Sunset clauses – what they are and when to use them

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sunset clause when buying real estateA Sunset Clause is a condition that can be added into an Agreement for Sale and Purchase of Real Estate much the same way as a Builders Report, LIM report or Due Diligence condition. It basically states that the agreement will automatically become null and void after a specified length of time.

There are 2 main ways that a Sunset Clause is used in a property purchase scenario:

1. To put time pressure on the other party to accept the offer.

A Sunset Clause can be inserted into the agreement stating that if the offer is not accepted within a certain time frame, for example 24 hours then the offer is off the table. Purchasers often use this to put pressure on the Vendor to accept their offer and not give them time to consider other options. If a purchaser does not put a Sunset Clause in the agreement then the vendor can basically take as long as they like to accept or reject the offer, as a purchaser the wait can be excruciating as you want to know whether or not you will get the property and could miss out on others that come on the market in the mean time.

2. When there is no definite settlement date

When buying a property that is in the process of being built or subdivided there is not a definite settlement date. The agreement will usually state that settlement will occur 5 working days after the issue of title (which is the final step once all work has been completed). Using a sunset clause in this scenario protects the purchaser from any unforeseen delays and puts pressure on the Vendor to get everything completed on time. If the Vendor estimates for example that settlement will occur within 2 months, then the purchaser usually gives them a little extra time and has a clause inserted in the agreement saying that if settlement has not occurred within 3 months then the purchaser has the option to cancel the agreement and get their deposit back.

It is important to have all clauses/conditions drafted carefully in consultation with your lawyer so please contact us on 09 638 6969 to discuss your situation prior to submitting an offer.

2017-06-27T11:17:28+00:00 Property Law|