Once a Contract of Sale has been signed, buyers and sellers generally expect the transaction to proceed through to settlement.
But what happens if the contract is later terminated?
Can the buyer get the deposit back? Can the seller keep the deposit? Can the property be sold to someone else? And does termination automatically mean that everyone simply walks away with no further consequences?
The answer depends on why the contract is ending, what the contract says, and whether the termination is legally valid.
This article explains what buyers and sellers should know about property contract termination in Victoria.
What Does It Mean When a Property Contract Is Terminated?
Termination generally means that the parties’ contractual obligations to complete the transaction come to an end.
However, a contract does not necessarily become terminated simply because one party says they want to cancel it.
A property contract may only be brought to an end where there is a valid contractual or legal basis for doing so.
For example, the circumstances may include:
- a buyer exercising a valid cooling-off right
- a contractual termination right being properly exercised
- a buyer or seller being in default
- the parties mutually agreeing to end the contract
- a statutory right allowing one party to rescind or end the contract
- a particular special condition being triggered
The exact position depends on the circumstances and the wording of the Contract of Sale.
Is Termination the Same as Cooling Off?
No.
Cooling off is a specific statutory right available to a qualifying buyer in certain Victorian private property sales.
For residential and small rural property sales, a buyer generally has three clear business days to cool off, subject to the statutory exceptions.
The cooling-off period starts from the day the buyer signs the contract, not the day the seller signs it. The buyer must give written notice to the seller or the seller’s agent.
If the buyer validly cools off, they are generally entitled to a refund of money paid, less the statutory amount of $100 or 0.2% of the purchase price, whichever is greater.
Cooling off is therefore one particular way a contract can come to an end. It is not the same as a seller simply deciding to cancel the contract.
Can a Buyer or Seller Simply Cancel the Contract?
Generally, no.
Once both parties have signed the Contract of Sale, the property is considered sold, and the transaction proceeds toward settlement.
A buyer cannot generally say:
“I’ve changed my mind, so I don’t want the property anymore.”
Similarly, a seller cannot generally decide:
“I’ve received a better offer, so I want to sell to someone else.”
There may, however, be circumstances where a party has a contractual or statutory right to end the contract.
This is why it is important to look at the actual Contract of Sale and the circumstances surrounding the proposed termination before taking action.
How Can a Property Contract Be Terminated?
There are several different situations.
1. The Buyer Exercises a Valid Cooling-Off Right
As discussed above, a qualifying buyer may be able to cool off within the statutory period.
This is one of the most straightforward ways for a residential private-sale contract to come to an end.
However, cooling-off does not apply to every property transaction. For example, there are exceptions involving auctions, certain commercial or industrial properties, larger farming properties and other circumstances.
2. The Contract Gives a Party a Termination Right
Some contracts contain special conditions giving a party particular rights if certain events occur.
For example, a contract might contain conditions relating to:
- finance
- building or pest inspections
- particular approvals
- subdivision
- other specified events
Whether a condition actually gives a party a right to terminate depends on the exact wording of the contract and whether the relevant requirements have been satisfied.
A condition should not automatically be assumed to give a party an unrestricted right to walk away.
3. One Party Defaults
A buyer or seller may breach the Contract of Sale.
For example, a buyer may fail to perform an obligation required under the contract, or a seller may fail to meet an obligation.
Depending on the contract and the circumstances, the non-defaulting party may have rights or remedies, which can potentially include termination.
Consumer Affairs Victoria advises sellers to seek independent legal advice if a buyer defaults on the Contract of Sale or the agreed deposit.
This is an area where getting the correct advice before issuing a notice of termination or rescission can be particularly important.
4. The Buyer and Seller Agree to End the Contract
Sometimes both parties may agree that they no longer want to proceed.
For example, circumstances may change after the contract is signed and the parties may negotiate an agreed termination.
If this occurs, the agreement should be properly documented.
It is important to clearly address matters such as:
- whether the contract is being terminated
- what happens to the deposit
- whether either party will make any further claim
- what happens to any documents or property-related arrangements
- whether the parties release each other from further obligations
The exact terms should be reviewed carefully before the agreement is signed.
5. A Statutory Right to Rescind Applies
There are also circumstances under Victorian legislation where a purchaser may have a statutory right to rescind a contract.
For example, the Sale of Land Act 1962 (Vic) contains provisions concerning certain failures or inaccuracies in the Section 32 statement. In specified circumstances, a purchaser may rescind the contract before accepting title and becoming entitled to possession or rents and profits.
There are also specific provisions dealing with off-the-plan contracts and certain other circumstances.
These statutory rights can be technical, so a buyer should obtain professional advice before assuming that a contract can be rescinded.
What Happens to the Deposit After Termination?
This is one of the most important questions.
The deposit does not automatically go back to the buyer every time a contract ends.
What happens depends on the reason the contract ended and the applicable contractual and legal rights.
For example, the Sale of Land Act 1962 (Vic) contains specific provisions concerning deposit money where a vendor rescinds following purchaser default or a purchaser rescinds following vendor default. The Act also preserves certain court powers concerning deposits.
There can therefore be a significant difference between:
- a buyer validly cooling off
- a contract being mutually terminated
- a buyer defaulting
- a seller defaulting
- a purchaser exercising a statutory rescission right
- a disputed termination
Do not assume that “contract terminated” automatically means “deposit refunded”.
Can the Seller Keep the Deposit?
Possibly, but not simply because the seller wants to keep it.
If the buyer has defaulted and the seller has a valid contractual or legal right to terminate or rescind, the deposit may be dealt with differently from a situation where the buyer has exercised a valid cooling-off or statutory right.
Consumer Affairs Victoria specifically advises sellers to seek independent legal advice where a buyer defaults on the contract or agreed deposit.
If there is a disagreement about who is entitled to the deposit, the matter may require legal advice and potentially dispute resolution or court involvement.
What Happens to the Property After the Contract Is Terminated?
If a contract is validly terminated, the seller may generally need to consider what happens next with the property.
This could include:
- putting the property back on the market
- negotiating with another buyer
- entering into a new Contract of Sale
- dealing with an existing real estate agent
- addressing any claim made by the previous buyer
However, a seller should not assume that they are free to immediately enter into another sale simply because they have sent a termination notice.
If the validity of the termination is disputed, entering into another contract could create additional complications.
It is sensible to obtain advice before treating the original contract as completely finished.
What Happens to Settlement?
If the contract has been validly terminated before settlement, the parties generally will no longer proceed with the original settlement.
However, the practical steps depend on the circumstances.
For example, the parties may need to deal with:
- deposit money
- settlement adjustments
- documents
- keys or possession
- discharge or finance arrangements
- any outstanding contractual obligations
- claims for loss or costs
The conveyancer or legal practitioner handling the transaction can help identify the practical steps required once the contract has ended.
What If the Parties Disagree About Whether the Contract Was Validly Terminated?
This can become a serious issue.
One party may believe the contract has ended while the other party says it remains binding.
For example, a party might issue a termination or rescission notice based on an alleged breach, while the other party disputes whether there was actually a breach or whether the notice was valid.
In that situation, the parties should not simply assume that their preferred interpretation is correct.
A dispute about termination can potentially involve significant financial consequences, including the deposit and other claims.
If the validity of a termination is disputed, obtain legal advice before taking further steps.
What About a Property That Is Damaged Before Settlement?
There are specific Victorian rules dealing with certain situations where a dwelling is destroyed or damaged before the purchaser becomes entitled to possession.
Under section 34 of the Sale of Land Act 1962 (Vic), where a dwelling is destroyed or damaged so that it is unfit for occupation, the purchaser may have a right to rescind by written notice within 14 days after becoming aware of the destruction or damage, subject to the requirements of the provision. Money paid by the purchaser must be refunded following rescission under that section.
This is different from an ordinary settlement delay or a buyer simply changing their mind.
We have covered this issue in more detail in our article about property damage before settlement.
Common Mistakes to Avoid
For buyers
Avoid:
- assuming you can cancel simply because you changed your mind
- relying on a verbal agreement to terminate
- assuming the deposit will automatically be refunded
- issuing a termination notice without checking your rights
- ignoring a seller’s notice of default or termination
- signing another property contract before understanding your obligations under the first contract
For sellers
Avoid:
- assuming you can cancel because you received a higher offer
- treating a buyer’s default as an automatic right to keep the deposit
- immediately selling the property to another buyer
- issuing a termination notice without checking the contract
- assuming that a termination notice is automatically valid
- releasing or dealing with the deposit without confirming the legal position
What Should You Do If You Want to End a Property Contract?
Before taking action, identify why you believe the contract can be ended.
Consider:
- Is the contract still within the cooling-off period?
- Is there a special condition that applies?
- Has one party actually breached the contract?
- Is there a statutory right to rescind?
- Do both parties agree to terminate?
- What does the contract say about the deposit?
- Has settlement already occurred?
- Has either party already issued a notice?
A contract review can help buyers and sellers understand the terms and special conditions that may affect their rights and obligations.
Frequently Asked Questions
Can a buyer cancel a property contract after signing?
A buyer generally cannot simply cancel because they have changed their mind after the applicable cooling-off period. However, there may be contractual or statutory rights depending on the circumstances.
Can a seller cancel a property contract after signing?
A seller generally cannot simply cancel because they have changed their mind or received a better offer. Whether the seller can terminate depends on the contract and applicable law.
Does termination mean the deposit is automatically refunded?
No. The treatment of the deposit depends on why and how the contract ended and the applicable contractual and legal rights.
Can a seller sell the property to someone else after termination?
A seller should confirm that the original contract has been validly terminated before treating the property as available for sale to another buyer.
What if the buyer and seller both agree to cancel?
The parties may be able to agree to end the contract, but the terms should be properly documented, including what happens to the deposit and whether there are any continuing claims.
Is termination the same as rescission?
Not necessarily. The terms can have different legal meanings and consequences depending on the circumstances and the legislation involved.
Final Thoughts
A property contract does not simply disappear because a buyer or seller decides they no longer want to proceed.
There may be circumstances where a contract can be terminated, rescinded or otherwise brought to an end, but the reason, contract terms and applicable law matter.
If you are considering ending a property contract, or the other party has told you that they want to terminate, it is important to understand the position before taking action.
Getting the right advice early can help you understand what happens to the deposit, settlement and your other obligations.
About the Author
Meet Sally
Sally Kwok is a Licensed Conveyancer and the Director of Prox Conveyancing. With more than 16 years of experience in the conveyancing industry, she is committed to helping buyers and sellers navigate Victorian property transactions with confidence. Sally is passionate about providing clear communication, practical guidance and personalised service throughout every stage of the conveyancing process.
👉 Learn more about Sally on our About page.
About Prox Conveyancing
Prox Conveyancing is a Victorian conveyancing practice providing professional conveyancing services for residential property transactions across Victoria. We assist buyers, sellers, investors and families with a wide range of conveyancing matters, delivering personalised service, transparent communication and professional support from contract through to settlement.
👉 Learn more about Prox Conveyancing on our About page.
This article provides general information only and is not legal advice. Every property transaction is unique, and the information above may not apply to your particular circumstances. If you require advice about your specific situation, please contact a qualified legal professional or licensed conveyancer.