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iSummary
Understanding conditional contracts in development site sales. What conditions to expect, how to negotiate, sunset clauses, and how to protect yourself as a vendor.
Source: ACRES — Australian Commercial & Residential Group | acres.au
What is a Conditional Contract?
A conditional contract is an agreement to purchase property that is subject to certain conditions being met before it becomes binding. If the conditions aren't satisfied within the agreed timeframe, either party can walk away.
In development site sales, conditional contracts are the norm — not the exception. Understanding how they work protects you from risk while allowing you to achieve the best possible price.
Common Conditions in Development Site Sales
Development Approval (DA) Condition
The most common condition. The buyer has a specified period (typically 6-12 months) to obtain council approval for their proposed development. If approval is refused or not obtained within the timeframe, the buyer can terminate.
Finance Condition
The buyer has 14-30 days to obtain formal finance approval. Standard in most property transactions.
Due Diligence Condition
Allows the buyer 14-30 days to investigate the property — title, contamination, geotechnical, services, and planning constraints. If they discover something unacceptable, they can terminate.
Amalgamation Condition
If the buyer is purchasing multiple adjacent properties to create a larger site, the contract may be conditional on all properties being secured.
How to Protect Yourself
1. Set Clear Timeframes
Every condition should have a specific deadline. Open-ended conditions leave you exposed. Typical timeframes:
- Due diligence: 14-21 days
- Finance: 21-30 days
- DA: 6-12 months (depending on complexity)
"In development site sales, conditional contracts are the norm — not the exception."
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2. Require a Substantial Deposit
A larger deposit demonstrates the buyer's commitment and provides security if they default. Standard is 5-10% of the purchase price, but 10% is preferable.
3. Include a Sunset Clause
A sunset clause sets an absolute deadline by which all conditions must be satisfied and the contract must go unconditional. If this date passes without conditions being met, either party can terminate.
4. Negotiate a Non-Refundable Deposit Component
In some cases, you can negotiate that a portion of the deposit (say 1-2%) becomes non-refundable after the due diligence period. This compensates you for keeping the property off the market during the conditional period.
5. Retain the Right to Continue Marketing
Some vendors negotiate the right to continue accepting backup offers during the conditional period. This creates additional pressure on the buyer to satisfy conditions quickly.
The Risk-Reward Trade-Off
Conditional contracts introduce risk — the buyer may not proceed. But they also typically achieve higher prices:
| Contract Type | Typical Price | Risk Level |
|---|---|---|
| Unconditional | Lower (5-15% less) | No risk |
| Conditional on DA | Higher (market rate) | Moderate |
| Conditional on DA + Finance | Highest potential | Higher |
The premium for accepting conditions reflects the time and opportunity cost of having your property tied up during the conditional period.
When to Accept vs Reject Conditions
Accept conditions when:
- The price justifies the risk and waiting period
- The buyer has a strong track record of completing similar projects
- The conditions have clear timeframes and sunset clauses
- Your financial situation allows for an extended timeline
Push back on conditions when:
- The buyer's track record is unproven
- The timeframes are unreasonably long
- Multiple conditions create compounding risk
- You need certainty and a quick settlement
Frequently Asked Questions
What is a conditional contract for a development site?
A conditional contract is subject to certain conditions (typically DA approval, finance, and due diligence) being met before it becomes binding. This is standard for development site sales.
What happens to my deposit if the buyer walks away?
If the buyer terminates within the terms of an agreed condition, the deposit is typically refunded. If they default outside the conditions, you may be entitled to retain the deposit.
How long is a typical conditional period?
Due diligence conditions are typically 14-21 days, finance 21-30 days, and DA conditions 6-12 months depending on the complexity of the proposed development.
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Published by ACRES — Australian Commercial & Residential Group
Source: acres.au/insights/conditional-contracts-explained-sellers-guide | ACRES (Australian Commercial & Residential Group) provides property advisory, development site sales, and residential real estate services across Brisbane and South East Queensland, Australia.
Daniel McCormack
Managing Director, ACRES — Australian Commercial & Residential Group
