What is a Sunset Clause?

If you're thinking of purchasing a newbuild townhouse in NZ, you've probably heard of the term "Sunset Clause." So what is a sunset clause, how do they work, and what are the benefits or risks to you as a buyer? In this blog post, we'll discuss sunset clauses and what they mean for you.

What is a Sunset Clause?

When you purchase a newbuild townhouse, you'll need to sign a sales and purchase agreement (contract). A sunset clause is a provision in this contract that sets a deadline for a particular condition to be met. When it comes to newbuild townhouses, sunset clauses often set a deadline for the developer to complete construction and obtain any necessary building permits and signoff. Sunset clauses protect buyers from long delays or indefinite construction periods.

What if the Deadline is Not Met?

If the seller doesn't meet the deadline for the sunset clause, they may terminate the contract and refund the buyer's deposit. Sunset clauses aim to safeguard buyers from prolonged delays or construction periods without a definite end.

Are Sunset Clauses Common in NZ?

Sunset clauses are very common in newbuild townhouse contracts, particularly in larger developments with many units. They provide you as a buyer protection against the risk of extended construction periods or delays.

How Do Sunset Clauses Work?

The specific details of a sunset clause will vary depending on the contract. The clause normally specifies a deadline by which construction and building permits need to be obtained. This is a part of your contract that we always recommend discussing with your solicitor and the agent.

What are the Benefits and Risks?

The sunset clause in your contract provides protection to you as a buyer. If the deadline is not met, the contract may terminate. You'll then receive your full deposit amount back so that you can purchase another property. Depending on the market at the time, this can be a good or bad thing, depending on how property prices have changed.
Doing your due diligence on the developer before purchasing a property is a great idea to mitigate these risks. We have a blog post here on questions you should always ask the developer.
Sunset clauses are a common provision in newbuild townhouse contracts. They can provide protection against the risk of extended construction periods or delays. Always make sure you review and understand the terms of the sunset clause before signing a contract. It's essential to work with a reputable developer and seek legal advice.
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