In residential property purchases, a cooling off period allows the purchaser to withdraw from a transaction within a short, specified period of time without any legal repercussions. In NSW, the cooling off period for residential properties lasts for five days, starting as soon as contracts are exchanged, and ending on the fifth business day at 5pm. During this period, the purchaser may forfeit the contract as long as they provide written notice to the vendor. However, if a purchaser does decide to exercise their cooling off rights, they are required pay the vendor 0.25 per cent of the purchase price. This means for a property worth $500,000.00; a purchaser would lose $1,250.00 if they forfeited the contract. Purchasers may pull out of a contract for multiple reasons, such as if a property fails the building and pest inspections.
Does a cooling off period apply to all property purchases?
The standard five-day cooling off period will not apply to all property purchases. Cooling off periods are only available for property sales by private treaty and differ between states and territories.
In NSW, there are a few property purchases where a cooling off period will not apply at all. These include:
- Auction property purchases;
- Property purchasers where parties exchange contracts on the same day the property is auctioned for sale;
- Property that is vacant or developed land not intended for residential purposes; and
- Properties that are larger in area than 2.5 hectares.
Cooling-Off Periods for Off the Plan Contracts
For properties “off the plan”, the contracts involved are often larger and more complex. Furthermore, there may be separate contracts involved for the purchase of the land and construction of the house. Therefore, the cooling off period is ten business days rather than five in order to allow the buyer adequate time to review the contract conditions. During this time, purchasers can decide to pull out of the contract and forfeit 0.25 per cent of the purchase price. It is crucial for purchasers to use the cooling off period to obtain legal advice to review the contract and ensure there are no clauses that allow the developer to rescind the contract after exchange.
Can I waive the cooling off period?
A section 66W certificate is an agreement signed by a solicitor and given to the vendor which allows the purchaser to waive or reduce the cooling off period. This section 66W certificate makes the contract immediately binding between the two parties. If a purchaser decides to rescind the contract after providing a s66W certificate, they will be penalised as per the original contract. The penalty is generally 10% of the purchase price, plus the difference between the purchaser’s offer and subsequent sale of the property. Therefore, it is important to understand the penalty and risk involved in providing a s66W certificate. It is crucial that the purchaser undertakes due diligence enquiries and obtains unconditional financial approval before signing a s66W certificate.
How do Cooling-Off Periods apply to auctions?
Auctions differ from private sales as no cooling-off period applies. Instead, if a purchaser bids at an auction, they must be ready to exchange contracts and complete the sale on the spot. If a purchaser decides to back out after successfully bidding the highest offer at an auction, they will lose the deposit paid and may be liable for any damages suffered by the vendor. Therefore, it is crucial to engage a solicitor to review the sale contract prior to the auction and conduct necessary building and pest reports. A purchaser must also ensure they have confirmed their maximum borrowing capacity with the lender and have the necessary approvals in place.
What about Commercial Properties?
Generally, cooling off periods do not apply to commercial properties. For these purchases contracts are entered into unconditionally. Therefore, it is imperative that prior to exchanging contracts for a commercial property, the purchaser has an unconditional loan approval in writing and has conducted due diligence enquiries.