The term 'Cooling Off Period' is used in a number of areas in law. In this article, the term is dealt with as it applies to the sale and purchase of residential real estate in New South Wales.
This law has had the practical effect of countering gazumping.
When a purchaser enters into a contract for the purchase of residential real estate in New South Wales (exchange of contracts), by law a 5 business days Cooling Off Period applies (or a 10 business days period in case of an 'off the plan purchase': for example the purchase of a block of land in a subdivision to be registered at a later time).
This means the purchaser has 5 or 10 business days (as the case may be) to change their mind and withdraw from the contract. The Cooling Off Period can be used by the purchaser to finalise finance or attend to due diligence enquiries such as a pest or building report.
By mutual agreement between the vendor and the purchaser the Cooling Off Period may be extended. In practice, this sometimes happens for example when a purchaser's loan is close to approval and the vendor may allow the extension of the Cooling Off Period for a couple of days for the loan to be finally approved.
The vendor is not permitted to sell the real estate to someone else during the Cooling Off Period. If the purchaser, within the Cooling Off Period decides to withdraw from the contract (for example if the loan application falls over or if the pest or building report is bad), then the purchaser may exit the contract but must pay the vendor a sum of money equivalent to 0.25% of the purchase price. This gives the vendor some compensation for his or her effort and also for taking the property off the market during the Cooling Off Period.
It is important to note that the Cooling Off Period will not apply in the following circumstances:
- When the solicitor for the purchaser provides a Section 66W Certificate. This is often pressed for by the vendor's solicitor but would not be agreed to by the purchaser unless the purchaser is ready to completely commit to the contract.
- In the case of an auction or when a contract is made or entered into on the same day as an auction when the property has been passed in.
- In cases where a contract is made in consequence of an exercise of an option to purchase the property (unless the option is void under a specified provision of the Conveyancing Act*).
The 'Cooling Off Period" law can really assist a purchaser to secure a residential piece of real estate straight away and will be an early point of discussion for a purchaser with his or her solicitor or conveyancer.
*Section 66ZG Conveyancing Act 1919.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.