Sunset Clauses Simplified: What is a Sunset Clause and When is it Used?

When you’re looking for a home to buy - especially if it’s a property that’s being built from scratch or you’re purchasing before construction is completed - you may come across the term “sunset clause”.

It sounds a bit confusing, but this is actually a straightforward concept that’s important for both buyers and sellers. 
To help you understand what’s involved with a sunset clause, let’s break it down into simple terms and see why it matters when buying a home.

What is a sunset clause?

In property contracts, a sunset clause is a bit like a timer, as it’s a condition that stipulates that construction must be finished by a certain date. 

If this doesn’t happen, the agreement can be called off without you losing your deposit. As you can imagine, this is particularly important for homes that haven’t been built yet,

Why are sunset clauses important?

Sunset clauses are beneficial for:

• Buyers: A sunset clause acts like a safety net. If your new home isn't ready on time, you're not stuck waiting forever - you can simply choose to get your deposit back and look elsewhere.

• Builders: The inclusion of a sunset clause gives builders a deadline to work towards, but also some flexibility if things get delayed for reasons beyond their control.

When are sunset clauses used?

You'll mainly find sunset clauses in contracts for homes that are being built or developed, such as new apartment buildings, townhouses, and new houses in developing areas.

Sunset clauses are used in these instances because:

• The construction process can take longer than expected for many reasons, including adverse weather conditions, delays in getting materials, or administrative hold-ups.

• They give buyers some peace of mind that their money isn't tied up in a project that might not be completed.

• Both sides know what to expect and can plan accordingly.

Pros and cons of sunset clauses

Sunset clauses can offer multiple benefits to both buyers and developers, but there are also a few things to watch out for.

Here are some of the advantages and disadvantages of sunset clauses to be aware of:

Pros of a sunset clause:

• It offers a way out if construction takes too long or is called off entirely.

• It provides an incentive for builders to stick to the agreed timeline.

• It can help solve disagreements if the project is delayed.

Cons of a sunset clause:

• The details of sunset clauses can vary significantly, so it can sometimes be tricky to understand exactly what you’re agreeing to.

• In some cases, builders may purposefully delay a project in order to cancel the deal and sell the property for a higher price later.

Sunset clauses: Know your rights

Understanding the sunset clause in your contract can make you feel more secure when buying a property. 

After all, it's there to protect your investment and make sure you're not left hanging if things don't go as planned. 

Here are some tips to stay informed when it comes to your contract terms:

1. Be sure to read the contract multiple times and go over every clause and condition.
2. Don’t hesitate to contact a legal professional if anything is unclear.
3. Research how long similar projects take to finish, so you know what’s reasonable.

Buying a home is an exciting adventure, but there are plenty of tricky obstacles to overcome along the way. By understanding what is meant by terms such as ‘sunset clauses’, you’ll be more prepared to make informed decisions along your property-buying journey.

Remember, when it comes to finding a new home, a little knowledge can save you a lot of headaches later on.

Keen to learn more about the home-buying process? Check out our other articles and stay in the know about all things home loans.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.

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