When buying or selling a home, having a contract fall through can be a big concern. It doesn’t happen often, but it can happen, so it pays to be prepared. This article covers what can cause a contract to fall through, and what happens if it does for both buyers and sellers. We will also cover the role of Queensland conveyancers in this process, as conveyancers are your legal representatives and invaluable during a property transaction.
What is a real estate contract in Queensland?
In real estate transactions, the contract is the most critical piece of the puzzle, but even after it’s signed, there are parts of the process that need to be completed before the sale is 100% finalised. The contract outlines the terms of the sale and confirms the property details, the price and financial information, the settlement timeline, the cooling-off period, default and termination clauses, as well as any special conditions.
Those last three; cooling-off period, default and termination clauses, and special conditions, that allow one party to back out of the sale, but only under specified circumstances.
The cooling-off period is five (5) business days as standard in Queensland, but it can be waived, as it is in auction sales. There is a 0.25% penalty if the buyer terminates during this period, so it doesn’t come without consequences, but it is part of the contract.
Default and termination clauses are included to protect both parties if the other fails to meet the obligations stated in the contract. Most often this will be things like missing settlement deadlines, failing to secure finance, or refusing to settle. Both the buyer and the seller are able to use this clause but should seek legal advice from your conveyancer before taking any action.
Special conditions are the most likely of these three to cause problems, and also the most legally complex. These are conditions that are specifically outlined between the buyer and seller’s conveyancers to meet the needs of the people entering into the contract. Some common examples of special conditions are:
- Building and Pest Inspection Clause (allows the buyer to withdraw if major defects are found)
- Subject to Sale Clause (if the buyer must sell another property first)
- Other negotiated conditions (e.g., early access, furniture inclusion, etc.)
Common reasons property contracts fall through in Queensland
Cooling off period
One common reason that your property transaction might fall through is through the cooling-off period outlined in the contract. Buyers typically have 5 business days to back out of the contract but will forfeit 0.25% of the contract price as a result. The remainder of the deposit is typically refunded promptly after termination, as it is held in a trust account by the stakeholder (usually the real estate agent or solicitor). While there is no set statutory timeframe, the refund is generally processed within a reasonable period, often within 14 days.
Under Queensland law, the deposit holder is required to refund the buyer’s deposit within 14 days after the contract is validly terminated. This timeframe helps ensure timely resolution and protects both parties’ interests.
For buyers, the cooling-off period is an important opportunity to make sure that everything is in order. This time will be well spent conducting detailed inspections, like pest and building inspections to uncover any issues that have not been disclosed before it’s too late. This is also the time to ensure that your financing is all in order and you haven’t overcommitted. This is also the time to work with your Queensland conveyancing lawyer to review the contract thoroughly and ensure that you understand and accept the terms in their entirety.
Finance issues
The buyer’s financing is another common reason a contract might fall through. Typically buyers will sign the contract with pre-approval for your mortgage, and then typically have 14 days to finalise financing, although the timeframe can be negotiated. Sometimes, for a variety of reasons, financing does not come through for buyers and they will then need to terminate the contract per the contract’s finance clause.
The important thing to note here is that before buyers can terminate, they must take all ‘reasonable steps’ to secure financing, and must provide proof that satisfactory financing was not finalised.
If buyers meet the criteria for termination under the finance clause within the agreed timeframe, they are entitled to receive back the full deposit from the sellers.
Unsatisfactory property inspections
Once a contract is signed, one of the first steps that should be taken is to engage an inspector to complete a pest and building inspection. As the buyer, it is recommended to attend these inspections because it gives you a far better understanding of the findings to be able to physically see any issues rather than just reading about them. It will also give you a better understanding of whether these issues are something you are willing to buy into, or whether they represent grounds to terminate.
Terminating a contract as a result of an unsatisfactory inspection is somewhat subjective, but the guideline is that you must act reasonably, and there must be a significant issue discovered that was not disclosed previously.
Buyers must act reasonably when deciding to terminate due to inspection results. Minor defects or issues that would not materially affect the property’s value or safety typically do not justify termination. It generally requires significant, previously undisclosed problems to validly terminate under this clause.
In addition to the buyer’s opportunity to terminate as a result of the inspections, sellers generally do not have the right to terminate due to inspection results. However, if a buyer fails to comply with a contract obligation, such as notifying the seller of the outcome within the specified timeframe, it may be considered a breach. In that case, the seller may have legal grounds to terminate, but this would depend on the specific wording of the contract and advice from the conveyancer.
Sellers’ rights to terminate the contract are usually limited to specific breaches by the buyer, such as failing to meet contractual deadlines or defaulting on obligations. Simply receiving an unsatisfactory inspection report does not give sellers an automatic right to terminate. Legal advice is essential to understand the precise terms and options available.
Failure to meet contract conditions
Special conditions, also known as ‘subject to’ clauses, are parts of the contract that specifically outline the conditions under which the contract will not be considered valid. The typical clauses are financing and inspections, which we have discussed above, but many buyers and sellers negotiate specific clauses for their situations, which can cause problems if they are not properly understood or actioned upon.
A subject-to-sale clause is one example of a special clause, where the sale of one property hinges upon the sale of another. This is when the buyer needs time to sell one property so that the sale can fund the purchase of this property. The timeline of this condition is generally longer than most other clause types, sitting at 30 to 60 days typically.
Another specific clause that may come up is an approvals clause, where building permits or other approvals must come through in order for the contract to go unconditional.
Special conditions will always have timeframes specified and it is important to keep track of these timeframes and ensure that you are working within them as much as possible to avoid jeopardising your sale or purchase.
For conditions requiring approvals, such as council permits or planning consents, the timeframe can vary widely depending on the complexity of the process and local regulations. These clauses are more common in development or renovation purchases than in standard residential transactions but can still arise in specific cases.
Legal issues
This last potential reason for contract termination, legal issues, can be largely avoided by engaging with the right conveyancing lawyer on your team. Things like title disputes, zoning restrictions, or contract misinterpretations can pose a risk to your transaction if your conveyancer does not conduct a thorough contract review at the beginning of the process, and communicate the findings clearly to you.
What buyers should do when a contract falls through
If a property contract falls through, it’s important to regroup and move forward strategically. Start by understanding why the deal failed, whether it was finance, a failed inspection, or contract conditions, and work with your conveyancer to address any issues before making another offer. Review your budget, reassess your loan pre-approval, and refine your search criteria to avoid similar pitfalls. Staying proactive and seeking expert guidance will help you re-enter the market with confidence and secure the right property.
Understanding your rights and obligations is the first key step in navigating the dissolution of the contract. Review all of the details with your conveyancer and ask any and all questions you need to fully understand why the contract fell through.
As for the financial side of things, one of your bigger concerns is probably what happens to the deposit when a contract falls through in Queensland. Your deposit is held by a deposit holder in a trust until the settlement is finalised, which is when the money is released to the seller. As long as the contract fell through in alignment with the terms of the contract then you most likely will receive your deposit back in full. If, however, you defaulted on the contract or violated the conditions, then you will be at risk of losing your deposit.
If the contract is cancelled under a condition, the deposit is usually refunded to the Buyer. If the buyer defaults, they risk losing their deposit, either partially or in full.
What sellers should do when a contract falls through
When you end up with a failed property contract Queensland, sellers often experience a mix of stress, frustration, and financial strain. The uncertainty of finding a new buyer can be overwhelming, especially if you are relying on the sale to finance another purchase. It’s important to take a proactive approach, and seek support from your conveyancer, real estate agent, and financial advisor to reassess your position and next steps. Understanding your legal rights and options can help you move forward with confidence.
Once the initial disappointment settles, relisting the property will be the next step. Your real estate agent can help you with how to relist your property after a failed sale, address any issues that may have contributed to the contract falling through, and attract new buyers. If the market has shifted, consider adjusting the price or offering incentives to secure a quicker sale. Being upfront about the previous contract can also help manage buyer expectations.
If the buyer defaulted, you may be entitled to retain their deposit depending on the contract terms. Your conveyancer will manage the process, ensuring the deposit is released to you if applicable. In some cases, you may also have grounds for legal action if the buyer’s breach resulted in financial loss. However, legal proceedings can be costly and time-consuming, so weighing the pros and cons with professional advice is essential.
A failed contract can be a learning opportunity. Your conveyancer can review your contract terms to ensure stronger protections in future sales, such as more precise special conditions or stricter buyer qualification criteria. By addressing potential pitfalls early, you can reduce the likelihood of another deal falling through.
How contract termination conveyancing can help when a contract falls through?
Legal advice contract termination and dispute resolution
A conveyancer plays a crucial role in interpreting contract terms and advising sellers on their legal rights when a property contract falls through. Whether it’s enforcing penalties for default, negotiating an extension, or guiding you through the termination process, their expertise ensures your rights are protected.
Liaising with other parties
Managing a failed contract requires effective communication between all involved parties, including the real estate agent, the buyer’s solicitor, and financial institutions. A conveyancer acts as the intermediary, ensuring all necessary steps are taken to either salvage the deal or proceed with termination in accordance with Queensland property law.
Managing contract termination procedures
If a contract is formally terminated, your conveyancer ensures that all legal requirements are met, including the proper release of the deposit and any necessary notifications to regulatory bodies. This process helps avoid further disputes and ensures a clean break, allowing you to move forward with a new sale.
Preventative measures for future transactions
To reduce the risk of future contracts falling through, a conveyancer can help structure your contract with clearer terms, stronger special conditions, and better buyer qualification processes. They may also recommend pre-sale due diligence, such as securing pre-approved finance for your next purchase or conducting early property inspections to prevent last-minute surprises.
By engaging a conveyancer early and ensuring solid contract terms, sellers can navigate the complexities of failed contracts with minimal disruption, allowing them to confidently move forward in the property market.
Disclaimer: The information in this article is general in nature and does not constitute legal advice. Every property transaction is unique, and we recommend speaking with our team to get advice tailored to your specific situation. If you’re dealing with a contract that has fallen through or want to ensure your next one is watertight, get in touch with our experienced conveyancing lawyers today.
