Cordato Partners, Business Lawyers, Property Lawyers, Tourism Lawyers
 
 
 

The Law of Cooling Off

Contracts for Sale of property are entered into subject to cooling off.

What does cooling off mean?

Cooling off is a consumer protection measure which applies by law when a Contract for Sale is entered into, and is designed –

  • to give a buyer time to reconsider whether or not to go ahead with the Contract to purchase a home that they might have signed under pressure of losing the home from a seller / real estate agent, usually at the real estate agent’s office; and
     
  • to give a buyer time to obtain pest and building inspection reports on the home, and particularly finance approval, without risking the seller selling the home to someone else, behind their back, often for a higher price – this practice is known as gazumping; and
     
  • to give a buyer an opportunity to obtain independent legal advice on the Contract.

The five keys to cooling off -


1. Cooling off applies by law
– to all Contracts which are entered into for the sale of residential property in all States and Territories except WA.

A cooling off period of between 2 to 5 days applies, the period depending on the law of the State or Territory - NSW, Qld & ACT – 5 days; NT – 4 days; Vic - 3 days; SA & Tas - 2 days; WA – no cooling off period at all.

The cooling off days are business days (Monday to Friday), so weekends and public holidays are not counted. The cooling off period starts at midnight the day the Contract is signed, and ends at 5:00 pm on the last day. In some States & Territories, the ‘Contract is signed’ means the date the Contract is signed by the buyer only, in others, it means when the Contract is signed by both seller and buyer, and is entered into or exchanged.

A ‘cooling off deposit’ is a small deposit – in NSW & Qld 0.25% of the price, in Vic 0.2%, in SA $100, which is paid when the Contract is signed. The rest of the standard 10% deposit is payable when the cooling off period ends.
 

2. Cooling off can be removed – the law allows for a cooling off to be removed (the technical term is waived) in two main situations –

The first situation to remove a cooling off is when the buyer obtains independent legal advice – the procedure is that a solicitor or conveyancer signs a Certificate of Waiver, which in NSW is called a Section 66W Certificate (named after the section of the Conveyancing Act that permits this), and sends this to the seller’s solicitor / conveyancer / real estate agent. Other States and Territories call the Certificate a Waiver Certificate or after the section in their law.

It is standard conveyancing practice where a Contract for Sale is a private treaty, and is entered into or exchanged by solicitors / conveyancers, for the seller’s solicitor to require a Certificate of Waiver to be handed over, along with the full deposit, so that no cooling off applies.

Another way to remove a cooling off is where the buyer has had an opportunity to obtain independent legal advice on the Contract before signing. A common example is where a property is to be sold at auction. If a property is sold at auction ‘under the hammer’ or after a property is ‘passed in’ on the day of auction (or in Tas, within 2 days before the auction), no cooling off period applies.

In some States & Territories, the law has other removal / waiver provisions, such as if the property is sold by tender, or if the purchaser is a corporation.


3. Cooling off periods can be extended – A cooling off period can be extended to be a longer period than the one laid down by the law, if the vendor agrees. There is no upper limit on how long a cooling off period can be extended.

As a matter of conveyancing practice, a 10 day cooling off period is often able to be negotiated before the Contract is signed. The cooling off extension should be written into the Contract, for example – The parties agree that the cooling off period for this contract will be extended to 10 days - will suffice.

Often, a buyer finds that their lender has not given unconditional loan approval in writing before the cooling off period is due to end. In this situation, the buyer’s solicitor / conveyancer will ask the seller’s solicitor / conveyancer for an agreed extension to the cooling off period. If the seller’s solicitor / conveyancer does not agree, then the Contract must be terminated because the buyer could risk being in breach of contract if the finance to complete the purchase does not come through.

Extended cooling off periods are valuable to a buyer because they give enough time for the purchaser to obtain pest and building inspection reports, and finance approval, and searches such as survey reports and council building compliances, knowing that they cannot be gazumpted.

The period the cooling off continues will not extend the completion period under the Contract.


4. Cancelling the Contract
- If the buyer does not want to go ahead with the Contract that they have signed with a cooling off, they can opt-out before the cooling off period ends. The ‘opt-out’ is a cancellation of the Contract, which lawyers call termination or rescission. This is a ‘no grounds’ opt-out, which means that no reason needs be given to cancel the Contract.

The ‘opt-out’ must be in writing and be delivered to the seller’s solicitor’s / conveyancer’s office by 5:00 pm on the day the cooling off period ends – it is called a notice of termination/ rescission and is usually sent by fax, with a time stamp.

If a buyer cancels a Contract within the cooling off period, they will lose their ‘cooling off deposit’, but be liable for nothing more.


5. 48 hour clauses
- In WA and Tas, by law, they have 48 hour clauses which the WA and Tas governments believe are equivalent to a cooling off period in terms of protecting a buyer, but which are nothing like with cooling off periods.
This is how a 48 hour clause works –

  • the buyer offers to purchase a property subject to entering into a contract for the sale of their existing property;
     
  • the seller accepts the offer and a Contract is entered into with a 48 hour clause along these lines –
    The Buyer acknowledges that the Seller intends to continue to offer the Property for sale, even though the Seller has entered into this Contract.
    Should the Seller receive an offer to enter into a Contract which is not conditional upon the sale of any other property, at a purchase price less than or in excess of the Contract Price, then the Seller shall immediately notify the Buyer in writing of such offer and furnish the Buyer with copy of the same, and give the Buyer 48 hours to remove the condition in the Contract that makes the Contract conditional upon the sale of another property.
     
  • if a second buyer then comes along with a cash offer (i.e. is not subject to a sale and is not subject to finance), the seller can give the first buyer 48 hours to drop the subject to sale condition, and the contract becomes unconditional; and
     
  • if the first buyer does not do so, then the seller is released from their obligation to sell to the first buyer, and may sell to the second buyer.

Other than in WA and Tas, there is no law requiring 48 hour clauses to apply to Contracts for the sale of residential property. In those other States and Territories, it is possible to negotiate a 48 hour clause be inserted into a Contract, but it is highly unusual for a seller to agree to a 48 hour clause, because they would rather wait for the buyer to sell their own property, and enter into an unconditional contract with them.
 

Summary

Cooling off allows buyers who do not buy at auction the time to investigate the property, knowing that the property cannot be sold behind their back or the price increased. It works like an option to purchase, in that the buyer can opt-out within the cooling off period and lose only a small amount of money.

© Copyright 2012 Cordato Partners