15 Red Flags in Australian Property Contracts You Must Know

The following are the most common red flags in Australian property contracts that every buyer should watch for:

• Unusually short or no cooling-off period
• Early release of deposit to the vendor
• Missing or incomplete vendor disclosure documents
• Sunset clause that favours the vendor
• No subject to finance condition
• No building and pest inspection clause
• Vendor can substitute fixtures or finishes (off-the-plan)
• Penalty interest rate significantly above market rate
• Vendor exemption from liability for defects
• Unclear or missing property boundaries
• Unregistered easements or informal arrangements
• Unusual settlement terms or delayed settlement penalties
• Entire agreement clause that overrides verbal promises
• Nominee clause used to obscure the true buyer
• Missing or expired certificates (pool compliance, smoke alarms, etc.)

Even experienced property buyers can miss subtle red flags hidden in the dense legal language of a contract. Some red flags are obvious — like a missing cooling-off period. Others are buried in special conditions or annexures and only become apparent when something goes wrong. This guide identifies the most common red flags by severity and explains why each one matters.

Critical Red Flags

These red flags represent the highest risk to buyers. If you encounter any of these, seek immediate legal advice before proceeding.

1. Missing or Defective Vendor Disclosure

Every state requires the vendor to provide certain disclosure documents. In Victoria, this is the Section 32 Vendor Statement. In SA, it is Form 1. If these documents are missing, incomplete, or contain inaccurate information, the buyer may have the right to rescind the contract — but only if they act promptly. A missing vendor disclosure often signals a vendor trying to hide problems with the property.

2. No Cooling-Off Period or Pressure to Waive

While auction sales legitimately have no cooling-off period, private treaty sales should include one. If an agent pressures you to waive cooling-off (via a Section 66W certificate in NSW or Section 31 certificate in VIC), proceed with extreme caution. Waiving your cooling-off removes your safety net if inspections reveal problems or finance falls through.

3. Early Release of Deposit

Normally, your deposit is held in trust until settlement. An early release of deposit clause allows the vendor to access your deposit immediately. If the sale falls through (for example, because the vendor cannot provide clear title), recovering your deposit from a vendor who has already spent it can require costly legal action. This is one of the most dangerous clauses in any property contract.

4. No Subject to Finance Clause

If you are relying on a mortgage to purchase the property, the contract should include a subject to finance condition (see also our finance clause glossary entry). Without this clause, you are legally obligated to complete the purchase even if your loan is not approved. Defaulting on a contract because you cannot obtain finance can result in losing your entire deposit and being sued for damages.

5. Vendor-Favourable Sunset Clause

Sunset clauses set a deadline by which settlement must occur, failing which either party can terminate. In off-the-plan contracts, a sunset clause that allows the vendor to terminate gives the developer an opportunity to cancel the contract if property values have risen, then resell at a higher price. Legislative reforms in NSW and VIC now require vendor-initiated sunset clause terminations to be approved by a court or tribunal, but buyers should still scrutinise these clauses carefully.

6. No Building and Pest Inspection Clause

A contract without a building and pest inspection condition means you accept the property in its current state, defects and all. Unless you have already completed a thorough inspection before exchange, the absence of this clause is a major red flag. Structural defects, termite infestations, and illegal building work can cost tens of thousands of dollars to rectify.

Moderate Red Flags

These red flags may not be deal-breakers but warrant careful consideration and potentially negotiation before signing.

7. Vendor Substitution Rights (Off-the-Plan)

In off-the-plan contracts, watch for clauses that allow the developer to substitute finishes, fixtures, or materials with "equivalent" alternatives. "Equivalent" is subjective and can result in significantly lower-quality fittings than what was originally specified. Negotiate for specific brands and models to be named, or for a right to terminate if substitutions are made.

8. Excessive Penalty Interest Rate

If settlement is delayed, penalty interest accrues on the unpaid balance. Standard rates are typically 2% to 4% above the Reserve Bank cash rate. A contract specifying a much higher penalty rate (10% or more) is punitive and should be negotiated down.

9. Vendor Exemption from Liability for Defects

Some contracts include clauses where the vendor disclaims responsibility for any defects or issues with the property. While "buyer beware" is a general principle in property law, broad exclusion clauses may attempt to override statutory protections. Have your conveyancer assess whether these clauses are enforceable and what risk they present.

10. Unclear Property Boundaries

If the deposited plan or survey attached to the contract shows unclear, disputed, or overlapping boundaries, this is a moderate red flag. Boundary disputes are expensive to resolve and can affect your ability to build, fence, or use parts of the land. Consider ordering an independent survey before exchange.

11. Unregistered Easements or Informal Arrangements

The title may be clean, but the vendor or neighbours may have informal arrangements (such as shared driveways, access paths, or drainage) that are not registered as easements. These informal arrangements can become disputes after settlement. Ask the vendor directly about any informal agreements affecting the property.

Minor Red Flags

These issues are worth noting and may require clarification, but are less likely to cause serious financial harm.

12. Unusual Settlement Terms

A very short settlement period (less than 30 days) may not allow enough time for finance approval, especially if conditions are attached. An unusually long settlement (more than 90 days) could indicate the vendor has title issues to resolve or is waiting on another transaction.

13. Entire Agreement Clause

This standard clause states that the written contract represents the entire agreement between the parties and supersedes any prior verbal agreements. While standard, it means any promises made by the agent or vendor that are not written into the contract are unenforceable. If you were promised anything verbally, get it in writing as a special condition.

14. Nominee Clause

A nominee clause allows the buyer to nominate a different person or entity to complete the purchase. While legitimate (for example, purchasing through a trust), it can also be used to "flip" contracts or obscure the true purchaser. If the vendor has included a nominee clause, understand why and what implications it has for the transaction.

15. Missing or Expired Compliance Certificates

Check that all required compliance certificates are current. In Queensland, a pool safety certificate is mandatory. Smoke alarm compliance is required in most states. Building compliance certificates for renovations should be present. Missing certificates suggest work may have been done without approval.

State-Specific Red Flags

Related Guides

• Property Due Diligence Checklist — The complete checklist for investigating a property before purchase.
• How to Read a Property Contract — Step-by-step guide to understanding every section of an Australian property contract.
• Special Conditions in Property Contracts — Understand the most common special conditions and how to negotiate them.
• Section 32 Vendor Statement Explained — A deep dive into Victoria's mandatory vendor disclosure document.