Understanding the Sunset Clause in Property Contracts

Written by Benjamin Noble, Senior Associate and Ruby Natoli, Conveyancing Manager

In residential property or off-the-plan contracts, a ‘sunset clause’ is a term that sets a deadline by which conditions must be met, otherwise, the contract can be terminated.

These are the two most common scenarios where a sunset clause is included;

1. In off-the-plan transactions, a sunset clause specifies the deadline which requires the Seller to meet registration/construction obligations by that set date. For example, the Seller must complete construction of the dwelling, or the Seller must achieve registration of the land (by creating its own unique title), and failing to do so by the sunset date, allows either party to terminate the contract, and the deposit is refunded to the Buyer.
2. In residential property contracts, a sunset clause may also be used to allow the Seller to continue marketing the property and accept other offers, despite already signing a contract.  The sunset clause comes into effect when the Seller receives another offer on the property, and enacts the sunset clause by giving notice to the Buyer.  The Buyer must then either make the contract unconditional by the sunset date, or the Seller has the right to terminate.

Key Takeaways

• A Sunset Clause can be found in off-the-plan or residential contracts.
• A Sunset Clause is particularly important in off-the-plan purchases. It allows buyers to withdraw without penalty if projects are not completed within the allocated timeframe.
• Recent legislative changes limit the ability of Sellers to use sunset clauses in off-the-plan land sales.
• There is a lot of variation in the way a sunset clause can be drafted, and it can have a significant impact on both the Buyer’s and the Seller’s rights and obligations.
• Always seek legal advice before signing a contract.

Off-the-Plan Purchases

A sunset clause is usually compulsory for off-the-plan contracts. This type of contract must have a deadline for construction or registration, or otherwise, the contract could proceed indefinitely (ie. if construction or registration is never able to be achieved). Having no sunset date could cause significant confusion and uncertainty. It could also void the contract under the ad infinitum (“proceeding forever”) principle. The sunset date is therefore critical as it allows a Buyer to terminate the contract upon expiration of the Sunset Date and recover their deposit.

Legislative Time Limits on Sunset Clauses

There are legislative time limits imposed on sunset clauses that are designed to protect a Buyer from developers ‘dragging their feet’ in order to get out of a contract on a technicality (ie, if the property value changed during the contract period).

In Queensland, an off-the-plan purchase of a Community Titles Scheme (CTS) property (e.g., an apartment, unit, or townhouse) can have a maximum sunset clause period of five and a half years. Although the particulars of sunset clauses found in off-the-plan sales vary between developments,  it is far more common to see a period of three years. The contract may give the Seller the right to delay the sunset date (provided it does not exceed the maximum legislative time frames), so it is important to keep an eye out for any extension of the sunset date provisions.

For off-the-plan vacant land sales, the maximum sunset period is eighteen months.

New laws introduced in late 2023 limit the use of sunset clauses in off-the-plan purchases. These laws follow the rapid rise of property prices in the post-COVID era, when developers used sunset clauses to cancel contracts and resell the property for a higher price.

These new laws only apply to off-the-plan vacant land sales and do not include Community Title Schemes (apartments or units), or subdivisions under five lots.

Under the new laws, a Seller can no longer automatically terminate the contract of sale once the sunset date has passed. This can only be done with;

1) written consent of the buyer of the land, or

2) an order of the Supreme Court, or

3) in another situation prescribed by regulation.

As we’ve mentioned, there can be a lot of variation between contracts for the sale of off-the-plan properties. We strongly recommend obtaining legal advice before you sign an off-the-plan contract, as they tend to be longer and more complex than private sale contracts, and Buyers must be well informed of their rights and obligations before signing.

Established Properties

Sunset provisions can apply to purchasing established properties. A typical sunset clause in a residential sale allows the Seller to continue marketing the property after they have entered into a contract with a Buyer. If the Seller receives a better offer before the sunset date, they may call on the Buyer to either make the contract unconditional, or the Seller may cancel the contract of sale. This provision is commonly found in contracts that have a long conditional period (the time in a contract before it goes unconditional) ie where the Buyer has a right to obtain a contract and/or settle their own sale property with the contract (“prior sale condition”).

It’s important to note that ‘better offer’ does not have to mean ‘higher price’ – it is up to the Seller’s discretion as to what constitutes a better offer (ie, less or no conditions or a shorter settlement timeframe etc.)  

A sunset clause will also typically stipulate a two or three-business-day notice period. By the end of the notice period, the Buyer must decide whether to make the contract unconditional or allow the Seller to terminate the contract. The implications of going unconditional can be significant for Buyers where, for instance, they still have not secured finance, completed their due diligence investigations, or are dependent on selling their own property to purchase.

Again, we recommend you obtain legal advice before signing any contract to protect your interests.

More Questions?

If you have more questions about sunset clauses, our friendly, experienced team of conveyancers would be happy to assist.

Contact us, or head over to our quote form to have a custom quote emailed to you.

The above is not legal advice and is general information only.

About the authors

Benjamin is a Senior Associate and Supervising Solicitor, bringing over seven years of post-admission experience in property law. Since joining Keylaw in 2021, he has been a reliable and knowledgeable leader, offering a wealth of expertise in a variety of property transactions. Benjamin is passionate about assisting his colleagues with their property knowledge, mentoring emerging professionals, and delivering seamless, client-focused solutions.

Ruby is in her final year of a Bachelor of Laws/Bachelor of Business dual degree at the University of the Sunshine Coast. Ruby joined Keylaw in 2021 and has gained extensive experience in property transactions, client relations, and legal compliance. Ruby is passionate about expanding her expertise in the legal field as she completes her studies. In her spare time,  Ruby enjoys socialising, watching sports and taking her dog Lulu for walks in the park.