It is a question we are often asked: “Once a sale and purchase agreement is signed, can the deal still fall over?”
The answer depends on whether the agreement is conditional or unconditional. Once signed, a sale and purchase agreement is legally binding. However, whether a party can withdraw without consequence and/or penalty depends on the conditions recorded in the agreement.
Conditional Agreements
Most residential sale and purchase agreements are signed subject to conditions. These conditions protect the purchaser (and occasionally the vendor) by allowing the agreement to be cancelled if specified matters are not satisfied by the agreed date.
Common purchaser conditions include:
- Approval of title by the purchaser’s solicitor
- Approval of the agreement by the purchaser’s solicitor
- Finance approval
- KiwiSaver withdrawal (for first home purchasers)
- A satisfactory LIM report
- A satisfactory building report
Less common, but still regularly encountered, conditions may include:
- Toxicology (methamphetamine) report
- Overseas Investment Office consent
- Subdivision and/or title issue
Where a purchaser needs to sell their existing property before proceeding, a “sale of existing property” condition may be included. This prevents the agreement becoming unconditional until the purchaser has secured an unconditional sale of their own home.
Occasionally, vendors may seek a similar condition requiring them to secure their next property. However, in a competitive market this can make a property less attractive to buyers. Vendors more commonly negotiate a longer settlement date instead.
If a condition is not satisfied (and not waived) by the deadline, the agreement can be cancelled without breach.
When the Agreement Becomes Unconditional
An agreement becomes unconditional when:
- All conditions are satisfied or waived; or
- Some conditions are satisfied and the remaining ones are waived; or
- No conditions were included from the outset.
At this point, both parties are fully committed.
If a purchaser fails to settle after the agreement becomes unconditional, they risk:
- Forfeiture of their deposit
- Liability for the vendor’s losses
- Being sued to complete the purchase
Similarly, if a vendor refuses to complete settlement, the purchaser may seek damages or court orders requiring settlement to proceed.
It is important to note that properties purchased at auction are typically unconditional at the time of signing. All due diligence must therefore be completed before bidding.
Why Do Sales Fall Through?
The most common reason for a property transaction collapsing is failure to obtain finance. Banks will usually require confirmation of insurance before final approval, so insurance difficulties can also derail a transaction.
Other common issues include:
- Unsatisfactory building inspection results
- Problems revealed in a LIM report
- Title defects
- Unconsented works or the non-issue of a Code of Compliance for works
- Unexpected body corporate matters (for unit titles)
In some conditional contracts, vendors may include an escape clause (sometimes referred to as a “cash-out clause”). This allows the vendor to continue marketing the property and, if they receive another acceptable offer, require the conditional purchaser to confirm their position within a short timeframe.
Key Takeaway
Conditional agreements provide a legitimate pathway for a sale not to proceed. Once unconditional, however, withdrawal without consequence is rare, and usually costly.
For both buyers and sellers, early legal advice is critical. Understanding the effect of conditions, timeframes, and risk allocation before signing can prevent significant stress and expense later.
If you are buying or selling property, get in touch with the friendly team at Blackwood Montagna so we can review any proposed agreement, and guide you through the process to ensure your interests are protected from the outset.
