Katy Holliday - 28 Oct, 2021
Buying new property brings with it a lot of nerves and excitement. When the competition is hot, it can be a hard task to take stock of your decisions and refrain from impulse buying. That’s why a cooling-off period is so important.
Fortunately in Australia, most states and territories provide buyers with a short cooling-off period in the property contract of sale. Essentially, this is the final stage you can withdraw from the sale without risking significant legal and financial repercussions, once you have signed the contract.
While the cooling-off period is usually used as time to conduct final inspections and valuations, its main purpose is to act as a buffer for buyers to ensure they are fully satisfied with their decision before committing to such a major investment.
When you opt to use the cooling-off period to cancel the contract of sale, you might have to pay a termination fee, but this could be worth the risk depending on your circumstances.
A cooling-off period commences once the contracts are signed and exchanged and ends at 5pm on the final day of the designated period. Depending on which state you live in, the cooling-off period usually lasts between two and five business days.
In all states, except for Western Australia and Tasmania, a cooling-off period is a mandatory part of the contract of sale. The terms and conditions also differ from state to state, so it’s a good idea to check with the Real Estate Institute or Fair Trading in your state.
Most states and territories have different legal requirements relating to the cooling-off period. These are as follows:
Buyers have a five-day cooling off period in Queensland. If you withdraw from the sale, the seller can keep 0.25% of the purchase price. This equates to $250 for every $100,000 of the purchase price.
Like in Queensland, New South Wales buyers have five business days to terminate a signed contract of sale. There is also a penalty rate of 0.25% of the property sale price to pay.
In Victoria, buyers have three business days to back out of the contract, and a termination fee of 0.20% of the property purchase price or $100, depending on which is greater.
Buyers have five business days to back out of the sale in ACT. A penalty fee of 0.25% is held by the seller if you withdraw from the sale.
Buyers have four business days to terminate the contract. However, there is no penalty for ending the contract and you will receive your full deposit back.
There is no mandatory cooling-off period required in WA, unless specifically requested in the contract.
There is no cooling-off period applied to any property sale in Tasmania.
If both the buyer and seller agree in writing, a cooling-off period can be extended. This is at the vendor’s discretion and is helpful in cases when financing is still being finalised. Legally, a vendor does not have to agree to this request and if granted it’s important to have the agreement in writing to protect you in the event of any problems that may arise.
Once the cooling-off period ends, if you wish to terminate the contract of sale it will be much more difficult and could end up costing you a lot of money. The contract of sale outlines the penalties attached to rescinding. To rescind, you must give notice in writing to the seller within the appropriate statutory period.
In most cases, rescission is used when the seller has breached the contract or has failed to disclose pertinent information relating to the condition of the property that if known would have prevented the buyer from entering the sale in the first place.
No, cooling-off periods are not available when purchasing property via auction. Typically, this condition of sale is reserved for private treaty property sales. This means that when buying at auction, you need to ensure you’ve had your building and pest inspections and valuations done prior to bidding.
No, cooling-off periods typically exist just for buyers, and are not available to sellers. This is to protect the buyer from any unforeseen circumstances that could come to their attention after the contracts have been signed. The cooling-off period does not protect sellers who change their minds. Once contracts are exchanged a vendor cannot back out of the sale without reasonable grounds.
There are many reasons why a buyer might decide to use their cooling-off period after they’ve signed the property contract of sale. Here are some of the most common reasons buyers back out of a sale:
If you decide to use your cooling-off period to withdraw from the sale, you will need to notify the seller’s agent in writing about your decision. Your solicitor or conveyancer can conduct this on your behalf, ensuring the letter is delivered by 5pm on the last day of the cooling off period.
Depending on the state you live in, you will likely incur a penalty fee for withdrawing from the sale.
When you terminate a contract of sale during the cooling-off period, depending on the state you reside in, the vendor will likely be entitled to a percentage of the deposit you’ve paid. In most states, the penalty rate is roughly 0.25% of the purchase price of the property. You will then receive the remainder of your deposit back.
Known as an “unconditional contract of sale”, in the thick of a hot housing market or when you’re greatly interested in a property, waiving the cooling-off period can give you a competitive edge over other bidders.
Your lawyer or conveyancer can sign off on the waiver with a section 66W certificate. Once contracts are signed and exchanged, the property must be settled and you have forfeited your right to terminate the contract under any circumstances, even in the case that your lender doesn’t approve finance.
While this negotiation offers the seller security of sale, the buyer assumes a lot of risk with an unconditional contract and should only play this card if they already have their finances squared away and have completed the appropriate inspections and valuations.
If you do change your mind after the contracts are exchanged and the cooling-off period has been waived, the seller is entitled to keep your 10% deposit and can sue for damages.
Words by Katy Holliday
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