Off-The-Plan Sunset Clauses Need Independent Review

The Urban Development Institute of Australia (UDIA) NSW today urged the State Government to conduct an independent review into the reported misuse of sunset clauses in off-the-plan property contracts to understand how widespread the issue is.

UDIA NSW Chief Executive Stephen Albin said the government needs to establish how many incidences there have been of developers purposely rescinding contracts after the sunset clause to sell properties at a higher price, and who these operators are. Mr Albin said as far as he is aware, such behaviour is not common practice.

“Our view is if this is happening, and it’s rare that it does happen, then it needs to be stopped,” he said. “Because people act in good faith they expect the counter party to act in good faith, and we have to resolve this issue.”

Mr Albin said it is crucial that the government does not base its policy responses on anecdotal reports.

“We need an independent review into the problem before making any policy changes to understand the extent of the problem,” he said.

Mr Albin said any reform to the Conveyancing Act 1919 would need to consider implications to housing supply as it could impact on the ability to raise development finance.

“The government’s proposal to allow only purchasers the option to rescind contracts during the sunset clause could have a negative impact on a project investor’s ability to secure finance to build homes because of the increased risk,” he said.

“The market is also rising now, but if and when it dips, purchasers should not have the option to rescind a contract simply because a dwelling is worth much less than it was when they entered into it,” he said.

“Any new legislation must be measured and balanced, and before any changes, it’s vital the government establishes the scope of the issue.”

Mr Albin said it is also important that reputable developers who deliver a project beyond the sunset clause because of reasons beyond their control – such as delays getting applications through councils or financing issues – do not get penalised.

To understand the extent of the problem the Minister of Innovation and Better Regulation Victor Dominello has announced a public consultation on the use of sunset clauses.

"There is growing concern about the way sunset clauses are being used to rescind off the plan contracts,” Mr Dominello said.

“With buying off the plan becoming more and more common, particularly for new strata schemes, this is something we need to look at closely.

“Purchasing a property is a life-changing decision and we need to ensure consumers are protected against exploitative practices,” Mr Dominello said.