Can a buyer or seller cancel a contract for sale? (NSW)

The circumstances in which a buyer or seller can back out of a contract to buy or sell a residential property are limited. The three main categories of such circumstances are:

1. failure to include a prescribed term in the contract;
2. failure to attach a required document to the contract; and
3. breach of an implied warranty by the vendor.

Following are some of the circumstances in which a buyer or seller of residential property may be able to back out of a contract after exchange.

Can a vendor cancel a contract for sale?

In some circumstances, largely dependent on the purchaser’s actions, a vendor can cancel a contract following exchange. Examples include if after exchange the purchaser:

1. breaches an essential part of the contract; or
2. makes a claim for compensation under the contract exceeding 5% of the price.

A contract may specifically include a vendor’s right of recission: that is, when a clause in a contract contains gives a party the right to rescind should a specified event occur or fail to occur. For example, a subject to finance clause may provide that if the purchaser’s finance has not been approved by a specified date either party can rescind.

Other grounds for termination of a contract include where the:

1. purchaser fails to pay the deposit for the property; or
2. the purchaser agrees to pay the vendor the deposit via instalments and fails to do so.

For example, if the contract specifies that 5% of the deposit is paid on exchange and the remaining 5% two weeks after exchange and the purchaser fails to pay the second instalment on time, the vendor may be able to terminate the contract and keep the initial payment.

The contract may also provide that the vendor can recover the unpaid portion of the deposit.

Alternatively, if the vendor cannot on reasonable grounds comply with a purchaser’s requisition, they may also have grounds for backing out of the contract.

Can a purchaser pull out after exchange of contracts?

In certain circumstances, the purchaser can rescind the contract after exchange and after expiry of the cooling off period.

A contract for sale of a NSW property must contain vendor disclosure documents, including a title search, deposited plan, drainage diagrams and a council planning certificate. The planning certificate contains information such as whether the property is flood or bush fire prone or in a heritage zone.

To deny the purchaser the right to rescind the contract, the vendor must include in the contract all the required documents. For example, different water catchments areas have different drainage diagrams. The correct documents must be attached to the contract.

If any vendor disclosure documents are missing, the purchaser may back out and their deposit must be refunded.

If a purchaser wishes to rescind because a required document is missing, they must exercise this right within 14 days of the contract date.

If only one of these documents is missing, the purchaser can serve a notice of recission on the vendor.

Here to Help

Contact us if you are a vendor. We will ensure that the contract includes all required documents and obtain information regarding the property and the sale to protect your interests.

Contact us if you are a purchaser who is looking for a way out of a purchase.