Court orders developer to pay millions to apartment buyer over illegal sunset clause move

A Queensland property developer who tried to renege on an off-the-plan property sale after the two penthouses in question had soared in value has lost a court case brought against him by the buyer.

Cav Gasworks, owned by developer Damien Cavalucci, had tried to invoke a sunset clause in the contract in 2023, long after it was signed by Brisbane businesswoman Yiping Jiang in 2017.

The state’s Supreme Court ordered the company to repay $6.1 million to Ms Jiang to cover the capital gain losses incurred from the time she paid $4.2 million for the lots that were later sold by the developer for $10 million after the invocation of the subsequently invalid sunset clause.

The properties were found to have a market value of $10.3 million when they were illegally re-sold in September 2023 and May 2024.

The luxury penthouses were in the Luminare apartment building in Newstead.

Sunset clauses have been misused around Australia as booming property markets tempt developers to exit contracts where they had sold their properties off-the-plan in advance for cheaper prices.

A sunset clause in an off-the-plan contract allows a party (usually the developer) to terminate the contract if the project is not completed by a certain date — the “sunset date”. These clauses were originally meant to protect buyers from open-ended delays but have increasingly been used by developers to cancel contracts in a rising market and resell at a higher price.

Sunset clause laws differ significantly between Australian states and territories, both in terms of scope (what types of contracts are covered) and protections (what developers are allowed to do).

The Cavcorp (trading name of Cav Gasworks) case in Queensland has highlighted how limited protections still are in that state, particularly compared to others like New South Wales and Victoria.

The decision in favour of the original buyer, Ms Jiang, was only reached because the case exposed the loophole that, because it involved a penthouse (strata title), not land, these protections didn’t apply. This legal grey area will remain unless legislation is amended to include apartments/units.

Cavcorp actions not an isolated case

Speaking anonymously for fear of retribution from potential and existing clients, a prominent Brisbane licenced real estate agent told Australian Property Investor Magazine that “the absolute right decision has been made against the developer.”

“Without the initial contracts from the buyers, developers are not even in a position to get the development to start.

“At the time of entering the initial contracts at the time of the launch, the buyer in this case was in fact paying record price levels at that time to secure the property, and that was without knowing if the property would increase in value by the time of completion.”

It’s not the first time this agent has witnessed such unscrupulous practices.

“I know of a developer who recently tried to coerce the buyer who bought off-the-plan and decided to sell once the project completed, who had enjoyed a large price increase, not to sell their property on the open market.

“The developer in return would release them from the contract as to not pay stamp duty.

“The developer would then sell the apartment to another buyer at the heavily increased price and share the increase in price 50/50 between the developer and initial buyer.”

Unsurprisingly, the buyer did not play along.

“The buyer was disgusted with the developer and refused, as he argued that if the property had decreased in price between the contact price and the valuation upon settlement, there is no way the developer would have let him out of the contract, sold the property at a lower price and then shared the loss.

“The developer would have forced settlement.”

Our source said not all developers deserved to be tainted by the practices of the few.

“I spoke with a developer today (18 June) who could instigate the sunset clause, as the valuations today have more than doubled since the initial contracts were issued.

“They have decided against doing that even though even though the increase in sales values would be in the tens of millions of dollars, as they respect and acknowledge that without these initial buyers having faith and trust in the developer, the developer would not have been able to start in the first place.”

Vast state-by-state disparities in sunset clause laws

Buyers, meanwhile, in many cases remain at the mercy of the developers’ whims due to the legal ambiguity from state to state.

In Queensland, current protections are limited to off-the-plan land sales only (not apartments or strata).

Since 22 November 2023, developers must: get written consent from the buyer; obtain a Supreme Court order, or fall under a specific legal exception.

NSW has the strongest buyer protections.

Since 2015, developers can only terminate a contract under a sunset clause with the buyer's written consent or a Supreme Court order. The developer must prove the termination is “just and equitable”. Courts in NSW often side with buyers if there’s evidence of a price-motivated cancellation. The laws cover both land and strata.

Protections in Victoria were strengthened in 2019. Developers cannot rescind under a sunset clause without written consent or court approval.

Laws apply to residential off-the-plan sales — including apartments. The developer must justify that termination is in good faith and not exploitative.

Other states and territories are less thorough.

Australian Capital Territory and South Australia have some provisions, though less stringent. Western Australia, Northern Territory and Tasmania currently have minimal regulation, though reform has been discussed in some jurisdictions.