In residential property sales, a cooling-off clause allows a buyer to withdraw from the transaction within a short period of time. It’s a sort of safety net for buyers, but any cooling-off clause has its limits and exercising the option to pull out of the agreement will cost the buyer some money. It is best to think of engaging cooling-off clauses as a last resort only.
The Basic Limits
Cooling-off periods, in the states and territories where they exist, apply only to residential real estate and only to buyers. The seller of a property does not have the option to reconsider a sale once the contract is signed. Furthermore, cooling-off clauses do not apply to properties purchased at auction.
It is important to note that not every jurisdiction requires a cooling-off clause in the contract of sale. Western Australia, for example, has no such requirement. Even among those localities that do, the details vary considerably. In New South Wales, the time period is five business days, but in South Australia, it is only two. Always check closely with your solicitor about the applicability and limits of any cooling-off period.
As a side note, although sellers do not have the option to cancel a contract of sale after it is executed, in NSW they may withdraw from an agreement with a real estate agent to sell their property within a one-day period after the contract is executed. A seller must give the agent a “notice of rescission” signed by all clients by 5pm on the day of cooling off.
How to Count Days
It should come as no surprise that this is a fertile source of litigation. In NSW, “business days” means Monday through Saturday from 9am to 5pm. If a contract of sale is signed on Sunday at 6pm, the cooling-off period does not begin to run for another 15 hours. Cooling off periods also do not include public holidays or Sundays.
But a buyer who waits until 5:45 pm on the last day of the cooling off period has missed the boat and must go through with the purchase as detailed in the terms of the contract. Make no assumptions about how to count days; get a professional to do the calculation of the time period for you.
The cooling-off period ordinarily begins when the buyer receives a signed contract, so savvy buyers often ask for notice of receipt when the contract is delivered as proof of the time the period begins. Similarly, buyers and sellers often agree by contract about how notice of timely withdrawal from the contract must be given. This eliminates disputes about missed phone calls or unopened emails.
Waiving or Modifying the Cooling-Off Provisions
In a hot seller’s market, buyers sometimes choose to waive the cooling-off period as a way to make an offer more attractive. This must be done formally by delivering a document known as a Form 66W certificate to the buyer in compliance with the provisions of the Conveyancing Act 1919. This certificate must be signed by the buyer’s legal representative.
Buyers and sellers may also choose to shorten or extend the cooling-off period by contractual agreement.
Pulling the Plug
If a buyer chooses to cancel the contract of sale by exercising the cooling-off option during the appropriate period, it will not be totally painless. In NSW cancellation incurs a penalty of 0.25 percent of the total selling price of the property. If it is a million dollar property, the penalty will be about $2,500. The penalty is intended to compensate a seller for lost opportunities and any legal fees that may have been incurred. The seller must return the buyer’s deposit less the permitted penalty within 14 days of the cancellation.
Separate and apart from the financial pain of cancellation, buyers should also keep in mind that a history of contract cancellations might make a wary seller reluctant to accept an offer in a subsequent transaction.
The attorneys at Owen Hodge Lawyers would be happy to assist you in the purchase or sale of real property, including the evaluation of cooling-off clauses in a contract of sale. Please call us at your earliest convenience at 1800 770 780 to schedule a consultation.