So you’ve signed a contract, and now you want to get out of it, what are your options?
Below are a few different ways for you to avoid an exchanged contract.
Purchaser’s options to terminate
(for Vendors scroll down to the section below)
Cooling off period
If you’ve purchased a residential property through private sale, you are entitled 3 clear business days of the cooling off period. During that period, you may elect to end the contract if you wish to do so. However, there is a catch.
If you end the contract this way, you are entitled to a refund of all the money you paid except for $100 or 0.2% of the purchase price (whichever is more).
There are also exceptions. A purchaser’s right to cool off does not apply if:
- Property is bought at auction
- Property is bought within 3 clear business days before or after an advertised auction
- Property is used primarily for industrial or commercial purposes
- Property is more than 20 hectares in size and is primarily for farming
- You and the vendor previously signed a contract for the same property in substantially the same terms
- You are an estate agent or a corporate body
Building and Pest inspections
Contracts can be made subject to building and/or pest inspection clause. If certain requirements of that clause are met then you may have a right to terminate the contract. Most standard form building and pest inspection clauses give purchasers little room to easily exit. You can only exit if there’s a major defect or a major pest infestation affecting the structure on the property.
Alternatively, you may have your legal representative draft up a special condition to allow for greater flexibility to terminate. For example rather than using the words ‘major defect on the structure’, the contract may simply state that the inspection needs to be to your satisfaction. This ensures you will have rights to end if there is anything you are unhappy about. .
Loan approval
When purchasing in Victoria, it is common to make a contract subject to you obtaining unconditional loan approval to fund the purchase. But there’s also caveats around this condition. You would be required to immediately apply for a loan, and to do everything you can to obtain an approval. You also cannot be in default of the contract.
Other special conditions
You may discuss with your legal representative and have other special conditions drafted to allow you to end the contract if the conditions are not satisfied.
Defective Section 32
If the information supplied in the Section 32 Vendor Statement is false, inaccurate or if the vendor failed to provide required information required by law in the Section 32, the purchaser may have a right to end the contract.
Breaches of other laws
If the vendor fails to provide the required documents, for example, an owner builder defects report or required insurance in accordance with Section 137b of the Building Act, then the purchaser may have a right to end the contract.
Lack of authorisation of capacity
If the contract is not properly signed—such as when the signatory representing the vendor is not a director of the company or when someone signs under an expired or invalid Power of Attorney—the purchaser may have the avoid contract. Whilst this is not a right to terminate, it means that there will be no repercussions on the party who no longer wishes to proceed to settlement.
Material changes to the unregistered plan of subdivision
If the purchaser signed an off-the-plan contract, that is a contract that is pending title registration, if there is a material change to the unregistered plan of subdivision, the purchaser may have a right to end the contract but only within the required timeframe.
Misleading and deceptive conduct
Where the vendor or its agent has engaged in misleading and deceptive conduct in a commercial property or residential property that is transacted in ‘trade and commerce’, then one of the remedies includes termination of the contract.
Mutual rescission of the contract by agreement
If the contract is already unconditional, you may attempt to end the contract by mutual agreement. The other party is not legally required to agree, but can agree in good faith. The termination must be properly documented through the signing of a deed of cancellation.
Default and rescission
These tips can help a buyer exit the contract with minimal financial loss. However, if you can’t meet your obligations, you’ll be in default. The other party might give you 14 days to fix it. If you’re the buyer and can’t resolve the issue, you could lose your deposit, and the seller might claim additional costs and interest.
Vendor’s options to terminate
Lack of authorisation or capacity
Both purchasers and vendors can avoid the contract due to a signatory’s lack of authorisation or capacity. If a person signing the contract isn’t lawfully able to do so then the other party could seek to argue that the contract is unenforceable against them. This arises in scenarios where a power under a power of attorney is invalid, or a person seeks to sign for the company but isn’t a director or have authority to.
Repudiation
If the vendor states that he or she no longer wishes to be bound by the contract, or their actions suggest that they no longer wish to be bound by the contract, these acts can amount to ‘repudiation’. When repudiation occurs, the other party can elect to accept that repudiation and thereby terminate the contract. We need to be careful with this as wrongful acceptance could mean the person purporting to accept the repudiation might actually have repudiated themselves, thereby giving the original repudiator a right to seek damages.
Vendor’s default
As a vendor, if you are unable to complete the transaction as per contract, the purchaser is entitled to issue a default and rescission notice seeking reasonable foreseeable loss to be paid and giving you a period of time to rectify your default. If after the set period of time, the default is not rectified, the purchaser can terminate the contract and obtain a full refund of the deposit.
The above commentary is general in nature and is not legal advice. You should not rely on it as it does not take into account your unique situation. If you have any specific questions regarding your contract, please contact us to obtain tailored advice for your situation.