Due Diligence Clauses in Property Contracts Australia

A due diligence clause is the condition in a contract of sale that lets you investigate a site after you have signed, and end the contract (or renegotiate) if what you find does not stack up. For a property developer, it is usually the most important clause in the acquisition contract, because it is the mechanism that lets you commit to a site before you have confirmed that your scheme is permissible, buildable, clean, and profitable.

The clause matters most because the statutory protections you might assume you have often do not apply to a development purchase. Cooling-off periods are a consumer protection built for a family buying a home. They are short, they carry a penalty, and they usually exclude the exact kinds of sites developers buy: commercial land, industrial land, large parcels, purchases at auction, and purchases by a company. Take those exclusions together and a developer is frequently buying with no statutory right to withdraw at all. The due diligence clause you negotiate into the contract is what fills that gap.

This guide is written for the developer working out whether a site is worth committing to, and what a well-drafted due diligence condition needs to contain to protect the deal. It covers what the clause should let you investigate, how long the period should run, the difference between an absolute-discretion and a reasonable-satisfaction test, how the condition operates mechanically, what it costs you to hold a deal open, how vendors push back, and how the position differs across every state and territory and in New Zealand. None of it is legal advice for your specific contract, so treat it as a way to think the topic through and brief your own lawyer well.

What does a due diligence clause actually do for a developer?

A due diligence clause makes your obligation to complete the purchase conditional on you being satisfied, within a set period, with your investigations into the property. If you are not satisfied, and you give notice in the way the clause requires, the contract ends and your deposit is generally refunded. If you say nothing, or the date passes, the condition is usually treated as satisfied and the contract rolls on to settlement.

In practical terms the clause buys you time and an exit. It lets you sign a binding contract, lock the site away from other buyers, and then run your planning, legal, physical, and financial investigations while you have exclusivity, rather than trying to complete them in the heat of a competitive sale. That is why most contracts for the purchase of a development site carry one, and why the drafting detail matters so much: a clause borrowed from a previous deal may not give you the scope, period, or discretion this deal needs.

The High Court has confirmed these conditional contracts are enforceable and not void for uncertainty. In Meehan v Jones, the Court held that a “subject to finance on satisfactory terms” clause did not make the contract illusory; it was a binding conditional contract, and the buyer had to act honestly and reasonably in deciding whether the condition was met. That principle sits underneath every satisfaction-based clause, including a due diligence condition, and it is the reason the wording you choose for the satisfaction test carries real weight.

Why a due diligence clause matters more than the cooling-off period

The cooling-off period rarely protects a development purchase, which is why it is seldom the protection a developer is actually relying on. Cooling-off is a short statutory window, generally a handful of business days, in which a residential buyer can withdraw for a small penalty. It exists to protect consumers from a rushed decision, not to give a developer time to complete site investigations that can take weeks. Even where it applies, a few business days is nowhere near enough to obtain a planning certificate, commission a contamination assessment, and refine a feasibility.

More to the point, cooling-off usually does not apply to the sites developers buy. Across the states it is excluded for purchases at auction, purchases of commercial or industrial land, large or rural parcels, purchases made by exercising an option, and in several places purchases by a company. A developer buying a commercial site at auction through a corporate entity may have no statutory cooling-off right at all. The negotiated due diligence clause is the only protection in that contract, which is exactly why getting it right is worth the effort.

Cooling-off periods across Australia and New Zealand

Statutory cooling-off varies by jurisdiction, and every one of them is shorter and narrower than a developer needs. The table below sets out the current position. Treat it as the starting point for why you need a contractual due diligence clause, not as a substitute for one.

Sources for most jurisdictions are set out in the state-by-state section below. New Zealand has no general cooling-off period at all, which is covered later in this guide.

What should a due diligence clause let you investigate on a development site?

A due diligence clause should let you investigate everything that could change what you can build, what it costs, or whether you can complete. For a home buyer the scope is narrow. For a developer the scope is wide, because the value of the site depends entirely on a development outcome that has not been approved or de-risked yet. A good clause defines that scope broadly and sets no artificial limits on the investigations you can rely on to withdraw.

The main areas below are the ones most development due diligence periods are built around. Two questions follow for any clause: whether its scope captures all of them, and whether the period is long enough to complete them.

Planning, zoning and whether your scheme is even permissible

The first question is whether the site can carry the scheme your feasibility assumes. That means confirming the zoning, the permissible uses, and the development controls that set your yield: Floor Space Ratio (FSR), height limits, setbacks, minimum lot sizes, car parking rates, and any overlays such as heritage, flooding, bushfire, or acid sulfate soils. A site that looks like a townhouse play on paper can be capped by a height limit, sterilised by a heritage listing, or halved by a flood control lot before you have turned a sod.

In New South Wales, the key planning search is the planning certificate issued under the Environmental Planning and Assessment Act 1979, covered in detail in our guide to Section 10.7 certificates. It tells you the zoning, the applicable planning controls, and whether the council has flagged the land for contamination, flooding, or other constraints. In Victoria, the equivalent disclosure sits in the vendor’s statement, and in Queensland and the other states you obtain the planning and zoning information through council and title searches. Whatever the jurisdiction, the useful due diligence question is not “what does the zoning say” but “does the scheme my land price relies on actually fit within these controls”. Where the answer is uncertain, testing the highest and best use of the site during the due diligence period is often where the real value, or the real problem, shows up.

Title, easements, covenants and survey

The title has to allow what you plan to build, and the boundaries have to be where you think they are. A title search may reveal easements (for drainage, sewer, access, or electricity) running through the middle of your building envelope, restrictive covenants limiting what can be built, caveats signalling a competing interest, or leases that will not expire before you want vacant possession. Any of these can move your yield or your programme.

A title search and every dealing noted on it sit at the centre of this work, and an identification survey is what establishes the real boundaries and any encroachments before commitment. Our guide to land surveyors for developers covers what an identification survey does and when it is ordered. Where a caveat appears on the title, who lodged it and why matters, because it can hold up a dealing or signal a dispute; our guide to caveats on property title explains how they work and how they are removed. The trap is timing: a covenant or easement discovered after settlement is the buyer’s problem, not the vendor’s.

Contamination and environmental risk

Contamination is one of the largest hidden costs a development site can carry, and the due diligence period is the only reliable time to find it. Former service stations, dry cleaners, panel beaters, market gardens, and any industrial history can leave soil and groundwater contamination that has to be remediated before you can build, and remediation can run to hundreds of thousands of dollars, or more, and add months to the programme. The general practice is a staged environmental site assessment: a Phase 1 desktop and site-history review first, and a Phase 2 intrusive sampling assessment if the Phase 1 flags a risk.

In New South Wales, contaminated land in the planning system is dealt with under Chapter 4 of the State Environmental Planning Policy (Resilience and Hazards) 2021, and significant contamination is regulated by the New South Wales Environment Protection Authority under the Contaminated Land Management Act 1997; the New South Wales planning portal’s contaminated lands page explains how councils treat it. In Victoria, contaminated land sits under the Environment Protection Act 2017 and its general environmental duty, administered by the Environment Protection Authority Victoria, and the Consumer Affairs Victoria due diligence checklist points buyers to contamination as a matter to check before signing. The equivalent registers and regulators exist in every state. Whatever the jurisdiction, write the environmental investigation into the scope of your due diligence clause and give yourself enough time to run a Phase 2 assessment if you need one, because you generally cannot start the sampling until you have signed and secured site access.

Servicing, geotechnical and physical site conditions

The ground and the services determine a large part of your build cost, and neither is visible from the kerb. Geotechnical conditions such as rock, reactive clay, fill, or a high water table can add materially to footings and basement costs. Servicing capacity matters just as much: if the water, sewer, power, or stormwater network cannot take your development without an upgrade, the cost and time of that upgrade lands on you. Flooding, overland flow paths, bushfire attack levels, and contaminated fill all belong in the same category of physical risk that only investigation reveals.

The due diligence period is when a geotechnical investigation is typically commissioned, servicing availability confirmed with the relevant authorities, and flood and hazard mapping reviewed. These are among the inputs that most often blow out a construction budget after the fact, and the period is the last point at which they can be confirmed while an exit still exists.

Finance, tax, GST and foreign investment

The financial investigations run alongside the physical ones, and some of them are deal-critical. Whether the numbers hold once you have real costs, whether your funding is available on terms you can live with, and whether there are tax or foreign-investment obstacles are all things you would rather know before the due diligence date than after.

The Goods and Services Tax (GST) position is one to establish early, because whether the margin scheme is available changes net proceeds and therefore the land price. For a foreign person, or a purchase through a structure with foreign ownership, whether approval is required from the Foreign Investment Review Board is a question that arises before contractual commitment, because acquiring an interest in Australian land without required approval carries serious consequences. Finance is often carried as a separate “subject to finance” condition rather than folded into due diligence, and the two can sit side by side in the same contract. The point is to line up the investigations so that each of the ways the deal could fail has a corresponding condition that lets you walk.

How long should the due diligence period be?

A development due diligence period generally needs to run longer than the two-to-four weeks common in a straightforward residential purchase, because development investigations take longer to complete. A period of 30 to 90 days is common for a development site, and complex sites with contamination testing, servicing enquiries, or a planning pre-lodgement can justify the longer end of that range. The practical test is to count backwards from the due diligence date through every investigation required, including the lead time to engage consultants and the turnaround for council and authority responses, and see whether the period actually fits.

Two practical points tend to matter more than the headline number. The first is whether the clause carries a right to extend the period, and at whose election, because contamination sampling and authority responses routinely take longer than planned, and a clause with no extension mechanism can force termination of a good deal simply because a report was late. The second is how business days, weekends, and public holidays are counted, and whether the clause carries “time is of the essence” wording, because a due diligence date is a hard deadline and missing it by a day can remove the exit entirely. Holding a site under contract also carries a cost while the clock runs, since capital is committed and, depending on the structure, land holding costs may start to accrue, so a longer period is not free.

Absolute discretion or reasonable satisfaction: which satisfaction test should you ask for?

The satisfaction test is the single most important piece of drafting in the clause, because it decides how easily you can walk. There are broadly two versions, and the difference is large.

An absolute-discretion clause lets you terminate if you are not satisfied with your due diligence “in your sole and absolute discretion”, for any reason or no stated reason. This is the developer-friendly version. It comes as close as the law allows to a genuine right to withdraw, and it gives a vendor very little room to argue that your reason for terminating was not good enough. A reasonable-satisfaction clause, by contrast, only lets you terminate if your dissatisfaction is objectively reasonable, which opens the door to a dispute: the vendor can argue the issue you relied on was minor, or not a genuine due diligence problem, and try to hold you to the contract or keep the deposit.

Even an absolute-discretion clause is not completely unfettered. Following Meehan v Jones, a buyer relying on a satisfaction condition must still act honestly, and a court can look at whether the discretion was exercised in good faith rather than as a sham. In practice that is a low bar for a developer who has genuinely run investigations and formed a real view. Sole and absolute discretion is the stronger position for a buyer, and reasonable satisfaction is meaningfully weaker. Whichever test applies, the notice mechanics are what determine whether the right can actually be exercised.

How does the clause operate: condition precedent, notice, and waiver?

Mechanically, a due diligence clause usually works as a condition that must be satisfied or waived before the contract becomes unconditional, and the mechanics decide whether your exit actually works when you need it. The contract is binding from the moment it is signed, but completion is suspended until the condition is dealt with. If you are not satisfied, you generally have to give written notice of termination to the vendor before the due diligence date, in the form and to the address the contract specifies. Get the notice mechanics wrong, serve it late, or serve it on the wrong party, and you can lose the right to terminate even though your investigations failed.

Two features are worth understanding. First, a due diligence condition is usually inserted for the buyer’s benefit, which typically means you can waive it and proceed if you decide the deal is worth doing despite an issue, though whether a condition is truly for one party’s sole benefit depends on the drafting. Second, silence usually means the condition is satisfied: if you do nothing by the due diligence date, most clauses treat the condition as met and the contract proceeds to settlement, so an exit is something you have to actively take, not something that happens by default. These mechanics are unforgiving, which is why the due diligence date and the notice requirements are worth recording at signing, and why exactly what must be done, and by when, to withdraw is a question for the buyer’s lawyer at the outset rather than at the deadline.

What does a due diligence clause cost you, and what is at risk?

A due diligence clause is not free protection, and it pays to understand what you are risking while the period runs. The direct financial exposure is usually limited: if you terminate properly within the period, your deposit is generally refunded, so the money at stake is what you have spent on investigations (surveys, environmental assessments, geotechnical reports, legal and planning advice), which can still run to tens of thousands of dollars on a complex site. That is money you may not recover if you walk, but it is money well spent if it stops you completing a bad deal.

The less obvious cost is time and opportunity. While your capital is committed to a deal under contract, it is not available for another, and the vendor’s site is off the market for you but the clock is running on your own holding position and your team’s attention. There is also the risk that the deposit is genuinely at stake if the clause is drafted so that some part of it is non-refundable, or if you miss the notice date and the condition is deemed satisfied, at which point terminating is no longer a due diligence right but a default that can cost you the full deposit and expose you to further claims. The levers that keep the exposure proportionate are the size of the deposit before the condition is satisfied, how cleanly the contract provides for its refund on termination, and whether the notice date is met.

Vendor disclosure that changes your due diligence, state by state

What the vendor is legally required to disclose changes how much of your due diligence is handed to you and how much you have to dig up yourself. The disclosure regimes differ significantly across the country, and one of them changed materially in 2025, so the state-by-state position is worth setting out. In every case, treat vendor disclosure as a starting point that reduces your search burden, not as a replacement for your own investigations.

New South Wales

In New South Wales, the vendor must attach prescribed documents to the contract before it can be exchanged, including a title search, a drainage diagram, and the planning certificate issued under section 10.7 of the Environmental Planning and Assessment Act 1979. The statutory cooling-off period for residential sales is five business days with a 0.25% penalty under the Conveyancing Act 1919, and it can be waived by a section 66W certificate signed by the buyer’s solicitor. Because cooling-off is residential-only and does not apply at auction, a developer buying a commercial or auctioned site relies on the contractual due diligence clause instead.

Victoria

In Victoria, the vendor must give the buyer a vendor’s statement under section 32 of the Sale of Land Act 1962 before the contract is signed, disclosing title, encumbrances, zoning, outgoings, notices, and building permits issued in the previous seven years. The cooling-off period is three clear business days, with a penalty of the greater of $100 or 0.2% of the price, and it does not apply to a sale at auction (or within three days either side of one), to land used for commercial or industrial purposes, or to farmland over 20 hectares. That excludes most development sites, so the vendor’s statement plus your own due diligence clause do the real work.

Queensland (the new Form 2 regime)

Queensland introduced a mandatory seller disclosure regime on 1 August 2025 under the Property Law Act 2023, which replaced the Property Law Act 1974. For contracts entered from that date, the seller must give the buyer a Form 2 Seller Disclosure Statement and a set of prescribed certificates before the buyer signs. If the seller fails to give the statement, or it contains a material inaccuracy or omission the buyer did not know about, the buyer may have the right to terminate at any time up to settlement and recover all money paid. That is a meaningful new lever for a buyer, but the disclosure is not exhaustive, so it does not remove the need for your own investigations. Queensland’s cooling-off period remains five business days with a 0.25% penalty, and it is excluded for auctions, option exercises, purchases of three or more lots, listed-company buyers, and non-residential land.

South Australia, Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory

The smaller jurisdictions sit across a spectrum, so confirm the current position for your deal rather than assuming it matches a neighbouring state. In South Australia, the vendor must serve a Form 1 vendor’s statement under the Land and Business (Sale and Conveyancing) Act 1994, and the cooling-off period is two clear business days after the Form 1 is served, excluding auctions and company buyers. Western Australia has no statutory cooling-off period at all, so any cooling-off or due diligence right has to be negotiated into the contract. Tasmania likewise has no statutory cooling-off period under the Property Agents and Land Transactions Act 2016; some standard contracts offer an optional cooling-off provision the buyer must elect. The Australian Capital Territory requires a seller to provide a disclosure package and gives a five-business-day cooling-off period with a 0.25% penalty under the Civil Law (Sale of Residential Property) Act 2003. The Northern Territory provides a four-business-day cooling-off period for non-auction sales under the Law of Property Act 2000, and the deposit is generally refunded in full if the buyer withdraws in time, as the Northern Territory Government’s contract of sale page explains. In all five, the contractual due diligence clause remains the developer’s main protection, because the statutory rights are short, penalty-bearing, or absent.

How do vendors resist an open-ended clause, and how do you keep protection?

Vendors resist due diligence clauses because a long, wide, absolute-discretion condition leaves them holding a site off the market with no certainty the sale will complete. That tension is normal, and the negotiation usually comes down to four levers: the length of the period, the breadth of the scope, the satisfaction test, and what happens to the deposit. A vendor will push for a short period, a narrow scope, a reasonable-satisfaction test, and a deposit that is released or partly forfeited if you terminate. You will push the other way.

Where not every point is winnable, which lever matters most depends on how the particular deal is most likely to fail. Where contamination or servicing is the real risk, the period long enough to test it and the scope broad enough to rely on it are the ones doing the work. Where a vendor will not accept an open-ended absolute-discretion clause, one common middle ground is to define the specific matters termination can be based on (planning, contamination, title, finance, servicing), which narrows any “reasonableness” argument to whether the issue is real rather than whether it mattered enough. Another is a shorter period with a documented right to extend if a specific report is outstanding. The test at the end of it is whether each way the site could undermine the feasibility still has a matching exit when the due diligence date arrives.

Due diligence clause, put and call option, or subject to finance?

A due diligence clause is one of several ways to keep an exit open, and for a longer or more complex site a put and call option can do more. Under a due diligence clause you are in a binding contract with a conditional right to withdraw. Under a put and call option you hold the right to call for the sale (and the vendor holds the right to put it to you), which can give a longer exclusive period to run investigations and pursue a development approval before you are committed, and can defer both settlement and, depending on the structure and jurisdiction, the timing of transfer duty. Options are common on sites where the developer needs a long lead time to secure a planning outcome before committing capital.

The choice depends on the deal. A due diligence clause is simpler, faster to document, and well suited to a site you intend to settle within a few months once investigations clear. An option suits a site where you need a year or more to obtain approval, or where deferring the land payment materially improves your peak funding and internal rate of return. A “subject to finance” condition is narrower again, covering only your ability to secure funding, and it often sits alongside a due diligence clause rather than replacing it. Which tool fits turns on how long the investigations need, how much has to be de-risked before commitment, and how the timing of the land payment affects the feasibility.

New Zealand: due diligence conditions and the Land Information Memorandum (LIM)

New Zealand developers rely on a due diligence condition even more than their Australian counterparts, because New Zealand has no general cooling-off period. Once both parties sign the Agreement for Sale and Purchase, it is binding unless a condition allows cancellation, so the conditions you insert are your only exit. The standard Auckland District Law Society (ADLS) and Real Estate Institute of New Zealand (REINZ) agreement supports common conditions for finance, a builder’s report, a Land Information Memorandum (LIM), and a toxicology report, and a broad due diligence condition is routinely added as a further term. A well-drafted due diligence condition functions much like a cooling-off right: it lets you cancel within a set period, often on satisfaction in your sole discretion, provided the condition is drafted for your benefit.

Two New Zealand-specific investigations sit at the centre of the period. The Land Information Memorandum (LIM), issued by the council under the Local Government Official Information and Meetings Act 1987, reports what the council knows about the property, including consents, drainage, hazards such as flooding or land instability, and any unconsented works, and a poor Land Information Memorandum (LIM) is a common reason a buyer cancels. Overseas developers also need to confirm whether the acquisition requires consent under the Overseas Investment Act 2005, administered by Toitū Te Whenua Land Information New Zealand, before committing. The settled.govt.nz guidance on sale and purchase conditions is a useful plain-English reference on how these conditions operate.

Where does due diligence fit in your feasibility?

The due diligence period is where the feasibility stops being an estimate and starts being tested against real information, and it is the last point at which the numbers can still change your decision cheaply. Every investigation feeds a number: the planning outcome sets your yield and your gross realisation, the contamination and geotechnical findings set part of your construction cost, the servicing position can add an infrastructure cost you had not budgeted, and the confirmed holding period feeds your finance cost. Run those into the model during the period, and the residual land value the deal can justify may come out above or below the price you have contracted to pay.

That comparison is what the period is for. Where the refined feasibility supports a residual land value at or above the contract price, and the development margin and peak debt still hold, the condition can be allowed to lapse and the contract proceeds. Where it comes out below, the due diligence clause is what makes it possible to renegotiate the price or withdraw. Residual land value tooling and side-by-side scenario comparison in Feasly cover this step: back-solving the land value the finalised numbers support, and testing how sensitive the margin is to a contamination cost or a yield reduction before the due diligence date passes. The clause provides the exit; the feasibility is what indicates whether to use it.

Common mistakes developers make with due diligence clauses

Most due diligence failures are avoidable, and they tend to repeat. The first is reusing a clause from a previous deal without checking that the scope, period, and satisfaction test suit this site; a clause written for a clean infill block will not protect you on a former industrial site. The second is a period that is too short to complete the investigations that matter, especially where contamination sampling or authority responses are involved, with no right to extend. The third is missing the notice mechanics: terminating on the wrong day, in the wrong form, or to the wrong party, and losing an exit that was otherwise valid.

The remaining mistakes are about scope and discretion. Accepting a reasonable-satisfaction test when you could have negotiated sole and absolute discretion hands the vendor an argument you may not want to have. Defining the scope too narrowly leaves you unable to rely on a genuine problem that falls outside the listed matters. And treating vendor disclosure, whether a section 32 statement, a Form 1, a Form 2, or a section 10.7 certificate, as the end of your investigations rather than the start of them is how developers inherit an easement, a covenant, or a contamination liability that disclosure never had to reveal. The common thread is that a due diligence clause protects a deal only to the extent it is drafted for the site in front of it, and exercised exactly as its mechanics require.

This guide is general information for property developers and others in the industry, not legal, financial or tax advice. The rules, thresholds and cooling-off figures were current at the time of writing and can change, and every contract turns on its own drafting, so confirm the position that applies to your contract with your own legal adviser before you rely on it.