Neil Sands
The government has rejected a bid to crack down on developers who use sunset clauses to terminate off-the-plan property purchases so they can chase higher prices from other buyers. But a property expert says better protection against unscrupulous operators is needed.
A private member’s bill from Labour’s Ingrid Leary – the Property Law (Sunset Clauses) Amendment Bill – was voted down along party lines in Parliament last week, with the government citing fears it could deter developers from offering off-the-plan sales.
Leary told Parliament she put forward the bill after hearing numerous stories of first-home buyers left high-and dry and out-of-pocket when developers invoked sunset clauses because property prices had risen since the sale and purchase agreement was signed.
She said buyers often lacked the money to launch a legal challenge and would need significant funds to get back onto the property ladder, leaving them facing “shock, heartbreak, uncertainty, and a massive financial burden.
“No impact to the seller, no reputational risk or legal issues. It was all done under the sanctity of the sunset clause,” she said.
Leary acknowledged the problem was more likely to arise in a heated property market but argued protections should be put in place now, ready for when prices take an upswing.
“It is inevitable in an, essentially, property-market economy that it will sizzle again and we will see the same unconscionable behaviour by a small number of unscrupulous developers,” she said.
‘Totally different market’
Joanna Pidgeon, a property expert and a director at Pidgeon Judd, said there was a period when some developers used sunset clauses, loaded in their favour, to seek higher prices but circumstances had changed.
“We’re in a totally different market now,” she told LawNews. “If developers can get pre-sales, they’ll be trying to hang on to them, not lose them, because of the softening of the property market. And if they sold off-plan and prices and values have dropped, purchasers will be trying to get out of [the agreement], if they can.”
Pidgeon, a member of the TLANZ Property Law Committee with extensive knowledge of sunset clauses, said when buying off-the-plan it was important to consult a lawyer.
“The sale and purchase agreement needs to be reviewed by people who are experienced in off-the-plan contracts, who are aware of the issues,” she said. “This might be changes in values, changes in bank lending policies [or] people’s personal circumstances might change.”
She said purchasers had some protections under s 225 of the Resource Management Act, including a 14-day cooling off period.
Section 225 (2b) of the Act states:
that the purchaser may, at any time after the expiration of two years after the date of granting of the resource consent or one year after the date of the agreement, whichever is the later, by notice in writing to the vendor, rescind the contract if the vendor has not made reasonable progress towards submitting a survey plan to the territorial authority for its approval or has not deposited the survey plan within a reasonable time after the date of its approval.
But Pidgeon said the protections under the RMA were open to interpretation, meaning they often did not work meaningfully for purchasers, particularly cash-strapped first-home buyers.
There was room for better protection from outlier developers who tried to exploit unfair contract terms, she said.
“Developers being able to terminate… [when a purchaser] has signed up to get their finance and then tipping them out to sell at a higher price is not something that should be encouraged or allowed to happen,” she said.
‘Unintended consequences’
Leary said her bill, based on laws passed in Australia, would “rebalance the scales between purchasers and vendors”.
“It requires written consent of the buyer to rescind the sale agreement of an off-the-plan property where a vendor has initiated the rescission,” she said. “The consent would have to be obtained at the time of the rescission. It allows vendors to rescind an off-the-plan contract under a sunset clause where a court determines that it would be just and equitable.
“There is a contestable element to it for vendors who feel that the permission has been withheld unreasonably, and it doesn’t affect any other mechanism a vendor has in their contract with a purchaser that would allow cancellation of the contract.”
However, the government said Leary’s proposal would result in one-sided agreements and there was no evidence that the issue it aimed to address was widespread.
National Party MP Tom Rutherford said sunset clauses served a legitimate purpose, protecting both buyers and sellers from unreasonable delays.
He said the plan put forward by Leary created additional regulation and court processes, risking unintended consequences in the property market.
“It can reduce availability of off-the-plan housing when we desperately need more supply and it may push developers toward less consumer-friendly contract structures,” he said.
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