COOLING OFF
Frequently I am asked by sellers and buyers about the actual processing of
exchanging contracts and in particular the pros and cons of utilising the
“cooling off” period.
Please note that I am not a solicitor or conveyancer and anybody looking to enter into a contract should seek appropriate advice. In this article I am merely seeking to provide a general understanding of the legal and practical processes. In order to sell a property, NSW legislation requires the seller to have The form of the contract is relatively standard (using a version agreed by the Law Society and Real Estate Institute of NSW) though solicitors and The vendor may choose to provide other documentation for self protection If the contract were signed on the basis described above, the vendor would be irrevocable bound. However, the buyer would have the right to “cool off”. This means they could elect not to proceed, without having to give any justification, for a period of five business days excluding the day on which the contract was signed. If they did so, they would forfeit 0.25% of the purchase price. The money forfeited is not inconsequential but it is relatively small in the practical context of a sale. In order to exchange with one buyer, any others will have been lost together with the marketing momentum. Effectively, the vendor has to start again with a tainted property if the sale falls over. The alternative allowed by legislation is that the purchaser obtains a section 66W certificate (of the Conveyancing Act) provided by their legal Naturally, an unconditional contract is preferable to the vendor but contracts with cooling off periods are widely used and some agents swear by them. How can this be? The answer lies in the timing. If a property is sold with a cooling off period, it can be exchanged immediately the sale is agreed by the agent. The purchaser then has to conclude their investigations and obtain finance within the week of the cooling off period. So if the buyer says they want to buy it on the Saturday they see it, they have a mechanism that allows them to secure it before anyone else. The problems from the buyer’s point of view are twofold. Firstly, if they have acted impetuously, they may regret it. They may not be able to obtain finance or they may have simply paid too much. Secondly, they are stuck with the contract as drafted. So if it contains any of those afore mentioned “try ons”, they have to make a decision to proceed or forfeit their deposit. Agents have a troublesome relationship with solicitors. Some solicitors are fantastic, knowledgeable and cooperative. Others not so helpful. Agents who are sick of this process will sometimes resort to using the cooling off contract just to ensure that something happens in a reasonable time frame. Our practice is not to use cooling off periods except in rare circumstances. We prefer that a buyer makes all reasonable inquiries including having the contract reviewed by their legal representative and obtains finance prior to exchange. However, the battle to motivate some solicitors is ongoing and frustrating. Other states have moved to eliminate the need for extensive and overworded contracts to drastically simplify and speed up the whole process of buying. Here’s hoping!
preprepared a draft contract of sale. This must annex certain documents
including a title search and deposited plan or common property certificate plus (for a strata property), drainage diagram from the Water Board, zoning certificate from the local Council and any leases.
conveyancers always add certain special conditions. Some of these are
generally accepted. Others are to suit particular circumstances and a few are merely a “try on”.
and to facilitate the sale such as a survey, sewer mains diagram, building
certificate and Notices. Other documentation may be legally required, for
instance Home Buyers Warranty for improvements undertaken in the previous seven years and covenants. The legislative requirements have basically put the onus of disclosure on the vendor who in fact is warranting such disclosure. However, caveat emptor, buyer beware, still applies to the condition of the property. So if the home has termites or the roof leaks, it is up to the buyer to discover this and take it into account when offering to buy.
representative. This certifies that the contract has been legally explained to them and they understand that they cannot “cool off’. In other words, when the certificate is annexed to the contract, the sale is binding on both the seller and the buyer. In this respect, it is the same as a contract exchanged under auction conditions.