Withdrawal from a property purchase contract: default, forfeit money and the right routes

The most common statutory ground for exit is the default of the other side. If the buyer does not pay the purchase price, or the seller does not hand over the property at the agreed time, default exists. The Austrian Civil Code then gives the contract-loyal party the right either to continue to insist on performance or, by setting a reasonable grace period, to withdraw from the contract.

The grace period is the decisive step. As a rule you have to set the defaulting side a reasonable period for performance and announce that you will withdraw after it expires without success. Only when this period passes unused does the withdrawal become effective. A period that is too short or an unclear declaration can cause the withdrawal to fail.

With an effective withdrawal the contract falls away and performances already rendered have to be returned. A sum paid on account has to be repaid, a property already handed over has to be returned. In addition, the contract-loyal party can demand compensation for the damage that the default caused it. Whoever cleanly documents the grace period and the withdrawal stands considerably better in case of dispute.

Besides the statutory withdrawal, the parties can agree a contractual right of withdrawal. Often this is combined with forfeit money. The forfeit money is the amount against payment of which a party may withdraw from the contract. It is, as it were, the price of the exit and is expressly provided for in the Austrian Civil Code.

The forfeit money has an important limit, however. Whoever has already performed the contract wholly or even only in part, or has accepted the performance of the other side wholly or in part, can no longer withdraw against forfeit money. As soon as, for example, the purchase price has been partly paid or the property taken over, this route is closed.

To be distinguished from the forfeit money is the earnest money. This is an amount given in advance at the conclusion of the contract and, as a rule, only serves as a sign of conclusion or to secure performance. If the contract is not performed due to the fault of one side, the side without fault can keep the earnest money received or demand double repayment of the earnest money given. With consumers, the court can moderate an excessive earnest money or forfeit money.

Not every wish to exit is a case of withdrawal for default. If you were deceived at the conclusion of the contract, or if you were mistaken about an essential point, a challenge of the contract comes into consideration. It aims at the contract being eliminated from the outset, and it has its own prerequisites and periods. The challenge starts at the conclusion of the contract, not at its performance.

If, on the other hand, defects of the property show up after the purchase, warranty is the right route. Depending on the severity it can lead to repair, price reduction or, in the extreme case, cancellation of the contract. Which rights exist is dealt with in our post on warranty for hidden defects.

The distinction is so important because the routes require different evidence and periods. Whoever chooses the wrong remedy loses valuable time. Much can already be avoided before signing by checking the contract carefully. How that works is shown in our post on how to review a property purchase contract before signing.

First clarify the ground. Is it about the default of the other side, an agreed withdrawal clause, a deception at the conclusion or a defect of the property? Only the correct classification shows which route is open and which period applies.

Then secure the evidence. Keep correspondence, payment records, the offer and the contract. The purchase offer already shows how binding the declarations are. Read more in our post on why the purchase offer is binding.

Formulate the grace period and the withdrawal declaration clearly and in a provable way. An unclear or premature declaration can cause the whole withdrawal to fail. Whoever takes precautions from the start, for example through a financing condition in the offer, often does not even need the withdrawal. How such a condition works is explained in our post on the financing condition and the condition precedent.