Schnauer & Co Lawyers covered the various changes to the current ADLS Agreement of Sale and Purchase of Real Estate (Eleventh Edition) 2022, in our article “Legal Toolkit: Expert Tips for First Home Buyers – Part 2”.

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

As we previously stated, in certain circumstances purchaser/s must provide a satisfactory explanation of the grounds relied upon by the purchaser, together with supporting evidence, immediately on request by the vendor when trying to avoid a contract due to non-satisfaction of a certain condition.

For 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 if he used the LIM condition to cancel then the vendor can ask for detailed explanation/evidence and a chance to remedy.  Especially in that market at the time where there were not a lot of prospective purchasers lined up to make back-up offers, we were very concerned about the validity of that claim being challenged.

Just because you have finance approval, doesn’t mean you should make an offer without a finance condition as the bank still need to approve the property as adequate security.  It turns out, even if our client had selected the finance condition, he could not have used declined finance as a way out of the contract as lending was still approved after disclosure of the defects.

Even if our client’s offer had a standard builder’s report condition, if there is an issue, the notice must specify why approval of the condition is withheld and, if those matters are capable of remedy, what the purchaser reasonably requires to be done by the vendor to remedy those matters before the agreement is cancelled.  So, it is not as simple as personally not being satisfied with the builders report or just cancelling the contract because the vendor declined to remedy all or some of the issues raised.  Some minor or cosmetic issues may not be material enough as it could be argued that you would have been well aware of the condition of the house before you put your offer in.  Or that a reasonable purchaser would consider the age and condition of a house when submitting an offer.

So in this scenario, if the purchaser was in a hurry then he should have called us and asked for a suitable due diligence condition which would allow him to cancel simply due to a change of heart (no obligation or evidence required to provide a reason for backing out).  Or if the vendor wouldn’t agree to a condition which is so favourable to a purchaser, then specific conditions can be inserted into the further terms in relation to say finance, builders report, LIM report etc which states the grounds that cancellation could occur.  For example, a purchaser may have a budget and any repairs required above that amount then the purchaser would want the option to cancel.  Any of your own conditions inserted into the further terms of the agreement will supersede the general terms in the agreement.

Going back to our client’s case, we cancelled under the only condition he had (LIM) and our client had a very stressful week waiting to see if it would be challenged and whether he would see his deposit again. Luckily, we managed to locate some discrepancies in some old building plans and Council paperwork.  We questioned whether the vendor had done works without the necessary consents and asked for evidence that there wasn’t a breach of vendor warranties due to lack of final sign off. Luckily for our client, this vendor let the contract be avoided and the deposit was returned.

If you have any questions, please contact the Property Team at Schnauer and Co Limited.

Kimberley Hunt
Senior Legal Executive
Email: Khunt@schnauer.com
DDI: 09 892 0351