Supreme Court Ruling Reignites Sunset Clause Debate

A high-stakes legal battle has tested the limits of Queensland’s sunset clause laws, with developer Cavcorp preparing to appeal a Supreme Court ruling. The court ordered the developer to pay $6.1 million to an off-the-plan buyer. Long controversial, sunset clauses have come under scrutiny from the state government and the media amid concerns they give developers the ability to cancel contracts and resell properties at higher prices. Queensland introduced “lite” sunset clause reforms in 2023 , to curb their use in the sale of land—but not apartments or strata—and this month opened consultation about those reforms. Now, Cavcorp’s clash with an investor at its project in Brisbane’s Newstead has reignited debate about the use of the clauses. The case Cavcorp’s 214-apartment Luminare development at 20 Festival Place is opposite the landmark Gasworks and Long Island precincts about 4km from the Brisbane CBD. In June 2017, the JYP Jiang Family Trust purchased two sub-penthouses on level 24, paying $4.2 million. The contract carried a sunset date of December 2022, allowing either party to walk away if milestones, such as title registration, were not met. Cavcorp terminated the deal in April 2023, citing development and building approval issues as well as construction and materials hold-ups due to Covid, floods and labour shortages as reasons for the completion delays. ▲ Gadens partner Gary Koh: developers unlikely to get “clean getaways”. Cavcorp said that the construction was less than 50 per cent complete at the time of the sunset clause date and it could not give vacant possession. Cavcorp later sold the apartments for $3.5 million and $5.3 million. The buyers claimed that this was not allowed and sought damages for breach of contract. Supreme Court judge Chief Justice Helen Bowskill found that Cavcorp was not entitled to cancel the contract, ruling that a “reasonable businessperson” would not interpret the clause as allowing termination where separate title conditions had all been met. Gadens partner Gary Koh says that the court looked purely at the contractual drafting of the termination clause based on the specific facts of the case. ▲ Luminare includes two and three-bedroom “wellness-lifestyle” apartments. “Ultimately, the court found that just on the drafting itself, they didn’t have that right to rely on the sunset clause,” Koh says. “But what I was hoping the court would look at, and they perhaps will in future cases, is an analysis as to what extended delays would be an acceptable basis for a developer to rely on a sunset clause. “This is on the basis that the developer effectively needs to show that they have done everything that is reasonably possible to deliver the project by the sunset date in order to rely on the termination right.” Koh warns developers are unlikely to get “clean getaways” under current rules, with more buyers prepared to challenge contract terminations. Sunset clauses and construction costs Developers argue sunset clauses are sometimes essential to manage the financial realities of long-running projects. Over the delivery period for Luminare, for instance, the cost to build apartments rose an estimated 216 per cent. Apartment supply costs in 2018 were estimated at $285,000, according to a Reserve Bank of Australia report from 2020. By 2024, apartment supply costs had risen to $899,800, according to Queensland Economic Advocacy Solutions report. “On the developer side there are some immense pressures, including from the financiers funding these projects, that ultimately may lead to the outcome we are now seeing with sunset clauses,” Koh says. ▲ The sub-penthouse collection released in 2023 was priced from $5.2 million. Queensland’s reforms stopped short of banning sunset clauses, only allowing sellers to rely on sunset clauses to terminate an ‘off-the-plan’ contract for land with the written consent of the buyer or a Supreme Court order. But the opening of consultation for the reforms by the state shows they are still very much on the agenda. “If you do have a legitimate reason, you might still have a chance of terminating those contracts,” Koh says. “Those legitimate reasons are dependent on facts and circumstances, but the most common ones I’ve seen are, for example, builders going insolvent before completion of the project. “This typically results in unforeseen delays in the construction in having to find a replacement builder and ultimately being in a position to deliver before the sunset date.” A tale of two states The impact of a difficult environment for off-the-plan sales is difficult to quantify. NSW—although in correlation rather than causation— has increased regulation for sunset clauses since 2015 and has a lesser proportion of off-the-plan apartments. According to an Urbis report for off-the-plan supply for the second quarter of this year, pre-sold apartments accounted for just 11 per cent of the total apartments sold in Sydney, compared to 19 per cent on the Gold Coast and 15 per cent in Brisbane and Melbourne. In response, the NSW Government moved ahead with a $1-billion pre-sales guarantee this week in a bid to improve that. Where the legislation sits Koh says the recent sunset clause changes in Queensland “only went halfway” given they are only applicable to off-the-plan sales of non-strata land subdivision under the Land Sales Act. “So that leaves us now in a position where there is an opportunity to still terminate using the contractual sunset date clause for off-the-plan strata sales.” The issue, Koh says, is how these clauses are drafted. “Some are more one sided than others,” he says. “But there are also unfair term legislations out there at the moment and I wouldn’t be surprised if a buyer takes one of these cases in future and probably runs an unfair term argument, which, to my knowledge, no one to date has done, but that is a real risk for developers down the track.” ▲ The project is on the Long Island Piazza, which Cavcorp said was focused around health and wellness. Keeping on the legislative safe side is wise, but it’s a reputational issue too. “The market is very savvy these days when they’re looking at off-the-plan contracts and given the current publicity regarding sunset clauses, buyers will be very cognisant about the issues,” Koh says. “Overly developer-friendly terms will just create a lot of unnecessary negotiations when it comes to signing up contracts. “There’s no point in a one-sided, developer-friendly contract because you won’t be able to rely on the clauses anyway.” Cavcorp is returning to court in October with its appeal against the Supreme Court judgment. It is undoubtedly a case that will be closely watched by the industry.

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