Sunset clauses hit home buyers as prices skyrocket

Author
RNZ,
Publish Date
Tue, 16 Nov 2021, 10:31AM
Lawyers say sunset clauses to cancel contracts with house buyers are being invoked more. (File photo / RNZ)
Lawyers say sunset clauses to cancel contracts with house buyers are being invoked more. (File photo / RNZ)

Sunset clauses hit home buyers as prices skyrocket

Author
RNZ,
Publish Date
Tue, 16 Nov 2021, 10:31AM

By Phil Pennington of RNZ 

People desperately trying to get on the property ladder say they are being taken advantage of through the sunset clause. 

Lawyers say sunset clauses to cancel contracts are being invoked more, and buyers talk of having land deals cancelled or being called on to stump up extra "contributions" to keep a project on track. 

This comes as the escalating price of land and cost of building materials amid supply change crises, makes deals inked months ago less viable or attractive for vendors. 

The following four buyers* approached RNZ with their stories about developers backing out following our report last week on sunset clauses. 

They each face having to re-enter a housing market where prices are up 24 per cent for the year nationally, and over 30 per cent in some spots. 

'The developers get away with this' 

Manu* believes their "delay" was deliberate - that the developer never intended to sell to them. 

He and his partner bought a $600,000 two-bedroom home in west Auckland off the plan in April 2020. 

It had a November 2020 completion date and a July 2021 sunset clause. 

Sunset clauses are common in off-the-plan deals; they are meant to primarily protect buyers so they can pull out at a certain date, if a project is delayed. 

Manu got little communication and saw little construction. 

"We could feel that they were trying to delay it because with the house prices going up, it would be so beneficial for them to cancel our contract," he told RNZ. 

Eventually, two months ago, just days before the couple had a new baby and one day after the house's certificate of Code Compliance (CCC) was issued, they learned the sunset clause had been invoked. 

The Covid-19 period was a risky time to buy, for them and the vendor, he said. 

"We wouldn't have been too upset," he said. 

"We did sign the contract. 

"But then they wasted our time - three months later [from the July 2021 date], just to enact the sunset clause at the very last minute." 

They had tried to find a deal with a sunset clause that benefited only the buyer, but no developer would agree. 

They do not want to put resources into a legal fight, when what they need is a home, which they guess will now cost at least another $100,000. 

"The developers get away with this - all the reward, and no bad reputation. 

"Hopefully there will be regulations in the future that protect the buyers more." 

'We feel cheated' 

Advik* bought a turnkey property in Papakura in February, for $630,000. In June they were invited to choose carpeting. 

"Everything was on track," he told RNZ. 

But then lockdown hit, and a shock; the vendor cancelled - and came back asking for another $100,000. 

"We tried to get finance sorted," he said, but the new price put a first-home grant out of reach. 

They did not trust the new completion date of October and were also nervous when the developer refused to remove the sunset clause. 

"Within days they put again that house to market and sold to someone else at a higher price." 

From looking online, Advik believes the developer cancelled four similar deals, and relisted each at $780,000. 

"Now we are out of market and can't buy in Auckland." 

He believed the deal was always rigged. 

"It's not fair, really not fair. We feel cheated." 

'It seems very suspicious' 

First-home buyer Abigail* bought a house and land package in November 2020 in Christchurch, expecting to get title by June this year. 

The advertising for their development was typical: A shot of a young couple sitting with a happy baby on new carpet, and a listing of the short distances to schools, parks and the local library. 

Her sunset clause was not until June 2022. 

But the landowner gave notice a few weeks ago they would cancel multiple stages in anticipation of not being built on time. 

Abigail has driven by and can see the main road and utilities are in. 

"So it seems very suspicious that now they are saying they cannot deliver on what is left to do," she said. 

"It screams pure greed. They're taking advantage of land prices going through the roof." 

A similar house on a smaller section now tops $900,000. 

She is asking lawyers to check if the cancellation can be stopped. 

"It's not looking likely. We certainly have done everything we were supposed to do, and to be mistreated in this way is devastating. 

"It's bad enough that it's happening, what they're doing, but what it's also done is it's outpriced us from the market." 

'At his mercy' 

Peter* and his partner are having to pay an extra $30,000 to keep their two-bed on Auckland's North Shore on track, on top of the $700,000 purchase price in March. 

They are reconciled to that - "the rising costs... and Covid obviously having an effect, we've given [the developer] that bit of grace". 

However, there are a half-dozen other variations on a build that has yet to begin. 

The delivery date of next April has now slipped by a year; a clause promising payments for delays to clients has been dropped; and a sunset clause has just been extended to mid-2023. 

"We're just in that rock and a hard place of just being at his mercy basically, with all the changes that he keeps making that seem to favour him and not us," Peter said. 

His contract prevents the vendor cancelling, then selling the house for more - though that too is now up for debate. 

Though they are locked in a "holding pattern", even if they could themselves cancel, they fear calling it quits. 

"It would leave us back to square one. 

"We'll be paying $950,000, a million, probably for the same place because prices have just skyrocketed. 

"If he drags it on much further... it will completely ruin our opportunity."