In the whirlwind of excitement that often accompanies the purchase of a residential property, it is still essential for buyers to be cautious. In most Australian jurisdictions, the law makes provision for a cooling-off period to allow home buyers to evaluate a decision made in the heat of the moment. These periods represent a crucial safeguard in real estate transactions.
In this article, we look at cooling-off periods, their significance, applicability, and operation across different jurisdictions in Australia. The information provides a general overview only and it is important to note that there are various exceptions to cooling-off periods and different rules for each state and territory. Accordingly, you should obtain professional advice relevant to your jurisdiction and the circumstances of the transaction.
Why Have a Cooling-Off Period?
The primary rationale behind cooling-off periods is to afford buyers an opportunity to conduct further due diligence, seek legal or financial advice, and address any concerns that may arise after the signing/exchange of contracts. By providing buyers with a brief reprieve from the pressures of a rapidly evolving property market, cooling-off rights promote informed decision making and help mitigate the risks associated with impulsive or ill-considered purchases.
How Does a Cooling-Off Period Work?
During the cooling-off period, buyers have the option to rescind, or cancel, the contract by providing written notice to the seller or their representative. This notice effectively terminates the contract, and the buyer may be required to pay a nominal penalty fee, typically calculated as a percentage of the purchase price, to the seller. However, it is important to note that conditions and limitations apply in every jurisdiction, such as the timeframe within which the notice must be given, and any specific requirements stipulated in the contract of sale.
When Does a Cooling-Off Period Apply?
Generally, cooling-off periods are only available for private treaty sales, and not for properties bought at auction. There are other exceptions where cooling-off rights do not apply, and it is important to check these with your lawyer or conveyancer before entering a contract. Additionally, the cooling-off period is typically there for the benefit of buyers, not for sellers who change their minds after signing the contract. The specific application of cooling-off periods depends on the circumstances of the transaction and the relevant state or territory legislation.
Further, in some cases, a buyer and seller may agree to waive, shorten or lengthen the cooling-off period by including a term in the contract to that effect.
Cooling-Off Rights Across Australia
In Queensland, a cooling-off period of five business days applies to contracts for the sale of residential property. This period starts the day the buyer (or their representative) receives a copy of the fully signed contract. The cooling-off period ends at 5 pm on the final day of the cooling-off period.
In Victoria, a cooling-off period of three clear business days applies. This period begins from the date the buyer signs the contract. The consequence of cancelling the purchase during the cooling-off period is that a penalty of $100 or 0.2% of the purchase price (whichever is greater) will apply.
In New South Wales, buyers of residential property have a cooling-off period of five working days following the exchange of contracts. If the buyer exercises their cooling-off rights, they will forfeit 0.25% of the purchase price.
Likewise, in the Australian Capital Territory, a buyer is entitled to a cooling-off period of five business days. If the buyer rescinds the contract, they forfeit 0.25% of the purchase price to the seller.
In South Australia, buyers have a cooling-off period that starts from when the seller provides the buyer with a Form 1 that sets out important information about the property, including any encumbrances, easements, or other certain legal issues that may affect the sale. The cooling-off period expires at the end of the second clear business day after the form is provided.
In the Northern Territory, a buyer is entitled to a cooling-off period of four business days which commences on the day that contracts are signed and duly exchanged.
The Real Estate Institute of Tasmania and Law Society of Tasmania standard form contract includes an option for buyers to choose a cooling-off period. Buyers must select this option for the cooling-off period to apply. In such cases, they will have three business days from when the contract is made to terminate the contract without penalty. Any deposit paid is refundable.
In Western Australia, cooling-off periods for residential property sales are not an automatic inclusion in contracts. In most cases therefore, buyers cannot change their minds once the contract has been entered. However, they may still negotiate the inclusion of a cooling-off clause in the contract of sale as a condition of their offer. This contractual provision affords buyers similar protections to those provided by statutory cooling-off periods, albeit subject to the terms negotiated between the parties.
Conclusion
Cooling-off periods represent a fundamental aspect of residential property transactions, offering buyers a valuable opportunity to pause, reflect, and reassess their commitment before finalising the purchase. While the specifics of cooling-off periods vary between states and territories, their underlying purpose remains consistent: to empower buyers with the information and flexibility needed to make informed decisions in a rapidly evolving real estate landscape.
By understanding the intricacies of cooling-off periods and their operation, buyers can navigate the property market with confidence, knowing that they have the necessary safeguards in place to protect their interests and secure their dream home.
This is general information only, and you should obtain professional advice relevant to your circumstances. If you or someone you know wants more information or needs help or advice, please contact us on (08) 8232 8446 or email [email protected].