In this article, we’ll discuss what a cooling-off period is, how it works, and some of the actions buyers often take during this period. If you’re purchasing a property in NSW, working with a property lawyer like RS Law Group can help ensure that you fully understand the cooling-off period and exercise your rights and responsibilities correctly as a buyer.
How does the cooling-off period work?
As a legal provision under the Conveyancing Act 1919, the cooling-off period allows buyers to reconsider their purchase and potentially withdraw from the contract without any significant financial or legal ramifications. Here’s how it typically works:
- Contracts are exchanged: When contracts are exchanged, usually after the seller has accepted an offer, the cooling-off period begins.
- Buyer pays deposit: The buyer must pay a deposit of at least 0.25% of the purchase price during this period. This amount is usually held in the trust account of the selling agent until settlement.
- Cooling-off period starts: The cooling-off period begins as soon as you exchange contracts.
- Buyer can withdraw: During the cooling-off period, the buyer can withdraw from the contract by giving written notice to the seller.
- Forfeit a portion of the purchase price: If a buyer decides to withdraw during this period, they will forfeit 0.25% of the purchase price.
- Cooling-off period ends: The cooling-off period ends at 5 pm on the fifth business day after contracts were exchanged. For properties purchased off the plan, the cooling-off period usually ends at 5pm on the tenth business day after contracts were exchanged.
- No cooling-off for auctions: There is no cooling-off period for properties purchased at auction, as well as commercial properties.
Building inspections and finance approval
While it’s important to do your due diligence on a property before exchanging contracts, some items usually aren’t completed until after the exchange for practical reasons. These include building & pest inspections and finance approval.
While a building and pest inspection can be completed for a property before exchanging contracts, it can be more practical to wait until after the exchange. This is because inspections cost several hundred dollars, so if you’re considering multiple properties, you may not want to pay for inspections on all of them. Additionally, if negotiations fall through and you don’t end up purchasing the property, you will have wasted money on the inspection.
Similarly, obtaining finance approval can also be a lengthy process that requires documentation and assessments from lenders. It’s common for buyers to obtain pre-approval before exchanging contracts, which is conditional loan approval for a specific loan amount. However, final loan approval usually depends on the property and contract, so this must occur after contract exchange.
If your finance approval falls through during the cooling-off period, you’ll have only lost 0.25% of the purchase price if you rescind (cancel) the contract. Discovering this after the cooling-off period expires would mean you would default on the contract if unable to complete the purchase, with more significant financial implications and potentially losing all of the 10% deposit.
The cooling-off period allows buyers to complete these tasks and ensure that the property is suitable for their needs, both structurally and financially. If any issues are discovered during this time, buyers can either renegotiate the terms of the contract or withdraw from the purchase and forfeit 0.25% of the sale price.
Auctions
When purchasing a property at auction, due diligence is even more crucial. This is because once the hammer falls and the property is sold, the sale is final, and there is no cooling-off period or opportunity for renegotiation.
Therefore, it’s essential to thoroughly research the property before attending an auction. This includes obtaining necessary inspections and finance approvals beforehand, as well as researching the local market and comparable properties in the area.
Additionally, buyers should be aware of any potential risks or issues with the property that may affect its value or livability. These could include zoning restrictions, easements, or structural problems.
It’s also essential to ensure you have the finances available to cover the deposit and be able to settle on the property, as you won’t be able to rescind the contract if you are unable to get finance.
How do you waive, shorten or extend the cooling-off period?
The cooling-off period can also be waived, shortened, or extended by mutual agreement between the buyer and seller. It can be waived by signing a 66W certificate certified by a solicitor or conveyancer.
If the buyer and seller agree in writing, the cooling-off period can be shortened or extended. It is common for a buyer’s solicitor or conveyancer to request an extension to allow more time for inspections, checks and finance approval. In this case, the buyer’s legal representative must formally request an extension by contacting the seller’s conveyancer or solicitor as soon as possible.
The seller is not legally required to agree but may consider it if it benefits both parties. A new cooling-off deadline may be proposed. If the seller agrees, both parties sign a written extension agreement confirming the new cooling-off end date.
If the seller refuses the extension, the original cooling-off period remains. If the buyer doesn’t withdraw before the period expires, they are legally bound to proceed with the purchase.
There’s no cooling-off period for sellers
As the cooling-off period is designed to protect buyers, there is no equivalent provision for sellers. Once a seller has signed and exchanged contracts with the buyer, they are legally bound to proceed with the transaction unless there is a breach of contract by either party.
If you’re selling, you should consider all factors before signing a contract, as it may not be possible to terminate or renegotiate after exchange. Your conveyancer should also ensure that all necessary disclosures and vendor statements are provided to the buyer before exchange. Failure to do so may result in legal disputes or financial penalties. You should also communicate openly and honestly with your legal representative throughout the process to ensure a smooth and successful sale.
Common mistakes and pitfalls to avoid
Below are several common mistakes and pitfalls buyers may encounter regarding the cooling‑off period in NSW.
Failure to make formal requests for extensions in writing or getting seller approval
Some buyers may assume that a verbal request is sufficient, or they might expect the seller or agent to provide an extension if needed automatically. However, any request for an extension must be made in writing to be valid.
Furthermore, the seller must also agree to the extension of the cooling-off period for it to be valid. Failure to get written approval from the seller means the original cooling-off period remains in effect.
Missing the deadline for withdrawal or failing to serve a notice of termination
Buyers must remember that the cooling-off period is time-sensitive, and they must act promptly if they wish to withdraw from the contract. If they fail to do so within the specified timeframe, they are legally bound to proceed with the purchase.
In NSW, buyers must serve a notice of rescission on the seller or their legal representative before the cooling-off period expires. This notice serves as evidence of their intent to withdraw from the contract and is an essential step in exercising their right of withdrawal.
What happens after the cooling-off period?
At the end of the cooling-off period, the buyer and seller proceed to settlement on the agreed date. The buyer must pay the full deposit as per the contract, which is usually 10 percent of the purchase price unless negotiated otherwise. Since the initial payment of 0.25% has already been made, the buyer will have to pay the balance.
The deposit is paid to the seller’s representative (e.g. real estate agent) to hold in trust until settlement.
If the buyer cancels the contract before the cooling-off period ends, they must notify the seller’s solicitor or conveyancer in writing. As a penalty, the buyer forfeits 0.25% of the purchase price to the seller. The remaining deposit (if already paid) is refunded.
Work with RS Law Group to avoid any mistakes with your cooling-off period
A cooling-off period protects buyers from impulsive or pressured decisions, especially in competitive markets. It provides a legal exit strategy with minimal financial loss. At the same time, you do your due diligence and finance checks, giving you peace of mind before committing to a legally binding property purchase.
Avoiding errors during the cooling‑off period and throughout your property purchase is crucial. Engaging an experienced property lawyer like RS Law Group can make a significant difference. We prioritise your interests and are committed to protecting your rights at every stage of the transaction.
As a qualified property lawyer, we can assist with matters beyond conveyancing and ensure that your rights are protected and that the contract terms are fair. Our team will thoroughly review all aspects of the property transaction, including any special conditions, to identify potential issues and advise you on the best course of action.
Don’t risk making mistakes during your cooling-off period or throughout your property purchase. Reach out to RS Law Group today to ensure a smooth and successful transaction with peace of mind.
