting a case

              It really does. This is not the movies, you can't base a case on the vibe.

              • Crow K on 13/04/2023 - 17:11

                @djkelly69: Pop the spectacles on and have a very careful legal-eagle read of my second paragraph.

                Hint: are you in a position to confirm all the details whereby they changed the sunset clause before later relying on it?

                • djkelly69 on 13/04/2023 - 17:19
                  -1

                  @Crow K: Obviously I am relying on what is written in the article.

                  It suggests the parties agreed to amend the sunset date in the contract prior to entering into the contract. The seller then relied on the terms of the contract, and rescinded it.

                  • Crow K on 13/04/2023 - 17:24
                    -1

                    @djkelly69: Yup, cool, you're caught up.

                    So: please show me proof that the party definitely didn't make misrepresentations/bad faith/false statements that were relied on when negotiating that change to the contract terms.

                    In the absence of that: yes I agree, there's a possibility there's problems with the contract that might be able to be investigated further in a civil suit, like I said several posts back, you're welcome.

                    • djkelly69 on 13/04/2023 - 17:33
                      -1

                      @Crow K:

                      please show me proof that the party definitely didn't make misrepresentations/bad faith/false statements that were relied on when negotiating that change to the contract terms.

                      Proof of what by which party?

                      The contract likely initially said the sunset was something like 30 June 2023. Buyer's solicitor requests it be amended to 30 June 2022. Seller's solicitor says no, but we will agree to amend to 31 December 2022. Parties agree to exchange.

                      There are no statements or representations being made there, it is just negotiating a date.

                      • Crow K on 13/04/2023 - 17:38

                        @djkelly69: oh cool let me write some fanfiction too

                        buyer: hey i'm nervous about dodgy builders and sunset clauses, can we make it 30 june 2022?
                        seller: sorry man my uh insurance won't let me make it that soon but i tell you what make it 31 dec 2022. don't worry, i'm not going to use it and i promise i'd contact you first to discuss it before even considering it.
                        buyer: no worries, you know i'm printing this email off for my records, yeah?
                        seller: that's fine, as long as djkelly69 doesn't see it, i want them to make a fool of themselves by insisting "of course" nothing actionable could have happened outside of the contract itself.
                        buyer: imagine insisting something as commonplace as that couldn't happen.
                        seller: haha yeah ok dinners ready bye m8
                        buyer: byeeeeeeee

                        • djkelly69 on 13/04/2023 - 17:43

                          @Crow K: Cool story bro.

                          Can you also explain why would a buyer who is nervous about dodgy builders rescinding under sunset clauses want to make the date even earlier than it was originally in the contract?

                          Also wouldn't the standard 'whole of agreement' clause which is in basically every off-the-plan contract ever written prevent the buyer from trying to rely on representations made by the seller which are not contained in the contract?

                          • Crow K on 13/04/2023 - 17:52
                            -2

                            @djkelly69: i actually don't need to explain the motivation for the discussion, because i've already proven my point (skip to last paragraph), but if you feel like i need to flesh out the narrative more to get hollywood involved…

                            buyer: hey darl, i heard in the pub that if a contract house takes longer than 18 months to finish it becomes twice as likely that the builder goes under, i reckon i'll ask them in an email to have a shorter sunset clause date of 30 june 2022 as a safeguard
                            buyer's wife: good idea honey, make sure to phrase it in a way that's slightly amusing when recounted on a bargain website
                            buyer: let's not get carried away here
                            seller: are you ready for me to make representations to you outside of the contract yet?
                            buyer: wait for your cue buddy i haven't even fired up the chat/email program that somehow documents all this yet
                            seller: cmon man i got one of those mac and cheese things in the oven it'll be ready in ten minutes
                            buyer: alright let's go i guess but if they make this i want to be played by a CGI representation of Zach Braff

                            (end of act i)

                            you're trying to prove it's impossible to sue them in civil court because "the contract".
                            BUT you also need to maintain there's no course of action for any representations made about the contract that aren't explicitly written into "the contract".
                            AND we know that's not true. people get pinged all the time for being deceptive or misleading when negotiating things. there's thousands of court cases on it. i don't know if it's lack of attention to detail or general ignorance that has lead you to not know of this concept, but you were wrong then and you are still wrong now.

                            • Typical16-bitEnjoyer on 13/04/2023 - 18:45
                              +3

                              @Crow K: YAWNS LOUDLY

                              Change the channel Marge!

                              • Crow K on 14/04/2023 - 09:11

                                @Typical16-bitEnjoyer: Crow: ChatGPT, someone on a chat forum implied my writing was boring and/or unfunny.

                                ChatGPT: It probably is, to them. Comedy is a broad spectrum, and it's fine for people to disagree on what's entertaining.

                                Crow: Yeah, that's what I thought. Thanks ChatGPT. It just.. felt weird seeing someone with a Nicolas Cage avatar say-

                                ChatGPT: Someone with a NICOLAS CAGE avatar was criticising your ORIGINALITY?

                                Crow: Well, I-

                                ChatGPT: YOU SEND THEM A LINK TO 'THE ROOM' AND 'BLUE HARVEST' ON DVD AS AN APOLOGY AND ASK THEM HOW THEY AVOID BEING HIT BY CARS GIVEN THEY SPEND SO MUCH TIME IN THE MIDDLE OF THE ROAD

                                Crow: Wh-whats 'blue harvest'?

                                ChatGPT: Blue Harvest is a DVD of Family Guy characters making Star Wars jokes.

                                Crow: STOP MAKING STUFF UP

                                ChatGPT: IT'S REAL

  • MrMarket on 13/04/2023 - 15:09
    +2

    This is just a loop hole exploit by the developers, this often happened in a rising market

    a whole bunch of people got shafted in the ACT about 2 years ago with the same thing and ACT government a couple months later shut down the loop hole
    they now have to go court and ask for the clause to be activated and Judge can reject it if it doesn't stack up, and booms no more of this stunt

    some states already closed it only won't be long before QLD government stepped up and followed other states

    • djkelly69 on 13/04/2023 - 15:26

      and booms no more of this stunt

      I have been told the same developer who the law was basically brought in because of is also the first developer to be testing out the new law.

  • Seraphin7 on 13/04/2023 - 15:14

    There's something in that article that doesn't quite add up.

    From the article …

    But Cannonview Development’s lawyers said Mr Fung had originally requested the sunset clause date be reduced to 30 June 2022, however the parties came to a compromise by setting it for 31 December 2022.

    It seems as though at one stage the purchaser was looking to have the sunset date earlier than that wanted by the developer. Why was this? Surely having this date earlier would provide the purchaser with the benefit of walking away earlier, while accepting the risk that the developer could terminate earlier?

    • KaTst3R on 13/04/2023 - 15:30

      This part doesnt make sense. Who would bring forward the sunset clause with the intention of settling. It is like saying, i want my contract to terminate asap. The only reason I can think of is that the buyers thought house prices are going to collapse so they are worried they overpaid.

      • Typical16-bitEnjoyer on 13/04/2023 - 18:47
        +2

        It makes perfect sense. The buyer thought negotiating an early date might mean the builder starts the build quicker. They thought wrong.

        • KaTst3R on 13/04/2023 - 19:36
          +1

          I get it now. Basically trying to pressure the builder into a quicker completion. The plan kinda backfired.

  • CyberMurning on 13/04/2023 - 15:24

    But Cannonview Development’s lawyers told news.com.au that its client was not aware of the property being re-marketed before 6 March this year.
    “It is common knowledge that the building industry is in crisis because of supply chain disruptions, skilled labour shortages and skyrocketing costs of materials,” they said. “Accordingly, any change in price reflects the increasing costs that our client is currently being challenged by.”

    so, should it be called risk of doing business ? or this industry of making house is basically risk-free? if cost increase, just cancel contract sell higher. if too much, just declare bankrupt (and next year setup new company, phoenix style).

  • orangetrain on 13/04/2023 - 15:35
    +1

    Investors are idiots for signing with that clause. Houses always go up.

    Sunset clauses are a way for developers to make mad money from idiots with zero risk.

    • JIMB0 on 13/04/2023 - 16:57
      +2

      It's basically the developer getting a free put option. No matter what happens they can always sell it to the contracted purchaser or to the general market if prices are higher. As a bonus they get to hold onto a deposit as a type of interest free loan.

    • djkelly69 on 13/04/2023 - 18:54
      +1

      Good luck getting an off-the-plan contract without a sunset clause in it.

  • AustriaBargain on 13/04/2023 - 15:40

    If you found out it was going to be worth 150k less then you'd activate the clause too. The developer didn't do anything that you wouldn't have done yourself, protecting themselves from losing a potential easy 150k.

    • norrisrules on 13/04/2023 - 16:24
      +4

      The only difference is you can't drag your feet for 6/12/18 months in order to reach that point, whereas the developer has all the power to control the timeframe. House prices tanking? You can bet the developer would be going hell for leather to get the house completed and settle before the sunset clause. House prices rising? All of a sudden there is a slew of 'unforseen delays'

      • AustriaBargain on 13/04/2023 - 16:58

        Well yeah you spread yourself thin if prices are high, make clients wait years if that's what it takes. No one is pretending that the housing market in Australia isn't anything except motivated by greed. I guess houses have an unfair association with being nice things, safety, comfort, etc.

        • techlead on 16/04/2023 - 21:40

          That's where the unfairness comes in. The buyer cannot control the timing, while the developer has the power to control it as they see fit according to market conditions. Market rising? Drag your feet, oh look at that sunset clause, activate it and get some nice mark to market profits.

          • AustriaBargain on 16/04/2023 - 21:46

            @techlead: Well yeah, this is Australia, so you know they are all colluding to make the most money possible.

  • Austin 316 on 13/04/2023 - 15:58

    Isn't this banned in VIC now? I remember it was in news a couple of years ago in VIC too.

    • denserham on 16/04/2023 - 22:52
      +1

      Yes

      "The Victorian Government has passed new laws that will remove the ability of developers to use sunset clauses to intentionally delay building projects and exploit buyers.

      Under the Sale of Land Amendment Act 2019 (the Act), developers will only be able to exercise a sunset clause with written consent from the buyer, or permission of the Supreme Court of Victoria. "

      Which means if they put a sunset clause into the contract the buyer would have a far easier time canceling the contract vs the seller.

  • brendanm on 13/04/2023 - 16:13

    News.com.au heartbreaking story.

    "Property developers are making hundreds of thousands with this one simple trick"

  • Typical16-bitEnjoyer on 13/04/2023 - 18:49
    +1

    Plenty of "heartbreaking" stories of buyers rescinding validly during 2020 and 2021 too. Did you cry for the builders then?

    • techlead on 13/04/2023 - 22:21
      +1

      True, works both ways. Its pretty good that this is difficult in NSW.

  • humilem servum tuum on 13/04/2023 - 21:03
    +1

    Let's say it for what it is:
    Activating the sunset clause to then sell at marked up prices reeks of scummy. Just because you can legally do it doesn't mean you have to. REIQ is scummy for allowing it. QLD government is scummy for not acting quickly enough on it. Shame shame. Legislation is sorely needed to protect purchasers. The current power balance is too heavily skewed towards the sellers.

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