'Sunset clause' in Sale & Purchase Agreement serves as a warning to new-build purchasers

After being caught out by a sunset clause in a Sale & Purchase Agreement to buy a new-build home, the experience of one couple highlights the importance of getting clauses checked - and following legal advice.

It comes as the Government is incentivising Kiwis to buy new-build homes in a bid to boost new housing supply. House price caps for the First Home Grant and First Home Loan are higher for new-builds than existing homes. New-builds are exempt from Loan-to-value ratio (LVR) rules  and banks are offering discounted floating interest rates for new-builds for up to three years.  Under proposed rules, new-builds will be exempt from phased out interest deductibility on investment property loans. 

On January 9, an Auckland couple, who asked not to be named, signed a Sale & Purchase Agreement to buy a 3-bedroom new-build home, part of a six unit development in Henderson. The purchase price was $779,000, for which they paid a 5 percent deposit.

Initially contacting Newshub on August 1, the couple said the CCC and Title hadn't been issued by 30 June, 2021, a condition specified by the vendor (developer) under a sunset clause in their Sale & Purchase Agreement. 

In legal terms, a sunset clause is a condition included in a contract which says if a specified event hasn't occurred by a certain date, then either one or both parties (the purchaser and/or the vendor) can cancel the contract on giving written notice to the other.

Wrapped up in the excitement of buying a new-build home, the couple said they signed the agreement with the clause in, despite their lawyer warning them not to. 

"The expected completion was April/May...we were caught up in the heat of the moment, really excited about it," the couple said.

"In early January, they already had the first floor up and were bringing in framing for the second floor...we thought 'no, it will be fine'."

The clause, a copy of which was provided to Newshub, states 'this agreement is conditional upon the vendor (a) Obtaining the issue of a title for the Dwelling; and (b) Obtaining the Code Compliance Certificate, the 'date of satisfaction' being 5pm on 30 June 2021. The clause states  the conditions 'are inserted for the sole benefit of the vendor'. It also gives the vendor the option to extend any of the condition dates 'for a period of up to six months'.  

The purchasers say they now feel "under pressure" to renegotiate the terms of their agreement or have it cancelled by the developer's lawyers.

With no indication from the developer or their lawyer on when the CCC and Title would be issued, they told Newshub despite the sunset clause giving the vendor the legal right to cancel, "It's not the Kiwi way".  

Responding to Newshub after checking with his lawyer, the developer, whose company is registered as 'Lifting Star', had no comment.

"No comment to make about CCC and title. Council is still processing. I have no way [sic] but to wait," he told Newshub on August 9. 

On August 10, Jeff Fahrensohn, manager field surveying at Auckland Council confirmed the CCC for the six units "was granted last week", adding it took the full 20 working days to process and was granted "on day 21".  

John Stirling, partner at law firm Turner Hopkins, said for properties purchased off the plans,  sunset clauses are now fairly common. 

In many cases, sunset clauses in a new build contract give the purchaser added protection, allowing them to cancel if conditions aren't met.  

In this case, the clause was 'inserted for the sole benefit of the vendor'.

"When acting for purchasers, we always try to get that clause either deleted or at least amended so that it's controlled by the purchaser," Stirling said. 

He urges prospective purchasers to talk things over with their lawyer before they sign, acknowledging in a competitive market, purchasers can feel pressured to accept conditions imposed by vendors.