With so many people trying to buy a property and little stock on the market, desperate buyers are going to prodigious lengths to secure the purchase of their next home. Some are even volunteering to waive their cooling-off periods or are tailoring their Contract terms to suit the vendor, which poses a considerable risk to buyers. Attwood Marshall Lawyers Property and Commercial Law Graduate Mieke Elzer explains the importance of cooling-off periods and when they apply.
Introduction
The cooling-off period is the last stage that a property buyer can withdraw from the sale or terminate the sale contract without significant legal or financial consequences. During the cooling-off period, a buyer is entitled to terminate a Contract of Sale and avoid any significant legal repercussions. Sellers are not permitted to sell the property to anyone else during this period. There is usually a relatively minor fee the buyer must pay if they terminate under the cooling off provisions. For example, in QLD, the fee is .25% of the sale price – on a one million dollar ($1M) contract, this would be a payment of $2,500.00 from the buyer if they pulled out under the cooling off provisions of the contract.
Cooling-off periods only apply to property sales by private treaty and specifications vary between states and territories. They do not apply to property purchased at auction. They are usually only applicable for buyers, not sellers. You can rescind the contract throughout the cooling-off period, but in doing so you still risk losing a portion of your deposit.
The duration of the cooling-off period, or if one even applies, varies from state to state and for this reason, it is important for anyone buying a property interstate to do their homework and get the right legal advice!
There are also significant variations between states in the conveyancing process, which must be considered BEFORE you sign a contract or initiate an “exchange of contracts”.
From a real estate agent’s perspective, you are better off knowing your way around cooling off periods and informing the buyers of all the relevant terms so they know where they stand and what it will cost them to terminate under these provisions. It is not so much of an issue in NSW because usually the lawyers handle the exchange and most sellers’ lawyers require a waiver of the cooling off period to be signed prior to exchange. In QLD, however, the agent usually prepares the contract and signs up the buyers directly with the cooling off in place. It is important that you advise them of the 5-day cooling off period and when this starts, as well as the .25% penalty payable (and that this percentage is of the sale price, not the deposit). It will save you a lot of grief down the track!
Exchanging contracts
Naturally, all property transactions in Australia require a Contract of Sale to be executed.
In New South Wales, this process is known as an ‘exchange’ of contracts, while in Queensland, it’s called placing a property ‘under contract’.
Contracts in Queensland are subject to a five-day cooling-off period, and many people do not obtain advice from a lawyer before entering into the contract, which enhances risk and exposes them to the .25% fee payable, which can add up when you are buying a highly priced property.
In NSW, the procedure is entirely different. A draft contract must be in place before a seller (vendor) can list their property for sale. The draft contract, which includes essential searches, is drawn up by their lawyers and is passed on to the real estate agent.
After each party has signed counterpart copies of the contract, the counterparts are then “exchanged”. The seller’s lawyer submits the copy of the contract signed by the seller, and the buyer’s solicitor submits the buyer’s signed copy. Each party must meticulously check that the contracts are identical, and the contracts are then dated on the date of ‘exchange’.
Not only are people surprised at the vastly different process between states and territories, but they are also unaccustomed to the intercession of the lawyers at this part of the process, and the additional time and logistics involved in having a signed enforceable contract between the parties.
Queensland cooling off period
In QLD, residential property buyers are entitled to a cooling-off period of five business days (there are some exceptions). The cooling-off period commences when the buyer receives a copy of the Contract of Sale signed by both parties. Throughout this period, the buyer can cancel the sale but is required to pay a termination penalty to the seller of up to 0.25 per cent of the sale price. The balance of the deposit must be refunded within 14 days.
Exceptions
It is vital to be aware that the cooling-off period does not apply to contracts where:
- a property purchased has been purchased at an auction
- the contract has been entered into within two business days of an unsuccessful auction
- the buyer was a registered bidder at the unsuccessful auction
When does the cooling-off period start and end?
The cooling-off period begins on the day you receive a copy of the contract signed by both parties from the seller or their real estate agent. However, if the contract is received on a non-business day (Saturday, Sunday, or a public holiday), the cooling-off period will begin on the next business day.
Suppose the seller signs the contract before the buyer. In that case, the cooling-off period begins the day the buyer signs and conveys acceptance to the seller. Acceptance can be conveyed by providing a copy of the signed contract to the seller or their real estate agent.
The cooling-off period expires at 5pm on the 5th business day after the period began.
Termination and Penalties
A buyer can terminate the contract anytime during the cooling-off period. However, it is important for buyers to be aware that the seller is entitled to retain 0.25% of the purchase price should they terminate the contract during the cooling off period.
To terminate the purchase during the cooling-off period, a buyer must provide written notice to the seller (and their real estate agent) before 5pm on the last day of the period.
The seller will have 14 days post-termination to reimburse the deposit to the buyer, less the penalty of 0.25%.
Waiving the cooling-off period
A buyer can decide to waive or shorten the cooling-off period via written notice to the seller. Though, it is important to be aware that if you waive the cooling-off period on an otherwise unconditional contract, you will have no contractual right to terminate (except in the case of unusual circumstances).
Why waive the cooling-off period?
A buyer may wish to waive the cooling-off period to make their offer more competitive in a situation where several other buyers are looking to buy the same property. In addition, a waiver may give the seller more confidence in the buyer’s commitment to the purchase.
Waiving the cooling-off period is common in the purchase of vacant land when no building and pest inspection is required, and finance has been secured by the buyer already or the buyer is making a cash offer.
Cooling off periods in New South Wales
The cooling-off period begins once the vendor and purchaser signed contracts have been exchanged and dated. In NSW, the duration of the cooling-off period is five business days, in which time the buyer can cancel the sale.
It is important to consider that cooling-off periods in NSW only apply to the buyer. Once contracts have been exchanged and the cooling off period has expired, the seller can’t simply cancel the sale.
Required statement
A residential property sale contract must include a statement regarding the cooling-off period. A buyer is able to waive the cooling-off period by providing a certificate on exchange signed by their lawyer under Section 66W of the Conveyancing Act 1919.
If a signed Section 66W certificate is not provided, a buyer can withdraw prior to the finalisation of the sale, even though the cooling-off period has expired. As is the case in Queensland, if the purchaser opts to rescind the contract prior to the expiration of the cooling off period, they forfeit to the vendor 0.25% of the purchase price of the property.
Altering the period
The time span of the cooling-off period can be shortened or extended according to the applicable rules in each case.
Similarly, the period may be extended by a clause in the contract or by the seller giving the buyer written acknowledgement prior to the expiration of the cooling-off period.
Withdrawing from the Contract
To withdraw from a contract within the specified cooling-off period, a buyer needs to give written notice to the seller. Setting out the reasons for such withdrawal is necessary. The notice must be signed by the buyer’s lawyer and must be served upon the seller, the seller’s lawyer, and any agent mentioned in the contract. However, the notice can only be served during the cooling-off period. The notice service will be rendered ineffective if served after the cooling off has expired. Conversely, the notice, once duly served, cannot be revoked except with the seller’s consent.
The purchaser’s rights to rescind after the cooling-off period has expired are restricted so it is of utmost importance that purchasers ensure they have completed their due diligence and if necessary, secured finance approval, before entering into an into an unconditional contract.
Attwood Marshall Lawyers – helping buyers and sellers achieve successful property transactions in Queensland and New South Wales
At Attwood Marshall Lawyers, our property lawyers can evaluate contracts and provide buyers and sellers with pre-signing advice. This advice ensures the contract details accurately reflect the buyer’s offer and that any special conditions required are drafted correctly. We can provide both buyers and sellers with the opportunity to obtain a complete understanding of their rights to negotiate necessary clauses or conditions required in the contract.
Attwood Marshall Lawyers, act for buyers and sellers in both Queensland and New South Wales and have been helping people achieve their property goals for over 75 years. Our lawyers are well-versed at understanding the variances between the two states and have extensive experience acting in these matters.
For pre-signing advice, help with drafting contracts, or negotiations around cooling-off periods, contact our team any time by calling Property and Commercial Department Manager, Jess Kimpton, on direct line 07 5506 8214, email jkimpton@attwoodmarshall.com.au, or click here to book an appointment online instantly.
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