Understanding Sunset Clauses: Protecting Your Off the Plan Investment

A sunset clause is a special condition in a property contract that puts a time limit on the development's completion. In simple terms, it sets a "sunset date" by which certain milestones (like registering the plan of subdivision or obtaining an occupancy permit) must be met. If the building isn't finished or the title for the new property isn't created by this date, the clause allows the contract to be ended (rescinded) by one or sometimes both parties.

Sunset clauses are very common in off the plan contracts for apartments, townhouses, and land subdivisions. They exist for a practical reason: to protect buyers from being tied up in a contract indefinitely if a development is severely delayed. For example, imagine you sign a contract for a new apartment with a sunset date of 30 June 2025. If by that date the construction isn't finished and the title isn't ready, the sunset clause might allow you to walk away and get your deposit back. This lets you move on and look for another property instead of waiting endlessly.

However, the sunset clause can also allow the developer (vendor) to cancel the contract if the project isn't completed by the deadline. In our example, if 30 June 2025 passes without completion, a developer could use the clause to terminate the agreement on 1 July 2025 (returning your deposit). That means you lose the purchase, even if you were willing to wait longer.

In the past, most contracts gave both the purchaser and the developer an automatic right to end the contract once the sunset date elapsed. Why does this matter? Because in a rising property market, a sunset clause could be misused by developers. If property values increase significantly during construction, an unscrupulous developer might be tempted to delay the project on purpose until the sunset date passes. They could then cancel the original contracts and re-sell the property at a higher price to someone else. This leaves the original buyers disappointed, they get their deposit back, but miss out on the property (and the capital growth).

In summary, a sunset clause sets a time limit on off the plan contracts. It is supposed to provide an "out" for delays allowing a property contract termination if the project isn't done by a certain date but it can either protect the buyer or, if abused, hurt the buyer. Understanding how this clause works is crucial before you sign an off the plan contract.

Legal Implications of Sunset Clauses in Victoria

Fortunately for buyers in Victoria, the law has evolved to prevent abusive use of sunset clauses. In response to the concerning trend of developers deliberately delaying projects to cancel contracts and reap higher resale prices, the Victorian government introduced stronger protections for purchasers. Legislation passed in 2018/2019 now strictly regulates a developer's right to terminate an off the plan contract under a sunset clause.

Under the current Sale of Land Act 1962 (Vic) (as amended), a vendor (developer) cannot simply rescind an off the plan contract once the sunset date is reached, they must follow certain steps and meet strict conditions. In Victoria today (2025), a developer can only end an off the plan contract using a sunset clause if either:

You, the purchaser, provide written consent to ending the contract, after receiving at least 28 days' notice; or
The Supreme Court of Victoria grants an order permitting the contract to be rescinded, on the basis that it's just and equitable to do so in the circumstances.

In practice, this means if a sunset date is looming and the project is delayed, the developer must notify you in writing at least 28 days beforehand of their intention to cancel, explaining why they want to end the contract and why the delay happened. You are not obliged to agree and the law explicitly says you don't have to consent.

If you refuse consent, the developer cannot unilaterally terminate the contract. Their only option would be to apply to the Supreme Court for permission to rescind. The court will consider whether it's fair in all the circumstances to allow the cancellation. The developer would need to provide evidence (for example, of factors genuinely outside their control that prevent completion) to convince the court that ending the contract is justified. This is a high bar designed to stop terminations that are simply motivated by profit.

The key legal implication is that Victoria has effectively taken away the developer's automatic power to invoke a sunset clause without oversight. As Consumer Affairs Victoria explains, for any residential off-the-plan contract entered on or after 23 August 2018, a vendor must not rescind under a sunset clause except in accordance with these rules.

Any attempt to bypass the requirements (for instance, if a contract tried to "contract out" of the law or a developer ended the contract without consent or court order) is invalid and considered a breach of contract by the developer. In such a case, you as the purchaser could potentially take legal action for breach, which might include enforcing the contract or claiming damages.

It's also worth noting that the law now requires contracts to clearly include a statement informing purchasers of their rights regarding sunset clauses. For contracts signed after March 2020, the contract must spell out that the developer needs your consent or a court's permission to end the contract under a sunset clause. Failure to include this statement can result in penalties for the vendor.

What about the buyer's rights? The legislation was mainly designed to protect buyers from developers, so it doesn't restrict your ability to get out under a sunset clause. If the sunset date passes and the property is still not ready, you (as the purchaser) typically retain the right to exit the contract and reclaim your deposit.

Important caution: The current laws in Victoria specifically define "sunset clauses" in terms of delays in registering the plan of subdivision or getting the occupancy permit by the sunset date. Most off the plan contracts will fit this scenario. However, be aware that some contracts might include other special conditions or termination clauses beyond the standard sunset clause.

In a recent case (Transformer Development Group Pty Ltd v Tait Street Investments Pty Ltd [2023] VCC 878), a Victorian court upheld a developer's right to end contracts based on a condition precedent (about service approvals) that was not subject to the same consent rules, because it wasn't technically a "sunset clause" under the Act.

The lesson for buyers is that you must read the contract carefully for ANY clause that allows the developer to terminate. Just because the contract says "sunset clause" is protected by law, doesn't mean there aren't other clauses that could enable a cancellation. Always have your legal advisor or conveyancer identify and explain all such provisions.

In summary, Victorian law in 2025 heavily favours the purchaser's protection when it comes to sunset clauses. Developers can no longer use delay tactics to unjustly cancel your purchase without your agreement or a court's approval. This gives buyers much greater confidence that an off-the-plan contract will reach completion if they want it to. However, you should remain vigilant about all terms in your contract.

Real Life Examples from Melbourne

Sunset clauses have had real impacts on buyers, and Melbourne has seen its share of both the good and bad. Before the law was tightened, some off the plan purchasers in Victoria went through painful experiences due to sunset clauses.

One well publicised scenario involved a Melbourne development where numerous townhouse buyers signed contracts in the mid-2010s. The market was booming, and by the time the project was close to completion, property values had surged. The developer allowed the project's schedule to slip past the sunset date, and then promptly cancelled all contracts under the sunset clause. The buyers, some of whom had waited years for their new homes, were devastated, their contracts were terminated and their deposits refunded, but they lost the properties. To add insult to injury, the same townhouses were then put back on the market at significantly higher prices than what the original buyers had agreed to.

Stories like this prompted public outcry and even a group of affected Victorian buyers banding together to lobby for reform. Consumer advocates highlighted that sunset clauses, intended as a fair safeguard, were being turned into a "developer's dream and a buyer's nightmare."

Since the legislative reforms, blatant cases like the above have become far less common in Victoria. Developers know they cannot cancel just because the sunset date has arrived, not without buyer consent. However, that doesn't mean sunset clauses are no longer relevant or potentially problematic.

In recent years, there have been instances where developers seek purchasers' consent to extend sunset dates or end contracts, citing genuine delays (for example, delays in construction due to unexpected supply issues or planning holdups). The new laws force developers to give reasons and, essentially, ask nicely. The power has shifted to buyers: you and your fellow purchasers can say yes or no to an extension or termination proposal.

A real life example of the post reform dynamics can be seen in how buyers have responded to such requests. In one Melbourne apartment project delayed by pandemic related disruptions, the developer approached all buyers requesting an extension of the sunset date by 6 months. The buyers, who had seen property values rising, were understandably nervous. Guided by their conveyancers, many buyers questioned the reasons for delay and some initially refused to consent. Ultimately, an agreement was reached to extend the sunset date, but only after the developer provided assurances (and even small compensation in some cases, like paying for valuation updates or offering upgrades) to satisfy the purchasers that no foul play was afoot.

In another case, a developer in suburban Melbourne missed the sunset date and wanted to terminate the contracts. The buyers suspected the delay was intentional since local property prices had increased sharply. They refused to consent to the termination. The developer took the matter to the Supreme Court, as required by law. Facing legal scrutiny, the developer ultimately backed down and the project proceeded (a few buyers who were fed up chose to exit and got their deposits back, but most stayed on).

These scenarios highlight a few takeaways for Melbourne buyers:

Sunset clauses can still affect your timeline. Even with legal protections, delays can push a project to the sunset date and force a decision. Buyers should be prepared for the possibility and know their rights when that date approaches.
Developers may seek your agreement to extend a project's timeline. This can actually be a collaborative discussion now, rather than a unilateral decision. You can negotiate or impose conditions when giving consent.
If you suspect a developer is acting unfairly, you have the leverage to refuse consent. The onus is then on the developer to either continue with the contract or convince a court. This greatly reduces the likelihood of losing your contract unfairly in Victoria.
Real life impacts are emotional and financial. Imagine expecting to settle on your new apartment, only to have it pulled away, it's not just about money, but the stress and lost opportunities. The law acknowledges this harm and leans towards protecting the purchaser's expectations.

It's also worth noting that other states in Australia experienced similar issues. For example, New South Wales had notorious cases of mass contract cancellations via sunset clauses, which led that state to introduce laws a few years before Victoria. In one NSW case in 2023, a developer tried to cancel 47 off-the-plan contracts, prompting buyers to band together and challenge the move under their sunset clause protections.

How to Protect Your Investment

As an off the plan buyer, especially in Melbourne's dynamic market, you should take proactive steps to protect your investment when it comes to sunset clauses and other contract terms. Here are some key strategies to ensure you're safeguarded:

1. Engage an experienced conveyancer or property lawyer early

Off the plan contracts can be lengthy and complex. An expert in off the plan conveyancing will know exactly what to look for, particularly regarding sunset clauses and any sneaky termination provisions. They can explain the implications in plain English.

For example, Pearson Chambers Conveyancing offers a free Section 32 contract review this is an excellent opportunity to have professionals go over the Vendor's Statement and contract to flag any issues. Don't skip this step.

A conveyancer will help verify that the contract complies with current Victorian law (e.g. it contains the required sunset clause statements) and advise if the sunset date is reasonable. They will also check for any additional clauses that might let the developer cancel.

2. Understand the sunset date and negotiate if necessary

Take note of the stipulated sunset date in your contract. How far out is it? Does it give the developer a very long window (e.g. 4-5 years) or is it relatively short? Extremely long sunset periods might leave you in limbo for years, while very short periods could indicate the project is expected to complete quickly or could signal a developer planning to use extensions.

If the date seems too far or too risky, ask if it's negotiable. In some cases, buyers have been able to negotiate terms like requiring buyer consent for any extensions or inserting their own right to pull out after a certain time if they need flexibility.

3. Watch out for special conditions beyond the standard sunset clause

Some contracts include clauses such as "subject to developer achieving a minimum number of pre-sales by X date" or "subject to the developer obtaining finance approval or planning approval by Y date, failing which the developer may rescind."

While they may have legitimate reasons, you should scrutinize how these clauses are written. Do they allow the developer to cancel at their discretion? Is there any obligation for the developer to try in good faith to meet the condition by the date?

If a clause seems too open ended (for example, giving the developer a broad right to terminate "for any reason" or for very loosely defined reasons), that's a red flag.

4. Stay informed during the construction period

After you've signed and before settlement, keep tabs on the development's progress. Reputable developers will send regular updates to buyers about construction milestones, any delays, and expected completion timelines.

If you notice significant delays and the sunset date is approaching, reach out to your conveyancer. This way, you won't be caught off guard by a last minute request for extension or an attempt to end the contract.

If a developer does send a notice about the sunset clause, contact your lawyer immediately. You'll want professional guidance on how to respond.

5. Coordinate with other purchasers if possible

If you're in a multi-unit development, remember that the sunset clause will affect all buyers. Sometimes developers approach all purchasers collectively regarding extensions or terminations.

It can be helpful to communicate with other buyers to share information. United buyers can negotiate from a stronger position.

6. Document everything

Keep a record of all correspondence from the developer, especially concerning construction progress and any notices about the sunset clause. If worst-case scenarios unfold and legal action becomes necessary, these documents could be important evidence of what happened and when.

7. Plan for contingencies

Despite everyone's best intentions, developments can encounter unexpected delays. Mentally and financially prepare for the possibility that your settlement could be later than initially forecast.

This might mean having flexibility in your living arrangements or your financing (rate holds on loans may expire if settlement is delayed).

By following these steps, you can significantly reduce the risks associated with sunset clauses. The theme here is clear: knowledge and expert advice are your best protection. Sunset clauses and related contract terms are not "fine print" you can ignore they go to the heart of whether your off-the-plan purchase will reach completion.

Conclusion

Navigating sunset clauses is an essential part of buying off the plan in Melbourne. When well managed, a sunset clause protects you from endless delays; when abused, it can put your dream home at risk. Thanks to strong Victorian legislation, buyers today have much greater protection against unfair contract termination due to sunset clauses.

If you're considering an off the plan purchase or have questions about a sunset clause in your contract, now is the time to act. Don't sign anything without understanding it fully.

At Pearson Chambers Conveyancing, we're here to help Melbourne buyers like you make sense of it all and safeguard your investment. We encourage you to reach out for more details or a free Section 32 contract review. Our experienced team will review your contract, explain every clause (including the sunset clause) in plain language, and offer expert guidance on how to proceed.

Contact Pearson Chambers Conveyancing today to protect your off the plan investment and get peace of mind:

Phone: 03 9969 2405
Email: contact@pearsonchambers.com.au