Sunset Clauses – Can a developer back out of a contract?
According to recent reports, Star Entertainment is seeking a 12.5% price increase to complete the sale of its apartments in the new tower development at the Brisbane casino precinct, Queen’s Wharf.
The increase has been blamed on a lethal combination of rising building costs and crippling time constraints. Failing buyers’ agreement to that request, it is open to Star Entertainment to terminate the contracts under the “sunset clause” contained in its sales contracts.
Should the developer seek to impose such hefty price increases, that would undoubtedly come as a rather nasty surprise to an unsuspecting buyer. Moreover, it may come in company with the invocation of “sunset” provisions tucked away in the fine print of sale contracts. In that case, the buyer is left to decide whether they will accept such a price increase or walk away from their investment. In some cases they may have entered into their contract quite some years ago.
But the Queensland Government has recently moved to eradicate the prospect of such costly shocks for purchasers of vacant land. In November 2023, the Land Sales Act 1984 (Qld) was amended to bring Queensland into line with existing New South Wales legislation on sunset clauses relating to vacant land. Under the amendments, a sunset clause for vacant land purchases may now only be exercised by a seller to terminate an off-the-plan land sale contract (a) with the written consent of the buyer, (b) pursuant to an order of the Supreme Court, or (c) in certain specific circumstances prescribed by regulation.
To terminate with the consent of the buyer, a seller has to issue a ‘sunset clause notice’ at least 28 days prior to the sunset date in the contract, and the notice has to include, among other things, the seller’s reasons for terminating. In response, the buyer must act reasonably in considering whether to grant or withhold their consent. If they fail to respond to the notice, consent is deemed to have been given.
If the buyer refuses to consent to termination, the seller may seek to apply to the Supreme Court for an order permitting them to terminate the contract under the sunset clause. In such circumstances, the Court will assess whether the proposed termination is just and equitable, all things being considered, including the impact on both parties, the land’s value, and the seller’s efforts to complete the settlement on time.
But these changes apply only to vacant land. They do not extend to any other real estate developments, including apartment blocks and townhouses within community title schemes, which of course leaves a big gap in buyer protection for “off-the-plan” projects.
So, not surprisingly, there have been plenty of calls for change from prospective buyers keen to ensure some certainty to allow them to safely invest in burgeoning projects. Such calls have led some major developers to actively scrap sunset clauses from their sales contracts. The Drew Group has reportedly already done so for sales in their proposed $415m ‘Lagoon’ project in Main Beach.
Queensland law still stipulates that there is a “sunset” term in all “off-the-plan” contracts, which may not exceed 5½ years, irrespective of the terms of any “off-the-plan” sale contract.
But there are lingering concerns that the ever-increasing cost of construction and financing will render many projects completely unviable, leaving buyers saddled with substandard product, or a builder facing financial ruin.
On the Gold Coast, where demand for beachfront apartment living continues to grow, particularly among interstate buyers, the need for stronger buyer protections is particularly critical. The Property Council of Australia has indicated that a significant number of the city’s projects are at risk of being withdrawn or delayed due to the prospect of unpredictable and potentially devastating cost blowouts.
With housing affordability set to be a key issue in the looming Federal election, the topic of further prospective changes around “off-the-plan” real estate sales is sure to be front and centre of the debate.
