It happens more often than most people realise: a signed Contract of Sale in Victoria falls through before settlement. Whether it's a failed finance application, a damaging building report, or the vendor pulling out, understanding your rights and obligations can mean the difference between getting your deposit back and losing it entirely.
Reason 1: Exercising the cooling-off period
If you purchased via private sale, you have a three-business-day cooling-off period under Section 31 of the Sale of Land Act 1962. During this time, you can withdraw from the contract for any reason by giving written notice. You will forfeit $100 or 0.2% of the purchase price (whichever is greater), but the remainder of your deposit is returned.
The cooling-off period does not apply to auction purchases or to contracts where you have obtained a Section 31 waiver (a certificate from your solicitor confirming you have received independent legal advice).
Reason 2: Failed subject-to-finance
The subject-to-finance clause is the most common special condition in Victorian contracts. If your lender does not approve your loan by the deadline specified in the contract, you can end the contract and receive your full deposit back.
The critical step is to notify the vendor in writing (through your solicitor) before the deadline expires. If you miss the deadline or fail to provide proper notice, the condition may be deemed satisfied, and you could lose the right to rely on it.
Reason 3: Failed building or pest inspection
If your contract contains a subject-to-building-inspection or subject-to-pest-inspection clause, an unsatisfactory report gives you grounds to exit. The wording of the clause matters — some require the report to reveal “major structural defects,” while others allow you to terminate if the report is unsatisfactory “in the purchaser's reasonable opinion.”
Reason 4: Defective Section 32
If the Section 32 Vendor's Statement is materially deficient — for example, it is missing a required document such as the title search or OC certificate, or it contains incorrect information — you may have the right to rescind (cancel) the contract under Section 27 of the Sale of Land Act. If rescission is successful, the contract is void and your full deposit is returned.
Reason 5: Vendor default
If the vendor cannot complete the sale — for example, they cannot deliver clear title, they fail to discharge a mortgage, or they refuse to settle — you can typically terminate the contract and recover your deposit. You may also have a claim for damages, including costs you incurred in reliance on the contract (legal fees, inspection costs, loan application fees).
Reason 6: Buyer default
If the buyer defaults — meaning you refuse or are unable to settle without a valid contractual reason — the consequences are serious. The vendor is typically entitled to:
- Keep the full deposit (usually 10% of the purchase price)
- Resell the property
- Claim any shortfall if they sell for less than your contract price
- Recover their legal and agent costs
What happens to the deposit?
If both parties agree that the contract has ended, the deposit is released according to the terms of the agreement (or as directed by the solicitors). If there is a dispute, the deposit remains in the real estate agent's trust account until the parties agree or a court or VCAT makes an order.
In practice, deposit disputes can take months to resolve. This is one more reason to have your contract reviewed carefully before signing — the clearer your special conditions, the easier it is to enforce your rights.
Ready to check your contract? Upload your Section 32 or Contract of Sale at precontractreview.com for a pre-contract check — typically in just a few minutes.