How to proceed when withdrawing from a property purchase contract?

Quick overview

A contract for the purchase of real estate can be rescinded mainly when the seller or buyer breaches the contract in a material way. Typically, this will include serious hidden defects, legal defects in the property, a foreclosure on the property, lack of access to the land or a situation where the property cannot be used for the purpose for which it was bought.

The withdrawal must be in writing and should state exactly what contract you are withdrawing from and why. For hidden defects, you must act quickly, document the defects well and notify the seller in a timely manner.

The most common solutions are:

• hidden defects in the house or apartment that became apparent after the purchase,
• legal defects registered in the Land Registry or discovered after the fact,
• false representations made by the seller in the contract,
• a dispute about whether a defect is serious enough to warrant withdrawal,
• refunding the purchase price and transferring the property back.

Not sure if you can withdraw from the contract? Have the contract of sale or the defect found assessed by a solicitor before you send anything to the other party. In real estate, a poorly worded withdrawal can mean unnecessary litigation and loss of the claim.

Generally, if someone breaches a contract in a material way, the other party can cancel the contract without undue delay. A material breach is one which, in the case of real estate, the seller knew at the time of the conclusion of the contract or must have known that the buyer would not have concluded the contract if he had foreseen the breach. In other cases, the breach is not deemed to be material.

A material breach of contract is also a situation where the seller assures the buyer that he can build on the land according to an already approved project, but then it is found that in fact the project is stopped, the land is not suitable for building and is useless to the buyer.

In the case of material breach of duty, the most common defects in real estate purchase contracts are defects in the real estate.

What is meant by defects in the property?

It is the actual condition of the property which does not correspond to its agreed characteristics or to its usual characteristics, taking into account its age and normal wear and tear. Material or factual defects are divided into obvious and hidden defects.

1) Obvious defects

These are defects that the buyer must have recognised during a normal inspection of the property. A typical example is an obvious crack in a wall or a broken window. In such a case, we recommend that these are stated directly in the contract of sale.

If the obvious defects were only discovered when the property was handed over, the solution is to include them in the handover report together with the date or method of their removal.

2) Hidden defects in immovable property

If we are talking about hidden defects, then these are defects that were not known to the buyer despite the exercise of due diligence and thus appeared only with the passage of time after the purchase of the property and its handover.

In the case of latent defects, evidence and correct timing are decisive. We can help you prepare the defect notification and the next course of action against the seller so that you do not close your way to a withdrawal or discount.

In practice, we often encounter not only the rotten beams we mentioned in the introduction, but also, for example, mould on walls covered with plasterboard, cracking of floors covered with floating floors, structural defects or leaks in the property.

In any case, the buyer has the right to have the hidden defect removed or the purchase price reduced. However, if the defect is irremovable and the property cannot be used properly, the buyer is entitled to withdraw from the purchase contract.

An available lawyer advises:

Even if the seller adds to the contract of sale wording such as “the buyer accepts the property as it stands and lies” or “the buyer has familiarised himself with the condition of the property before signing the contract”, this does not relieve him of liability for hidden defects in the property. This is true even if he proves that he did not know about the defect.

When does it make sense to ask for a withdrawal and when a discount?

Not every defect in the property automatically means the right to withdraw from the purchase contract. For minor or avoidable defects, it will usually be more reasonable to ask for repairs, compensation or a discount on the purchase price. Withdrawal is particularly appropriate if the defect is so serious that the buyer would not have entered into the contract at all if he had known about it beforehand.

Typically, this will be the case if the property is uninhabitable because of the defect, it would be extremely expensive to repair, there is a risk of major structural intervention or it turns out that the seller has falsely assured the buyer of important features of the property.

In practice, it is therefore always important to first assess the seriousness of the defect, the evidence and the exact wording of the contract of sale. Too quick or poorly reasoned rescission can be challenged by the other party.

Have your case assessed before deciding between rescission, discount or claiming the defect. An attorney can tell you which claim is strongest in your situation and how to properly pursue it.

A man at his laptop thinking about the consequences of withdrawing from a property purchase contract

Legal defects in the property are also a reason for withdrawal

While it is the sellers’ responsibility to ensure that the property is in perfect legal condition, in practice we often encounter that many of them have no idea that their property is burdened with any legal defect until the moment of sale. And we’re talking about the more responsible ones who have a thorough legal check done before the sale.

In the case of properties with legal defects, we most often encounter:

• easements,
• foreclosures registered on the property,
• litigation,
• approval of the property for another purpose,
• illegal extensions
• or lack of access to the property through someone else’s land.

Are you buying a property or have you discovered a legal problem after the purchase? We will check the title deed, contract and related documents and alert you to risks that could cost you hundreds of thousands.

From law practice: Liability for ruin – the buyer was informed in advance about the defects of the property

Our client, Mr Martin, was selling a house that was in a truly dilapidated state. Although he gave the buyer several tours of the property and made him aware of the poor condition of the old house, he was still concerned. What if the buyer suddenly wanted a discount or made a claim arising from one of the many potential hidden defects? What if he even withdrew from the contract? According to the Civil Code, a purchase contract can indeed be withdrawn from if the thing sold is defective and this defective performance constitutes a material breach of contract.

We therefore advised Mr Martin to add a clause to the contract waiving any rights of defective performance in advance, and his assurance that he was aware that the property was in a state of disrepair and would need to be repaired. Everything was resolved simply and elegantly thanks to our advice.

How to formulate a withdrawal from a real estate contract?

Withdrawal is made in writing – by letter. It must be clear from its text who is making the withdrawal, to whom, from which specific contract he/she is withdrawing, and for what specific reasons. It is advisable to elaborate on these reasons so that they can be well defined by the court. Thus, if the court were to be seised because the other party has challenged them in this way.

Always send the withdrawal by registered post with a delivery note. It takes effect as soon as it reaches the other party. It does not even matter whether the other party takes delivery, it is sufficient if he or she has the opportunity to do so.

What are the consequences of withdrawal?

Beware that once you have withdrawn from a property purchase contract, you cannot unilaterally reverse your decision. This cancels the contract from the outset, so-called ex tunc. It is as if it had never been. And the parties to the contract must settle all their mutual obligations.

According to the Civil Code, if you withdraw from a contract, the contract is generally cancelled from the outset and the parties must repay each other what they have provided under the contract. In the case of a contract for the sale of real estate, this means in practice that the buyer will provide assistance to transfer the title back to the seller and the seller will refund the purchase price. However, the specific procedure depends on the wording of the contract, the method of payment of the purchase price, any solicitor or bank escrow and whether the transfer has already been registered at the Land Registry.

Beware that the settlement of mutual obligations may not apply to the right to contractual penalties, damages for breach of contractual obligation or other arrangements – for example, on how to resolve disputes. These rights may survive the termination of the contract.

Avoid potential problems with rescission of the property purchase contract

A properly drafted purchase contract prevents a number of inconveniences. You can specify the seller’s and buyer’s responsibilities in it, as well as delineate breaches of contract. We can provide you with a complete contractual and legal service related to the purchase or sale of real estate. We can do it within 48 hours – online, flawlessly and professionally.

Summary

You can withdraw from a property purchase contract if the other party materially breaches the contract, a serious hidden defect appears or a legal defect comes to light that makes the property impossible to use properly. For common or avoidable defects, it often makes more sense to ask for a repair or a reduction in the purchase price. The hidden defect needs to be reported early, well documented and the correct legal claim chosen. The withdrawal must be in writing, specific and delivered to the other party. Once it is effective, the contract is usually cancelled from the beginning and the parties return the consideration given, typically the property and the purchase price.

Not sure if you have sufficient grounds for withdrawal? Have your case reviewed by an attorney before you send a legally binding statement to the other party.