The Sunset Clause Should Be An Exclusive Right Of Buyers
“If winter comes can spring be far behind?”. In the same vein, a real estate bust always gives way to a property boom (part of the cycle). Buyers and sellers look for the support and resistance points, plateau and bubble prices and the beautiful real estate game goes on. Each side tries to safeguard its interest; sometimes correctly, sometimes not quite so. Take the oft debated Sunset Clause as an instance.
To understand Sunset Clause better and how sellers use it in a wrong way to fleece buyers, let me run you through an example.
Let us say that Tom and Mary, a North Shore couple, have saved money (or taken a loan) to buy a much coveted property. Let us further propose that Tom pays a deposit of $50,000 and signs a contract for an off-the-plan property.
Tom is willing to wait
Tom knows that the development stage is not an overnight process and is quite willing to wait. The developers have told the couple that the property will be made available to them in 6 months’ time.
On completion of the tenure, when they start to get really dreamy about the whole thing, a letter from the developer comes as a bolt from the blue.
A bolt from out of the blue
It states that the developer has cancelled the whole project and is returning the deposit via an attached check. The developer further says that he can still consider a contract, albeit for a different piece of land, if Tom is willing to pay another $30,000 for it.
When prices shoot up, sellers bring the ‘Sunset’ out
Tom gets a feeling that he is being tricked. His hopes are dashed. Each week to his great joy he had found that the price in his property location was getting steeper. In fact, in the 6 months between the signing of the contract and the developer’s letter of cancellation, the price of the property had already increased 27%. And now this!
Tom wants to know what did him in. It’s the Sunset Clause he finds out.
It is a clause that can be invoked by the buyer or seller to cancel any development project that goes beyond its stipulated duration. Well, quite tricky! Often, it is the buyer who turns out fleeced.
When the price goes up, the sellers just invoke the clause citing that they could not complete the project in time and that the contract stands nullified. They start seeking another buyer at prevailing market prices (remember it was 27% higher in the cited example) and make a better deal for themselves.
Sellers finish projects before timeline in recessive market conditions
In the wake of such unethical tactic from the sellers, what comes down crashing is the dream of buyers. Funnily, the very same sellers complete the project well in time when the prices suddenly start dropping. Thus, they smartly eliminate any chances of the buyer invoking the Sunset Clause.
The Sunset Clause should be an exclusive right of the buyer
The only way out for the buyers- they should make it pretty clear while signing the contract that the Sunset Clause is to be treated as their exclusive right and in no way can be exercised by the seller.
Have you ever been on the receiving end of a sunset clause or similar? Any lessons you can share with us?