Can a buyer or vendor cancel a Contract of Sale in NSW?

When entering into a contract in NSW, it’s important that both the vendor and purchaser understand and are comfortable with what that contract entails. If you’ve entered a contract to buy a property, it can be a complex matter backing out of the agreement.

This is because there are a limited number of circumstances in which either party can pull out of the contract.

Such circumstances fall into three main categories: failure to attach a required document to the contract, failure to include a prescribed term in the contract and breach of an implied warranty by the vendor.

Here, I will outline some of the circumstances in which a party to a contract for residential property might be able to back out of a contract after exchange.

Can a vendor cancel a Contract of Sale in NSW?

As a vendor, there aren’t a lot of ways you can cancel a contract following exchange and they largely depend on the purchaser of the property. Examples include the purchaser breaching an essential part of the contract or if the purchaser makes a claim for compensation under the contract after exchange exceeding 5% of the price.

However, as the vendor you can exercise a right of recission that is specifically included in the contract. A right of rescission is when a contract contains a clause which gives a party the right to rescind should a certain thing occur or fail to occur.

For example, some subject to finance clauses provide that either party can rescind if the purchaser’s finance is not approved by a set date.

If the purchaser fails to pay the deposit for the property, this may also be grounds for termination of the contract. If you and the purchaser agreed to have the deposit paid via instalments and the purchaser fails to do so, this might be a breach of contract, and you could terminate the contract.

For example, say your contract contains a condition allowing for payment of 5% on the day of exchange and the remaining 5% of the deposit by the 10th of the month after the exchange. If your purchaser does not pay that second instalment on time, you might be able to terminate the contract and keep the initial payment.

Some contracts also contain a provision which allow you to recover the unpaid portion of the deposit.

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

Can a buyer pull out after exchange of contracts in NSW?

Once contracts are exchanged, and the cooling off period has expired, the purchaser is able to rescind the contract in certain circumstances.

In NSW when you sell a property, you are required to have a contract which contains certain documents, called vendor disclosure documents.

The documents include title searches, drainage diagrams and a Council Planning Certificate. The Council Planning Certificate contains lot of information such as whether the property is bush fire prone or in a heritage zone.

If any of these vendor disclosure documents are missing, the purchaser may rescind the contract. If a purchaser wishes to rescind due to a failure to attach a required document, this right must be exercised within 14 days of the contract date. This means you cancel the contract, and it becomes null and void and you would have no further obligations to the vendor.

What’s important here is that for the purchaser to have a right to rescind, it only takes one of these documents to be missing from the contract.

Real life case

We recently assisted a purchaser who bid at auction without obtaining advice in relation to the contract for the property.

The contract contained some information which changed the purchaser’s mind about wanting to proceed with the purchase.

Following the auction, we reviewed the contact and discovered that a vendor disclosure document was missing. We were instructed to serve a notice of recission, and the purchaser obtained their full deposit back.

As a vendor wishing to sell their property, whether at auction or otherwise, it is very important that all required documents are included in the contract to ensure that your purchaser does not have a right to walk away and get their deposit back.

Conclusion

When acting for vendors, the contract is always checked very thoroughly by our lawyers to ensure that all required documents are attached. We also obtain detailed and specific information regarding the property and the sale to ensure that the contract is prepared appropriately and protects the vendor.

For example, different water catchments areas have different drainage diagrams and it’s important to ensure the correct documents are obtained and attached to the contract.

If you are a buyer who is looking for a way out of a purchase, ensure you have your solicitor examine the contract carefully to see if any documents are missing contact our property team.