Due diligence clauses in Queensland contracts

What the clause actually does

A well-drafted due diligence clause gives the buyer a defined period to investigate the property and, if not satisfied, to terminate and have the deposit refunded. The critical question is the standard of satisfaction. A clause expressed to operate 'in the buyer's absolute discretion' is close to an option to walk away; one requiring the buyer to act 'reasonably' can be challenged by a seller who says the stated ground was not a real one.

Sellers naturally prefer a short period and a reasonableness standard. Buyers prefer a longer period and absolute discretion. Where the clause lands is a commercial negotiation, but it should be settled before signing, not afterwards.

How long should the period be?

Long enough to actually obtain the material you are relying on. Council and state searches, a town planner's advice, an engineer's report or an environmental assessment all take time, and the period runs from the contract date, not from when you get around to ordering them.

• Residential with a specific concern: 7 to 14 days is often workable
• Commercial or leased property: 21 to 30 days, to allow lease and financial review
• Development or rural land: 30 to 90 days, depending on planning and infrastructure enquiries

What to investigate in the period

The point of the clause is to answer the questions the standard contract conditions do not:

• Planning scheme, zoning and overlays — what can actually be built or operated
• Approvals for existing structures, and any unapproved work
• Flood, bushfire, vegetation, koala habitat and coastal hazard mapping
• Services — water, sewer, power, telecommunications and legal access
• Contaminated land and environmental management registers
• For leased property: the leases, rent roll, arrears, options and outgoings recovery
• For rural land: water entitlements, dams, biosecurity and vegetation clearing history

Terminating properly

This is where buyers most often come unstuck. A due diligence clause almost always requires written notice, in a specified form, given to a specified person, by a specified time on the due date. Notice given late, given verbally, or sent to the agent instead of the seller's solicitor may be ineffective — leaving the buyer bound to a contract it thought it had ended, and exposed to forfeiture of the deposit.

If you intend to terminate, instruct your solicitor at least a day or two before the date, not on the afternoon it falls due.

Extending the period

Extensions are common where a search or report is delayed, and sellers frequently agree. Get any extension in writing and signed before the original date passes. An oral agreement to extend is a dispute waiting to happen, and once the date has passed the clause may already have operated.

Frequently asked questions