Can you break or terminate a real estate contract?

You can get buyer's remorse from something as small as a chocolate bar impulsively picked up at the self-serve counter. So, it's safe to assume you can also feel regret during property transactions.

As a rule of thumb, larger transactions can bring a greater potential for remorse.

The same is probably true for sellers. Any reservations about selling the family home could be amplified tenfold the moment a contract of sale becomes binding.

Most of the time, both buyer and seller eventually overcome any initial anxiety about whether they made the right call. In exceptional cases though, when one party truly wants to back out, it can be difficult to pull the plug.

However, in certain circumstances, legally cancelling a property transaction might be a possibility.

Can you break a real estate contract?

Once a contract of sale becomes legally binding, both buyer and seller are obliged to fulfill their obligations. That means, if one party wants to renege on the deal, they can't unless the contract permits it.

For example, many property contracts include a 'subject to finance' clause which voids the deal if the buyer can't get the necessary home loan. Without this clause, the buyer would have an obligation to follow through with the purchase, even if they couldn't get finance. If they couldn't pay for the property in cash, the seller could keep their deposit and might be able to claim for damages if the property is subsequently sold for a lower price than initially promised.

A subject to finance clause is just one example. Beyond the normal elements of a common law contract, there's a wide range of clauses you might find in a property sale.

Some contracts are subject to the outcome of building and pest inspections, while others might have a much longer cooling off period than is mandatory in their state or territory.

If you wish to back out of a property transactions, the terms of your contract are what matters. If you want to cancel the contract for a reason that's not permissible by the terms, pulling out would be in breach of said contract.

Though, if both buyer and seller were to change their minds, the contract could be voided through mutual agreement.

Can a buyer break a real estate contract?

A buyer can pull out of a real estate deal without (major) penalty, as long as they do so during the 'cooling off period'.

Most states and territories have a mandatory cooling off period after the contract of sale has been agreed upon and before it becomes binding.

The cooling off period is an opportunity for the buyer to check over the contract closely and perform inspections, such as a building and pest inspection, to ensure everything's in order before they're locked in.

Once the cooling off period is up, the buyer has a legal obligation to purchase the property. They can't cancel the contract unless the reason they're doing so is specified in a clause, like a subject to finance clause.

Can a seller cancel a real estate contract?

Once a seller agrees on a deal and signs the paperwork, they're obligated to sell to that buyer.

The cooling off period does not apply to the seller, so they can't simply renege if they get a better offer the day after signing the contract.

In some circumstances, a seller is allowed ditch one buyer to find another.

For example, a subject to finance clause normally gives the buyer a set amount of time to find a loan. If that elapses, the seller can generally start to look for an alternative buyer.

If a buyer breaches the sale contract (for instance, if they don't pay the deposit in time), this also generally gives the seller grounds to cancel.

How to terminate a real estate contract as a buyer

If you're experiencing buyer's remorse, here are some of the ways you might be able to cancel a contract of sale:

During cooling off period

The cooling off period gives a buyer the opportunity to back out of the deal before it becomes legally binding.

Most states and territories have a mandatory cooling off period for all residential property transactions (except those entered into at auction), while in others a cooling off period is an optional clause that can be included in a contract of sale.

If a buyer cancels during the cooling off period, they're likely entitled to get their deposit back, minus any cancellation charges. Such cancellation charges are normally a small percentage of the purchase price.

The cooling off period doesn't apply to sellers and can normally be waived, reduced, or extended by agreement between seller and buyer.

As of July 2024, here are the current rules in each state:

	Mandatory cooling off period (business days)	Penalty for cancelling
New South Wales	Five days	0.25% of purchase price
Victoria	Three days	The higher of 0.2% of the purchase price or $100
Queensland	Five days	0.25% of purchase price
Western Australia	None
South Australia	Two days	$100
Tasmania	Three days (not mandatory, but 'highly recommended')
ACT	Five days	0.25% of purchase price
Northern Territory	Four days	None

Cancelling because of a 'subject to' condition

If there's a clause in your contract of sale noting that the transaction is 'subject to' something-or-other, the clause itself will generally dictate the circumstances you can cancel.

For example, a subject to finance clause might require the buyer to take all necessary steps to secure a loan, and if they're unable to, they wouldn't have to proceed with the purchase. However, a buyer shouldn't rely on this clause as a 'catch-all' exit strategy. In a 2013 Queensland case, it was ruled that a buyer could not terminate a property deal under the subject to finance clause as they had specified ING as their lender but applied for finance with a different lender instead.

Similarly, a 'subject to satisfactory building and pest inspection' clause will usually specify that the inspection must be conducted by a professional. It's not grounds to terminate if your Dad has a dodgy feeling about the plastering.

Again, the success of such clauses will vary from contract to contract. If you're hoping to cancel a contract of sale based on a 'subject to finance' or 'subject to satisfactory pest inspection' clause, you (or your conveyancer) should read the small print to work out whether you can do so.

After offer goes unconditional

Once the contract goes unconditional, the buyer is legally required to follow through with the purchase.

Unless there's a clause that allows you to cancel, you can't simply tell the seller you've changed your mind and you don't want the house any more.

If you don't then follow through with the money, the seller will likely keep any deposit you gave them and will probably be able to pursue you for damages if they subsequently incur any losses. If they end up selling the house for less than you had agreed to buy it, they may have legal recourse to claim the difference from you.

Though, there is an exception if you're cancelling because the seller significantly misrepresented something in the contract. Australian consumer law prohibits any seller from inducing a buyer into a contract through misrepresentation or by failing to disclose all necessary information. So, if you want to cancel the deal because the seller didn't let you know about an easement they were required to disclose, you should be able to do so.

The importance of contractual clauses in real estate transactions

If you've changed your mind about a property after the contract becomes binding, reversing it isn't as simple as bringing your receipt back to the store.

Even when there's a good reason for doing so (say, a termite infestation), you still might not be able to rip up the deal if the necessary contractual provisions aren't there.

This is why the contract of sale is so crucial. It can be well worth paying a conveyancer to assess and amend the contract before you sign it to ensure you're covered for every eventuality.

Even if you don't expect to need clauses like 'subject to finance' or 'subject to satisfactory building inspection', the downsides to ditching them are potentially catastrophic. Even if it means pushing back settlement, that could be a small price to pay.

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