Termination fee during due diligence period

[Afiqah Collins]

Need help/advice. 

Our offer was accepted and we are currently on due diligence period. We completed the property inspection last week and knows that they did not have permit extending their basement and lots of electrical issues. All this was not disclosed on property disclosure statement. We paid top dollars for this property (way more the listing price) since we really love it. Once we found out about permit issue, we decided to terminate the agreement due to material information was omitted which if we knew it, we will not even submit an offer. We do not want to pay $5000 termination fee because this is material fact. We submitted the notice of termination but they did not want to sign in without termination fee (FYI, they were using "basement extended in 2021" as a selling point). They stated what they did to the basement did not required permit. We asked the proof but they can't provide it and put it on us to provide a proof that it requires permit. Which is completely ridiculous that buyer need prove that when they are the one using it as selling point. Now, the due diligence period will be over on 05/24 and they still refusing to sign. Do anyone here ever have this same issue? What did you do?