Couples devastated as sunset clause invoked on new homes

Source: Fair Go

Lawyers are looking at changes to make it fairer for people buying houses off the plans after reports of developers using the sunset clause to get out of deals.

An overhead view of a suburban neighbourhood.

It might sound romantic, but the sunset clause is anything but. It’s the clause that marks the end of a property deal, when certain key dates haven’t been met.

The Auckland District Law Society has told Fair Go that it is looking into how to make the sunset clause work better for both vendors and buyers.

Property Lawyer Joanna Pidgeon says she knows of many cases where the developer has used the sunset clause to get out of a deal and make money on the increased value of the property.

Fair Go has seen several complaints of this happening, including Geeta and Hiren Patel from Onekiritea, Hobsonville Point in Tāmaki Makaurau Auckland.

It was time to upgrade from their two-bedroom apartment, so last year, they started looking in the area for a four-bedroom home, for themselves, their daughter, and their parents.

While walking in the neighbourhood, Hiren saw an advertisement for a property development built by Hobson Green.

"The main thing was four-bedroom, two living room, one garage and it was under budget," Hiren says.

"I've never owned more than one toilet in one house," Geeta says.

"This one had three toilets and I said to Hiren, oh my gosh, who’s going to clean three toilets?"

They'd bought a house off-plans before, and their real estate agent told them the developer finished another site in the area, with no major issues.

"I was so excited, like you're pretty much, you're mentally living there," Geeta says.

Last October, their lawyer looked over the contract and made the Patels aware of what's called the sunset clause.

"Just like the sunset at the end of the day, a sunset is at the end of a contract," says property law expert Joanna Pidgeon.

In her 20 plus years of work, she's seen quite a few sunset clauses.

It’s usually when a particular event hasn't happened, such as issue of title, issue of code compliance certificate from the council, the contract can be cancelled", she says.

"Usually it's for the purchaser's benefit, but we have been seeing some clauses sneaking in that are for the benefit of the vendor as well".

In the Patel's contract either party had the right to cancel the agreement if the code compliance certificate (CCC) wasn't issued before September 30, but they were reading this back in October last year, so they thought they had plenty of time right for the build to be completed, and didn't think the sunset clause would be invoked.

The Patels say they were told, at first, the build would be finished by July and because they had a sunset clause with their previous build, they weren't worried.

"We never thought the worst-case scenario, why would you?" asks Geeta.

So, they signed the sales and purchase agreement.

Meanwhile in Te Waipounamu, the South Island, Jason and Jane Marasigan were also looking to upsize.

"I have two boys," Jane says.

"One is teenager now and the other one is going through teenager years as well."

Their plan was to move from the capital Te Whanganui-A-Tara, to Rolleston, 20 minutes from Ōtautahi, Christchurch.

They looked at a new build by developers New Style Homes and liked what they saw.

"Looking at those plans, it's almost times two or times three of our house in Wellington," says Jane.

Jason says, "I mainly just go with what Jane wants."

But they hadn't bought an off-plan property before, they didn't know what a sunset clause was, and they were moving cities.

They got a lawyer to look over things and did a bit of research on the developer.

"We saw a few bad reviews already," says Jason.

They say New Style Homes said the reviews were from a disgruntled ex-contractor, and a buyer who had issues with a contract.

It also said the sunset clause was standard practice.

"Of course, getting that answer of it’s a normal thing, you feel that okay, you can't really do anything about it," says Jane.

But Joanna says you can. This is the time where negotiation is key.

"I would usually get them to negotiate that clause out up front," she says.

But if you can't get rid of the sunset clause, Joanna says have a big buffer of time so that just because you're a few months late, "you can't be gazumped and pushed out of a contract".

"In my view it's preferable particularly for purchasers not to have a contract that gives the vendor the right to get out," she says.

That's exactly what the Marasigan’s had.

Their sunset clause was there for the sole benefit of the vendor, New Style Homes, and said the CCC had to be issued no later than three months from the date of the agreement, which seems unrealistic, so why did the Marasigans sign?

They say they felt pressure from New Style Homes to sign.

"One of the things mentioned was that there are other people on the line waiting," says Jason.

"We were given the impression that there are other people that were interested in the property and we need to sign it as soon as possible or else, they can move forward to the next interested party."

They didn't want to risk losing their deal, so they signed thinking the sunset clause would never be invoked.

With each new sunrise their homes were taking shape. The Patels were enjoying watching it unfold, but then came the delays.

The completion date of their build was pushed back twice, from July to October. The Patels say they were told the delays were due to a shortage in materials and bad weather.

They asked the developers, Hobson Green, to extend the sunset clause many times, but no extension came.

Then, lock down happened, which brought more delays.

"We just said why don't you just give us another six months of extension until 30th March 2022," says Hiren.

“Their lawyer said, 'no our client is not in the position to extend the sunset clause'."

The Marasigans had delays too.

"There was no clue or anything that would make me feel like it would go to the point of cancellation," says Jason.

Neither expected it, but both family's contracts were cancelled by the developer. Both developers invoking the sunset clause.

"I couldn't speak at that time. I literally couldn't speak at that time," says Hiren.

"When you've been waiting for something for the last one year and with just one sentence, it takes everything away from you it is a big thing," says Geeta.

The Marasigan's developer, New Style Homes, dumped them by email.

"All of a sudden I had weak knees," Jason says.

"I think I was almost begging them to reconsider, and to tell us what was the reason behind their decision," says Jane.

Multiple families have come to Fair Go with similar issues.

"What we're seeing now is that if a vendor has the benefit of a sunset clause that they are actually using that with the market prices moving upwards, using it as an excuse to cancel the agreement to sell for a higher price," says Joanna.

According to the Real Estate Institute of New Zealand (REINZ) house prices have gone up about 25 per cent over the past year, which is great for the developers, but for these families, they're out of home, out of pocket, and starting out right down the bottom of the property ladder.

Fair Go went to both developers to ask what the story was.

Hobson Green says it's had to deal with many project delays.

"Delays meant the code compliance certificate and title weren't issued prior to the sunset clause date.

"We've been unable to extend the time frame due to significant increases in funding and construction, Covid restrictions, and workforce and immigration constraints."

Hobson Green has also offered to refund the Patel's deposit and net interest earned.

The Patels say they would've been happy to cover some of those costs, if it meant seeing their house completed.

New Style Homes however has yet to comment, despite Fair Go's many efforts to get in touch.

Phone calls, emails, hand delivered letters, even social media have failed to get a response from its director.

"You feel like you've been fooled and cheated, like all the reasons they gave us, it feels like it’s not true at all," says Jane.

So, what can be done to stop the sun setting on your new build.

Look at the developer. Find out if they've completed other projects successfully.

Get a lawyer to have a look at the contract, including the sunset clause.

With Covid and other building delays, work out if the timing of your sunset clause is reasonable, and make sure it works for both parties.

Across the Tasman, they changed the land laws in Victoria two years ago, so now developers need a buyer’s consent to cancel under the sunset clause.

"Because there are more and more developers trying to put these clauses in, perhaps it’s getting to the time where there could be some legislative change to prevent that from happening," Joanna suggests.

But there's no concrete plans for change here in Aotearoa though.

However, the Auckland District Law Society, with REINZ are looking to make some changes to off-plan agreements so it's fair for developers and the buyer.

While that's great to hear, it's too late for the Patels who only have a month until they need to be out of their current home.

But they haven't given up the fight for their house.

The Patels have taken Hobson Green to court and put an injunction on the property, while they wait for their hearing date.

Negotiations are continuing between Hobson Green and the Patels.

The Marasigans, however, luckily managed to buy another home in Rolleston.

They can only hope to warn others, and say if there's any red flags, try to avoid them.