Can I cancel a property contract if I change my mind?

Not easily with standard conditions. If you want to cancel due to non-satisfaction of a condition like LIM or builder's report, you may need to provide a detailed explanation and evidence to the vendor. A due diligence condition offers more flexibility to cancel without providing reasons.

Can I use declined finance to cancel a property contract?

Only if your finance condition was included in the agreement AND your lender actually declines the loan for that specific property. If lending is still approved despite any issues discovered, you cannot use the finance condition to back out of the contract.

What happens if I try to cancel using a builder's report condition?

You must specify why approval is withheld and, if the matters can be remedied, what you require the vendor to do before cancelling. Minor or cosmetic issues may not be sufficient grounds, especially if a reasonable purchaser would have been aware of the property's condition before making an offer.

What is the best way to protect myself when making an offer on a property?

Request a due diligence condition that allows cancellation without providing reasons. If the vendor won't agree, insert specific conditions with clear grounds for cancellation - for example, stating a repair budget above which you can cancel. Always seek legal advice before signing.

Cancelling a Contract

Schnauer & Co Lawyers covered the various changes to the current ADLS Agreement of Sale and Purchase of Real Estate (Eleventh Edition) 2022, in our article "Legal Toolkit: Expert Tips for First Home Buyers – Part 2".

We would like to provide an example of why cancellation under standard conditions isn't always easy!

Important: In certain circumstances purchaser/s must provide a satisfactory explanation of the grounds relied upon by the purchaser, together with supporting evidence, immediately on request by the vendor when trying to avoid a contract due to non-satisfaction of a certain condition.

A Real Example

We had a first home buyer that never sought legal advice from us previously and we only met with him once he had already signed an agreement. The offer was accepted with only a LIM condition (just the basic option on the front page) with a very short time frame. Once we had a chance to review the agreement, title, LIM report and builders report we were able to point out various issues with the build and it turns out the client did not understand the restrictions on the title either. Basically, the client had a change of heart and wanted out.

We had to explain that if he used the LIM condition to cancel then the vendor can ask for detailed explanation/evidence and a chance to remedy. Especially in that market at the time where there were not a lot of prospective purchasers lined up to make back-up offers, we were very concerned about the validity of that claim being challenged.

The Finance Condition Trap

Just because you have finance approval, doesn't mean you should make an offer without a finance condition as the bank still need to approve the property as adequate security. It turns out, even if our client had selected the finance condition, he could not have used declined finance as a way out of the contract as lending was still approved after disclosure of the defects.

Builder's Report Conditions

Even if our client's offer had a standard builder's report condition, if there is an issue, the notice must specify why approval of the condition is withheld and, if those matters are capable of remedy, what the purchaser reasonably requires to be done by the vendor to remedy those matters before the agreement is cancelled.

Important: It is not as simple as personally not being satisfied with the builders report or just cancelling the contract because the vendor declined to remedy all or some of the issues raised. Some minor or cosmetic issues may not be material enough as it could be argued that you would have been well aware of the condition of the house before you put your offer in. Or that a reasonable purchaser would consider the age and condition of a house when submitting an offer.

The Due Diligence Solution

So in this scenario, if the purchaser was in a hurry then he should have called us and asked for a suitable due diligence condition which would allow him to cancel simply due to a change of heart (no obligation or evidence required to provide a reason for backing out).

Better Options:

Request a due diligence condition that allows cancellation without providing reasons
If the vendor won't agree to such a favourable condition, insert specific conditions into the further terms regarding finance, builder's report, LIM report, etc.
State specific grounds for cancellation - for example, if you have a budget for repairs and any amount above that gives you the option to cancel
Remember: any conditions inserted into the further terms of the agreement will supersede the general terms

The Outcome

Going back to our client's case, we cancelled under the only condition he had (LIM) and our client had a very stressful week waiting to see if it would be challenged and whether he would see his deposit again. Luckily, we managed to locate some discrepancies in some old building plans and Council paperwork. We questioned whether the vendor had done works without the necessary consents and asked for evidence that there wasn't a breach of vendor warranties due to lack of final sign off. Luckily for our client, this vendor let the contract be avoided and the deposit was returned.