While rare, there are certain instances when a buyer or seller can cancel a real estate contract, even when it has been exchanged and signed.

However, there are rules and obligations to follow when terminating a signed property sale contract. Here’s what you need to know.

When Can a Buyer Cancel a Signed Property Sale Contract?

A property buyer can cancel a signed sales contract at the following times or conditions.

1. During the cooling-off period

The cooling-off period is the best time to cancel a signed real estate contract. This period gives the buyer time to consider their property purchase and withdraw from the contract without legal repercussions.

The duration of the cooling-off period varies from state to state, though. In Victoria, buyers of residential and small rural properties have a cooling-off period of 3 clear business days.

If the buyer cancels the contract during the cooling-off period, they should inform the seller in writing. They may also be required to pay a penalty, the amount of which depends on the state or territory.

On the other hand, the seller should return the buyer’s deposit in full less $100 or 0.2 per cent of the purchase price, whichever is greater.

Buyers benefit more from the cooling-off period, so they should make the most of this time by:

  • conducting thorough property inspections with a licensed builder
  • consulting with a lawyer to understand the terms of the contract
  • reviewing any signed legal documents to know your rights and obligations

2. Subject to conditions under the contract of sale

Subject to conditions are conditions in a contract that make the contract binding only when that condition is met. Common examples are below:

Rejection of the loan application

A contract of sale may include a clause explaining that the contract of sale is subject to finance approval. This subject-to-finance clause will often specify the lender, the loan amount, and approval date required.

With this condition, the buyer can withdraw from the contract in case of loan rejection within the specified time.

However, to successfully terminate the contract, the purchaser must prove they have been active in obtaining finance. They should also show that they did every reasonable step to get a loan approval.

The buyer should inform the seller of their failure to obtain finance in writing within the allowed period. If all processes are correct, the seller should refund all payments made.

Adverse building report

If the contract of sale states that it is subject to building inspection, the buyer can terminate it in case of an adverse report showing material issues.

A professional inspection reveals any structural problems requiring costly repairs or major reconstruction. It also spots issues like pest infestation and plumbing flaws. Its report should have a complete list of the property’s minor and major defects.

However, cosmetic issues in the property are generally not a reason to cancel a contract of sale. It generally requires a material issue to be shown in the report such as a major defect.

If the buyer plans to rescind the contract due to an adverse building report, they should immediately provide the seller with a written notice and a report copy.

When Can a Seller Cancel a Signed Property Sale Contract?

Compared with the buyer, the seller does not have too many options to back out from a signed contract of sale. Still, here are some situations when it could happen.

1. Purchaser fails to pay the full deposit

Failure to pay the deposit is the most common reason for a seller to cancel a contract of sale. However, the process can take time as the vendor needs to send a default notice to the buyer first.

This notice gives the buyer time to correct or remedy the default. As a seller, send a correct default notice to speed up contract cancellation should the buyer fail to act or respond. Sending a proper notice also ensures you get all reasonable costs and interest paid.

A successful contract termination allows the vendor to keep the property, retain ownership, resell it, or sue for damages.

2. Breach of contract

Not settling by the settlement date, repudiation of contract, and other similar contract breaches can be a seller’s reason for cancellation. The seller can also declare the agreement void in case of fraud or the use of illegal tactics to secure the contract.

These are complicated cases, though. Tread carefully and seek professional assistance to ensure your decisions are legally sound and correct.

Consult Legal Experts to Navigate the Contract Cancellation Process

A buyer or seller can cancel a real estate contract after signing. However, both parties should understand the circumstances under which they can legally withdraw from a signed agreement.

Consulting legal professionals is the first step in tackling this complex process. With an expert working with you, you can make informed decisions while protecting your rights.

TNS Lawyers can provide legal guidance and help you draft, review, or cancel a property contract. Contact us at +61 3 9052 3214 or email us at info@tnslawyers.com.au for assistance.