Cancelling a Contract

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

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 relying on a LIM condition can involve explanation, evidence, and agreement-specific steps. In that market, where there were not many backup purchasers, we were concerned that the validity of the cancellation could be challenged.

The Finance Condition Trap

Having finance pre-approval does not mean it is safe to make an offer without considering a finance condition, because lenders may still need to approve the specific property as security. In this example, even if the buyer had selected a finance condition, he may not have been able to rely on declined finance if lending was still available after the defects were disclosed.

Builder's Report Conditions

Under the ADLS-style building-report condition, the report must be written, prepared in good faith by a suitably qualified building inspector, and unsatisfactory on an objective assessment. If a buyer wants to cancel under that condition, the vendor may be entitled to request a copy of the report.

The Due Diligence Solution

In this scenario, a buyer wanting broader flexibility could have asked a lawyer or conveyancer to draft an appropriate due-diligence condition before signing. Whether that allows cancellation for a change of heart depends on the exact wording agreed by the parties.

The Outcome

In our client's case, cancellation proceeded under the only condition he had, the LIM condition, and there was a stressful period while we waited to see whether it would be challenged. We identified discrepancies in old building plans and council paperwork, asked whether work had been done without the necessary consents, and sought evidence about final sign-off and vendor warranties. In that case, the vendor allowed the agreement to be avoided and the deposit was returned.