Even if you have signed contracts to purchase a house, you may still have time to change your mind and get out of the sale, thanks to what’s known as a cooling-off period.
What is a cooling-off period?
A cooling-off period is an amount of time after a buyer has signed a contract for a sale during which they are allowed to withdraw from the contract. Sometimes, if a buyer chooses to withdraw from a contract during the cooling-off period, they will be required to pay a penalty, but there will generally be no further repercussions.
Is there a cooling-off period when buying a property?
Yes, cooling-off periods apply to the sale of property, although only in certain circumstances. They are typically only available for houses sold by private treaty, and not those that have sold at auction. Likewise, cooling-off periods are usually only available for buyers of property, and not for sellers.
Why would you withdraw from buying a property?
There are a number of valid reasons why a buyer might withdraw from purchasing a property after signing a contract. These include:
- Serious issues arising in the building and pest inspection that give the buyer second thoughts about purchasing the property (though this is often a conditional clause in the contract).
- Issues coming to light such as a planned infrastructure or housing development in the area that make the property undesirable for the buyer.
- A buyer’s inability to secure finance from a lender or loan application being denied (though this is often a conditional clause in the contract).
- An unexpected change in the buyer’s financial position or personal life.
- A simple change of heart on the buyer’s behalf, perhaps because a more desirable property has become available, or they no longer find this one appealing.
A seller may also pull out of the sale of a home before the contracts have become unconditional, whether it’s because their circumstances have changed, or someone has swooped in with a better offer for the house and they’ve been gazumped. Statutory cooling off periods exist to protect buyers, however, so if a seller pulls out, there can be legal consequences.
A seller who chooses to pull out can potentially be sued by their real estate agent to recover costs and lost commission. They may also be sued by the buyer to recover money spent on legal fees, building and pest reports and similar expenses. If you are a buyer and you find yourself in this situation, it may be advisable to seek professional legal advice.
How long is a cooling-off period in Australia?
Cooling-off periods vary between states and territories, and some states do not have them at all unless the parties make a specific provision in the contract. Here’s a breakdown of how the rules apply around the country for cooling-off periods.
Australian Capital Territory
In the ACT, a buyer is entitled to a cooling-off period of five business days, and will have to forfeit 0.25% of the purchase price to the seller. The period can be amended if both parties agree.
New South Wales
In NSW, a buyer is entitled to a cooling-off period of five business days, and will have to forfeit 0.25% of the purchase price to the seller. For properties bought off the plan, there is a cooling-off period of 10 business days. The period can be amended if both parties agree.
Northern Territory
In the NT, a buyer is entitled to a cooling-off period of four business days, during which time the buyer can cancel the contract without explanation and without incurring a penalty. The period can be amended if both parties agree.
Queensland
In QLD, a buyer is entitled to a cooling-off period of five business days, and the seller is entitled to deduct a penalty of 0.25% of the purchase price if you cancel the contract during this time. The period can be amended if both parties agree.
South Australia
In SA, a buyer is entitled to a cooling-off period of two days. The buyer will be entitled to a full refund of any deposit paid of more than $100.
Tasmania
In Tasmania, there is no cooling-off period mandated by law. This means that a cooling-off period will only apply if you ask your lawyer to draft an extra clause into the contract and both parties accept.
Victoria
In Victoria, a buyer is entitled to a cooling-off period of three business days. The buyer will be entitled to a full refund of the deposit, less $100 or 0.2% of the purchase price (whichever is greater).
Western Australia
In WA, there is no cooling-off period mandated by law. This means that a cooling-off period will only apply if you ask your lawyer to draft an extra clause into the contract and both parties accept.
How do you calculate the cooling-off period?
The cooling-off period generally starts on the day the buyer receives a copy of the contract of sale, signed by both parties. It will typically end at 5pm on the final business day of the cooling-off period. For contracts that arrive on a weekend of public holiday, the cooling-off period will typically start on the next business day.
Exact rules will vary on a state-by-state basis, however, so if you wish to know more, it is advisable to check with the relevant authorities or peak bodies in the Australian Capital Territory, New South Wales, Northern Territory, Queensland, South Australia and Victoria. As mentioned above, Western Australia and Tasmania do not have statutory cooling-off periods that are mandated by law, but you can still ask your lawyer to draft an extra clause into the contract for a cooling-off period, and get this agreed to by the seller.
How do you withdraw during the cooling-off period?
In general terms, you will need to advise the seller’s real estate agent of your intention to withdraw from a property contract in writing before 5pm on the day the cooling-off period ends. Your lawyer or conveyancer may be able to write a letter on your behalf. For more specific requirements, it is advisable to check with the relevant housing authority or peak body in your state or territory.
Can the cooling-off period be waived?
Yes, if you are particularly keen on purchasing a property, and you want the contract to go unconditional – meaning there is no possibility of backing out without a potential penalty – then you are able to ask the seller to waive the cooling-off period.
One reason you might do this is to avoid gazumping, which is what happens when another buyer swoops in with a more attractive offer before the sale has gone unconditional, and the seller opts to take their offer instead.
If you ask for the cooling-off period to be waived, in general terms, you would want to be confident that you will have access to finance, or include a finance clause in the contract. Applying for pre-approved finance is one way to gain peace of mind that you will likely have access to the funds you require from a lender.
Cover image source: Max Topchii/Shutterstock.com