A Gold Coast man says he had his home ownership dreams shattered after a developer used a termination clause to rip up his vacant land contract before offering to sell it back for an extra $200,000.
Key points:
- A sunset clause offers the right to terminate a sale contract for land if it’s not settled within 18 months
- When a sunset clause was invoked, Daniel Lees was priced out of the housing market
- Experts claim sunset clauses are critical in certain instances
Daniel Lees said he and his former partner signed a contract with CFMG Capital to purchase a block of land to build a home at Elevate estate at Ormeau Hills in mid-2020.
Mr Lees said they put down a deposit to secure the $254,000 parcel of land and began to design their “dream home”, but over the next several months they became concerned.
“We just didn’t hear anything,” he said.
“We went out every week to see what was going on with the construction side or the development side of it, there just didn’t seem to be much movement.
“I figured they were waiting because land values were going up, and the build of the house we wanted went up like $80,000 as well.”
Mr Lees said, in March last year, the couple were informed the developer had invoked the sunset clause and terminated their contract but they got their deposit back.
“They did offer us to buy the land back but it was for $200,000 more than what we initially paid,” he said.
Mr Lees said the pair were still left thousands of dollars out-of-pocket due to undertaking planning and design work to build their home, and the process put strain on their relationship.
“We got an architect in to do a custom build for us, so obviously you have to pay them for the planning and estimates of all the materials,” he said.
“Then there’s the cost of conveyancing lawyers and, because we thought this was our forever home, we purchased another dog.
“It was really stressful, the financial stress was hard and then we ended up separating because there was just too much going on.”
Mr Lees said the process had since left him priced out of the housing market.
“Because house prices and land values went up so much in that time, I’m now stuck out of the housing market,” he said.
“My deposit, which was more than enough back then, is no longer enough.
“The consequences for me not even being able to pull out of that contract [early] to get my deposit back, to purchase somewhere else while house prices were rising, is also dire.
“It’s not right and I feel like the developers knew what they were doing but they didn’t care about the consequences.”
Sunset clauses an important tool for buyers and developers
Under Queensland law, the developer CFMG Capital did nothing wrong.
A sunset clause provides a party — either the developer or the buyer — with the right to terminate an off-the-plan sales contract for land if it is not settled within 18 months.
In a statement, a spokesman for CFMG Capital said a number of contracts at the Elevate community were terminated in accordance with the clause.
“The statutory period was reached as a result of extended delays caused by a neighbouring landowner and Gold Coast City Council delays in approving the plan for the subdivision,” the spokesman said.
“CFMG Capital sought to mitigate these delays via creation of a sub-stage, and Gold Coast City Council caused further delays during this process.
“At the time contracts were terminated, there remained no certainty as to when the land would be registered and in some cases, there are many lots at Elevate Estate that are still not titled more than two years after initial applications were made, and more than 12 months post the expiry of the sunset clause.”
CFMG Capital said sunset clauses were an important tool for both developers and buyers that allow the parties to accommodate changing circumstances.
“In recent months more than 20 buyers within CFMG Capital projects have elected to terminate their contracts as a result of changing circumstances including higher interest rates and rising building costs,” the statement said.
State government tightening laws around sunset clauses
Earlier this year, former attorney-general Shannon Fentiman announced the state government would make changes to property legislation to tighten the use of sunset clauses to give buyers greater protections.
“Since the pandemic, Queensland’s building industry has faced difficulties with supply chain issues, labour shortages and increased costs for building supplies,” she said.
“This is combined with increasing interest rates and soaring property prices.
“Following these challenging market conditions, there have been a number of reports of developers invoking a sunset clause to terminate an ‘off-the-plan’ contract allegedly in order to re-list and sell the proposed lot for a much higher price.”
The changes will mean property developers can only invoke a sunset clause to terminate off-the-plan contracts for land with the written consent of the buyer, under an order of the Supreme Court or in another situation prescribed by regulation.
LNP member for Theodore Mark Boothman said he had been calling for the Queensland government to change the laws — for more than a year — to crackdown on unscrupulous developers.
“In a booming market, a developer can use that sunset clause against you,” he said.
“They can slow the progression of a development so that the clause can be enacted.
“For instance, if the property price goes from $200,000 to $400,000 then a developer can use the sunset clause, cancel that contract, and sell it to somebody else.
“The vast majority of developers do the right thing. There’s only a very small group of developers who are doing this.”
Mr Boothman said parliament was yet to see the proposed law changes.
“We had a Property Law Act tabled about two months ago in the state parliament and you would think, if it was so important to the government, they would have acted on it then,” he said.
“This is not hard legislation to change. We shouldn’t be waiting for this.”
Sunset clauses critical in ‘particular circumstances’
Urban Development Institute of Australia (UDIA) Queensland CEO Kirsty Chessher-Brown said sunset clauses were critically important and allowed developers to attract financing for a project.
She said, based on UDIA Queensland research and a recent survey, 94 per cent of members had not used a sunset clause to terminate a contract over the past three years.
“We’ve certainly been through incredibly unprecedented challenges over the past three years, and it has brought with it a range of challenges which have meant the use of sunset clauses in some particular circumstances,” Ms Chessher-Brown said.
“Obviously, there are force majeure conditions. COVID is an example of that — as are natural disasters, including flooding.
“We’ve also seen the termination of contracts based on the inability of developers to be able to find a builder to be able to complete the project.”
Ms Chessher-Brown urged the state government to take a balanced approach to any sunset clause changes which could impact the development sector in the midst of the housing crisis.
“We are concerned that some of the changes that have been mooted by the government will restrict our members’ ability to obtain financing,” she said.
“If there’s a greater level of uncertainty in terms of the sunset clause being able to be used at an appropriate point in time, we understand that financiers may be more reluctant to finance development projects, which means less supply into the market at a time we need it the most.”