A contract for the sale of residential land sold by private treaty (that is, not at an auction) that has no special conditions is said to be unconditional. This means that both parties are bound to complete the contract or risk being liable for damages as a result of any breach of the contract.

A property purchased at auction is generally unconditional, although it may be possible to negotiate terms such as the amount of the deposit or the date for payment of a deposit.

Depending on the specific terms of the contract, if a special condition is not met the contract may become unconditional. A purchaser should take care to understand what happens if the special conditions are not met, and what can be done to protect the buyer’s interests.

Common examples of special conditions are:

Purchaser obtaining finance for the purchase

The clause will set out specific details including the credit provider, the interest rate and when the finance should be finalised. The contract should say what happens if the purchaser cannot obtain finance as agreed. A purchaser may have the right to cancel the contract or ask for an extension of time to obtain finance.

Sale of the purchaser’s home

Depending on the state of the housing market, a vendor may not want to take the risk that the purchaser’s property will sell within the time specified. The condition should specify a date for a contract to be signed, and every effort should be made to ensure that settlement of both properties occurs on the same date to avoid additional costs.

Satisfactory building inspection

Usually a building inspection can be arranged at short notice, and most vendors are happy to allow an inspection to take place prior to an auction or the making of an offer, or during the two day cooling off period. It is therefore somewhat unusual for a vendor to accept a contract subject to a satisfactory building inspection.

Repairs or removal of rubbish

Any assurances by the vendor regarding the state of the property should be very clearly set out. Depending on the type of work (if it is significant or simply tidying) it may not be sufficient to justify rescission of the contract, but rather a claim for the cost of performing the works.

What happens if the special condition is not met?

As long as the contract allows it, the purchaser can cancel the contract or ask for an extension of time to obtain finance or sell their property. If the contract is cancelled, the vendor must return the deposit.

If the purchaser does not obtain finance, and does nothing, the contract becomes unconditional. The vendor can keep the deposit and insist on settlement. If the vendor has to put the property back on the market and sell for a lesser price, the purchaser may be liable for the difference.

Standard form contracts used by agents in South Australia will include clauses that set out the correct procedure and state what will happen if the special conditions are not met.