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Consequences for breaching Contract of Sale of Real Estate -Deposit - paid- but can't complete.

In relation to property investors or home buyers who have purchased a residential property - signed the contract - paid deposit (Usually 10 %) but due to unforeseen circumstances cannot complete - termed - settle the contract.

We will look at the above scenario from the perspective of Contract of Sale of Real Estate (2008) (VIC).

Important Due-Diligence Before Signing the Contract

Buying a real estate property is one of biggest investment decision in most people's life. It is essential that parties who are contemplating purchasing a real estate must seek professional legal advice and understand their legal obligations and terms when signing the contract.

Assuming the standard Contract of Sale of Real Estate (2008) (VIC) is used. Firstly, the parties should be aware of situations in which cooling-off period applies and the exceptions to the cooling-off period.

Secondly, there are several essential clauses in your contract which you must understand, these clauses get triggered when you have breached your contract conditions.

Thirdly, after evaluating your personal circumstances you must negotiate special conditions to reflect your specific needs. Example - You may require a subject to finance clause. Without this cluase your contract maybe be treated as binding and there would be limited ways to get out of the contract without heavy financial penlaties.

Signing the Contract

Once the Contract is singed, it becomes binding on both parties and all conditions under the contract can be enforced.

We have come across situation in which the parties has paid - 10 % deposit and cannot settle the contract as their financial circumstances have changed.

This puts the purchaser in a fragile position as unless the contract has special conditions to protect your interest, the purchaser may have to forfeit the deposit and the vendor may commence legal proceedings for breach of contract.

Will I be sued after forfeiting my deposit for breach of contract ?

This is the most difficult question to answer especially when the property market is volatile.

During a Bull's property market, the vendor or builder is in a better position to allocate the contract to a interested third party investor, this means the third party has taken-over the contract of sale which was initially intended for you (The purchaser). This puts the vendor/builder in a better position as the losses he could have sustained have been minimised as a third party has taken-over the contract.

In the event the vendor/builder cannot find a third party to acquire your contract, this puts the initial purchaser in a difficult situation as he maybe liable for consequential losses for breach of contract if he cannot settle on time.

Clause 25, Breach of the Contract of Sale says -

A party who breaches this contract may pay the other party on demand:

  1. Compensation for any reasonable foreseeable to the other party resulting from the breach; and

  2. Any interest under the contract as a result of this breach

The above circumstances differ on case-by-case basis so if you have facing the above scenario then you must seek legal advice.


ZMK Lawyers,

Lvl 13, 227 Collins St, Melbourne, 3000

Phone: 0449 860 517

Disclaimer: The reader acknowledges that the information made available is for educational purposes only as well as to give you general information and a general understanding of the law, it is not to provide legal advice.

By reading our blog, “tweets” and monthly legal articles you understand that there is no client relationship created between you and ZMK Lawyers.

ZMK Lawyers legal blog, “tweets” and monthly legal articles is not legal advice. You should not act upon this information without seeking advice from a lawyer/solicitor.

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