After many years of being immersed in the Queensland conveyancing process, we’ve seen first-hand how crucial it is for buyers and sellers to understand the nuances of contract clauses, particularly the sunset clause. In the context of ‘subject to sale’ contracts, where a buyer’s purchase is contingent on selling their existing property, the sunset clause becomes a critical element. However, equally important is the “subject to finance clause”, which protects buyers needing loan approval.
This article will dissect the Sunset Clause implications in Queensland, providing clarity and practical advice for anyone involved in property transactions, especially in a dynamic market like Brisbane. We’ll also delve into the specifics of finance clauses, including the exact wording required to keep your deposit safe.
Demystifying the Sunset Clause in Queensland
A sunset clause in a property contract sets a strict deadline for certain conditions to be met. If these conditions aren’t satisfied by the specified date, either party may have the right to terminate the agreement. In ‘subject to sale’ contracts, this clause is designed to provide a firm timeframe within which the buyer must secure a property settlement on their existing home.
Sunset Clauses and ‘Subject to Sale’ Contracts
When relying on the sale of another asset, this clause balances the scales between the buyer’s needs and the seller’s risks.
- Purpose for Sellers: It provides a degree of certainty, preventing their property from being tied up indefinitely while the buyer attempts to sell their own. If a better offer comes along, the sunset clause may allow them to move on.
- Purpose for Buyers: It allows them time to secure a sale without being pressured into a purchase they can’t afford or facing a stressful simultaneous settlement without a safety net.
- Off-the-Plan Risks: Sunset clauses are also heavily used in off-the-plan contracts to dictate how long a developer has to finish construction before the buyer can walk away.
Key Contractual Considerations
- Reasonable Timeframes: The length of the sunset clause should be realistic, considering market conditions and the complexity of selling a property.
- Clarity of Conditions: The contract must clearly define what constitutes the “satisfaction” of the ‘subject to sale’ condition.
- Termination Rights: The clause must outline the specific conditions under which either party can officially terminate.
Subject to Finance Clause Queensland: Securing Your Purchase
Alongside the sunset clause and standard due diligence clauses, the subject to finance clause is vital. This clause makes the contract contingent upon the buyer obtaining formal loan approval within a specified timeframe.
Crucial Wording for Finance Clauses
Ambiguous or incomplete finance clauses can lead to severe disputes. Your clause should clearly state in the Reference Schedule of the REIQ Contract:
- “Sufficient to Complete” as the exact “Finance amount”.
- “Of Buyer’s choice” as the “Financier” (or “any reputable lender”).
- The exact timeframe (e.g., 14 or 21 days) for obtaining loan approval.
Legal Implications and Protections
Unlike an unconditional contract (where pulling out is exceptionally difficult and costly), conditional clauses provide legal exit routes, provided you act within the bounds of the law.
- Fairness and Reasonableness: Queensland courts emphasise fairness when interpreting sunset and finance clauses. Overly restrictive or predatory clauses may be legally challenged.
- Good Faith Obligations: Both parties are expected to act in good faith. You cannot simply use a finance clause to back out if you never actually applied for the loan. The buyer must diligently seek finance, and the seller must allow reasonable access.
- Professional Advice: It’s crucial to seek legal advice to ensure these clauses are drafted correctly so you have the right to withdraw your offer safely if things go wrong.
A buyer in Brisbane entered into a ‘subject to sale’ contract with a 90-day sunset clause. Due to a sudden market downturn, their property didn’t sell within the timeframe. The seller, having received another unconditional offer from a different party, legally exercised their right under the sunset clause to terminate the contract and proceed with the new buyer.
A seller included an unusually short 30-day sunset clause in a ‘subject to sale’ contract. The buyer, demonstrating active marketing and reasonable efforts to sell their home, successfully challenged the seller’s attempt to terminate the contract. They argued the timeframe was inherently unreasonable for the current property climate.
Pros & Cons of Subject to Sale Contracts
Pros
- Provides a defined timeframe for contracts, preventing endless waiting periods.
- Protects sellers from having their property tied up indefinitely off the market.
- Offers buyers a structured, legally safe approach to selling their property to fund the new purchase.
Cons
- Can lead to sudden contract termination if conditions aren’t met by the deadline.
- May create significant anxiety and uncertainty for both parties during the waiting period.
- Can become a major source of legal conflict if the clause wording is vague or poorly drafted.
FAQs: Sunset & Finance Clauses
Yes, but only if both parties agree to an extension in writing, unless the special conditions of the contract specifically allow for a unilateral right of extension.
If the deadline has passed and the contract has been validly terminated, the seller is no longer obligated to proceed with the sale to that buyer.
If you require finance, or need to sell a house to buy a house, it is highly advised. Entering an unconditional contract without the funds ready is incredibly dangerous.
Conclusion: Protect Your Contract & Deposit
Understanding the implications of Sunset Clauses and Subject to Finance Clauses—especially in ‘subject to sale’ contracts—is essential for a smooth property transaction. With more than 50 years of combined experience in conveyancing across Brisbane and Queensland, we continuously witness the vital importance of clear contract drafting.
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About the Author
This article has been put together by the expert legal team at Spot On Conveyancing. With decades of dedicated experience as conveyancing lawyers and solicitors in Queensland, we have a profound understanding of the intricacies of property transactions. We are passionate about empowering our clients with clarity and confidence, navigating them through complex property matters with professionalism and personalised care.