(Vic) Help! How do I terminate a contract?

Discussion in 'The Buying & Selling Process' started by KateAshmor, 4th Sep, 2023.

Join Australia's most dynamic and respected property investment community
  1. KateAshmor

    KateAshmor Victorian Conveyancing Lawyer Business Member

    Joined:
    25th Jun, 2015
    Posts:
    711
    Location:
    Melbourne
    There are various ways a buyer in Victoria can possibly terminate a contract before settlement occurs.

    A prospective purchaser should never sign sign a contract without it being legally reviewed first, or at least without a "subject to legal review" special condition. However, sometimes mistakes are made in the heat and emotion of the moment (especially by first home buyers), so what are the options to terminate a contract before settlement?

    Firstly: if only the purchaser has signed the contract but not the vendor, and it's not immediately after the purchaser won an auction or under auction rules, then the purchaser can simply withdraw their offer, via an email to the real estate agent; something like: "My offer is hereby withdrawn." The contract was never completed because the vendor never signed it.

    If the purchaser signed the contract within the last three business days, and the vendor already signed it too, and if it's not under auction rules, then the purchaser can exercise their right to cool off. If the purchaser cools off (via them or their lawyer/conveyancer sending a formal cooling off email to the vendor's lawyer/conveyancer), the vendor is then entitled to require payment of 0.2% of the purchase price as the cooling off fee, regardless of whether any deposit funds have been paid yet (they or the real estate agent can send the purchaser a tax invoice for it).

    If the contract has a "subject to finance approval" or "Loan" clause, and the purchaser fails to obtain finance approval (because, for example, the bank's valuation came back too low), then the purchaser can terminate the contract due to failure to obtain finance approval. It is reasonable for the vendor to require a letter of proof from the purchaser's bank, and some contracts will state this as a specific requirement. The purchaser is then entitled to a full refund of their deposit. Notice of termination must be provided before the deadline in the contract.

    If the contract has a "subject to building and pest inspection" clause, and the inspector finds a major structural defect, or a serious pest infestation, the purchaser can terminate the contract and receive a full refund of their deposit - provided a copy of the inspector's report is given to the vendor's conveyancer. Once again, notice of termination must occur before the deadline in the contract.

    Some contracts will contain customised special conditions that the purchaser's lawyer prepared, requiring the vendor to do something by a certian date - such as provide copies of missing property certificates, or updated documents. If the vendor fails to comply with a customised special condition, the purchaser could possibly terminate the contract within the stated timeframe and receive a full refund of their deposit. These types of special conditions must be carefully worded by the purchaser's lawyer (not the real estate agent) to be enforceable.

    Termination of the contract can also occur due to certain events such as a party becoming bankrupt or insolvent, or mentally incapacitated. The death of a party does not necessarily end the contract, as the deceased's party's estate could still be responsible for the completion of the contract. The legal doctrine of frustration is another way a contract can be terminated, due to impossibility, but that is rarely applied in conveyancing contracts.

    Perhaps the most dramatic way a contract can be rescinded (terminated) is pursuant to Section 32K of the Sale of Land Act (Vic). This can occur at any time up until settlement, if the vendor failed to include compulsory documents/information in the vendor statement/section 32, which have detrimentally impacted the purchaser and what they paid for the property, or their decision to purchase the property at all. It is extremely foolish of a vendor to deliberately withhold adverse information from a vendor statement/section 32 (such as a Section 137b owner builder defect report for recent illegal building work, or minutes from the most recently held Owners Corporation AGM where serious building defects were discussed). If the purchaser discovers hidden adverse facts before settlement, which the vendor should have disclosed earlier, then the purchaser can terminate the contract, and receive a full refund of their deposit, even if they purchased the property at an auction. And the vendor would need to sell the property again and pay commission to a real estate agent again = likely a financial disaster for the vendor.

    Note: the above is general information, relevant in Victoria only, and should not be considered as legal advice.

    Folks, what are you experiences with contract termination/rescission? :confused:
     
    craigc and Zyzz like this.
  2. binky

    binky Active Member

    Joined:
    28th Aug, 2023
    Posts:
    26
    Location:
    Melbourne
    I just had a horrible experience and had to cool off a contract.

    On contract negotiated with vendor for only subject to major defects. Organised for inspector through a building inspector company and the inspector found one major defect. Sent to vendor conveyancer and asked to withdraw offer. They then asked for the registration number of inspector. Then found out our inspector wasn't registered and he was going to draft some document that would take a day. I panicked and decided to cool-it-off in case the report wasn't valid.

    Now I don't understand the point of a subject to building inspection within cooling period if the vendor can dispute it and put you out of the cooling period.
    Is the lesson here only to make sure the inspector is registered? Or is subject to building inspection inherently risky?
     
    Last edited: 7th Sep, 2023
    Zyzz likes this.
  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,080
    Location:
    Sydney
    Registered for what ...to do P&B reports ? There is no single formal qualification. If I saw my sons proposed purchase and noted a termite mound in the dining room that he thought was a art installation it would be a major defect detected in a building inspection. I am an accountant. The drafting of special conditions is important hence Kates well worded advice. I imagine a legal adviser would have creplied to the request by a conveyancer for a registration number with a refusal unless the contract was specific to such a condition. A example of this problem includes vague conditions eg "defects" or a borrowing condition which is broad and could allow ANY lender (incl the vendor) rather than the expected bank the buyer proposes. And what does "loan approval".. mean. Unconditional loan approval isnt as unconditional as many believe. Eg a lender could refuse a loan that was approved the day of settlemnet if they learn facts not known earlier. eg death of a borrower ? Bankruptcy proceedings etc

    A prospective purchaser should never sign sign a contract without it being legally reviewed first
     
    KateAshmor and samiam like this.
  4. binky

    binky Active Member

    Joined:
    28th Aug, 2023
    Posts:
    26
    Location:
    Melbourne
    I had the same thought as nowhere in contract it said the Inspector had to be registered, but our conveyancer said we have to provide the requested information....
     
  5. KateAshmor

    KateAshmor Victorian Conveyancing Lawyer Business Member

    Joined:
    25th Jun, 2015
    Posts:
    711
    Location:
    Melbourne
    @binky yikes! What was the exact wording of the "subject to building and pest inspection" clause/condition please?
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,420
    Location:
    Australia wide
    That seems to be unlikely
     
  7. binky

    binky Active Member

    Joined:
    28th Aug, 2023
    Posts:
    26
    Location:
    Melbourne
    Building & Pest Inspection
    This offer is subject to and conditional upon the purchaser obtaining a building and pest inspection report from an inspector of their choice. If the report indicates any major structural defects or live pest infestation the purchaser may rescind this contract and all monies paid will be refunded providing the purchaser supplies a copy of the building and pest report to the vendors conveyancer. This clause is valid for 3 clear business days from the date of sale.
     
    KateAshmor likes this.
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,420
    Location:
    Australia wide
    Where is the requirement that the inspector be registered? Who would they be registered with and what for even?

    By not using a solicitor you have possibly cost yourself money. How much did you lose by using the cooling off period?
     
    craigc and KateAshmor like this.
  9. binky

    binky Active Member

    Joined:
    28th Aug, 2023
    Posts:
    26
    Location:
    Melbourne
    $2k, lesson learnt…
     
    KateAshmor and Terry_w like this.
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,420
    Location:
    Australia wide
    not too bad, but a fair whack
     
  11. KateAshmor

    KateAshmor Victorian Conveyancing Lawyer Business Member

    Joined:
    25th Jun, 2015
    Posts:
    711
    Location:
    Melbourne
    @binky you may wish to explore lodging a professional indemnity claim against the conveyancer's insurer, for negligence. Conveyancers can't give legal advice.
     
    craigc, binky and Terry_w like this.
  12. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    10,121
    Location:
    Australia
    Where did you find the conveyancer?
     
  13. binky

    binky Active Member

    Joined:
    28th Aug, 2023
    Posts:
    26
    Location:
    Melbourne
    Thanks for the advice. We will consider that. Can you point me in the right direction to lodge this?
    Searching the conveyancers website I am not able to find their insurer information. Do I need to engage a lawyer to lodge this claim?
     
  14. KateAshmor

    KateAshmor Victorian Conveyancing Lawyer Business Member

    Joined:
    25th Jun, 2015
    Posts:
    711
    Location:
    Melbourne
    @binky Consumer Affairs Victoria regulates conveyancers in Victoria. Here is a good place to start.
     
    binky likes this.
  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,080
    Location:
    Sydney
    Generally you make a claim to the conveyancer for loss or damages. You cant claim on their insurance. They will advise their insurer of a potential claim. The insurer may seek to defend and may contest the claim and fund a legal defence. It would be wise to seek legal advice before commencing a action to mitigate loss or damages through a claim which could fail. If its on sound grounds then the legal adviser may suggest it proceed and they may assist to make the claim. as your legal representative. They would include their costs as a element of loss and put the conveyancer on notice for that.

    What isnt clear is why and who made a decision to terminate the contract. If the conveyancer said nothing it may be the buyers own choice based on a flawed assumption which legal advice could have confirmed as incorrect. This is a great example why using a solicitor to convey title is better than a conveyancer. The conveyancer may have grounds to say - I cant give legal advice and the buyer made that choice themself. But if the conveyancers said...you could use the cooling off period you really may need that in writing or heard by others. .
     
    KateAshmor likes this.
  16. binky

    binky Active Member

    Joined:
    28th Aug, 2023
    Posts:
    26
    Location:
    Melbourne
    Thanks.
    We made decision to terminate contract during cooling-off. Like you said the conveyancer was off no help at all on what we should do and even stopped responding to our questions at later stages. She told us that we have to provide all information requested by vendor's conveyancer regarding registration number of inspector. From my understanding I thought this was the standard process. We got concerned after not finding the inspectors registration online (Practitioner Search (vba.vic.gov.au)). We sent email ourselves to vendor's conveyancer at 4:58pm after being completely lost on what to do. The big worry was that we will lose our entire deposit if we passed cooling period and there was an issue with the building inspection report.
     
    Terry_w likes this.
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,420
    Location:
    Australia wide
    Have you paid the conveyancer yet?
     
  18. binky

    binky Active Member

    Joined:
    28th Aug, 2023
    Posts:
    26
    Location:
    Melbourne
    Yes, we had her name in contract and signed off declaration to represent us, so I thought we should make payment regardless of how unhappy we were.
     

Not all tax advisers are property focussed specialists and DIY errors will always cost you. We know property taxes and will advise and get it right. Even a second opinion. Contact us for an obligation free initial consult (conditions apply).