What is a Cooling-off Period
By Caldwell Martn Cox |September 2, 2024 | Latest News
Purchasing a property can be an overwhelming process with many decisions that need to be made along the way. One of those considerations may be whether to exchange Contracts ‘unconditionally’ or with a cooling-off period.
To understand the concept of a cooling-off period, one must understand what is meant by exchange.
Exchange of contracts occurs when the following takes place:
- The Contract is signed in the final form, with all agreed terms between the vendor and the purchaser
- The purchaser has paid a deposit; and
- The Contract is then dated.
A Contract for Sale does not become legally binding on either party until formal exchange of the Contracts, which means the vendor may sell to another purchaser at any time until exchange takes place. This is known as “gazumping”. Although frowned upon, it is not prohibited in NSW.
Cooling-off period
The standard provisions of a Contract for Sale of residential property in NSW provide that a purchaser may rescind the Contract within five business days of exchange. This is known as a ‘cooling-off period’. A lot of the time, this period may be extended to ten business days by agreement with the vendor at the time of exchange. This allows the purchaser sufficient time to carry out all pre-contractual investigations, due diligence enquiries, pest and building inspections and viability of the Contract. This period may be further extended if the vendor is agreeable.
A purchaser who ‘cools-off’ (or rescinds the Contract within the cooling-off period) must forfeit the payment of the initial 0.25% deposit to the vendor.
Some vendors may prefer the cooling-off period waived so that the Contract becomes immediately binding on both parties. This can be done by serving a particular Certificate on the purchaser and has the effect of binding the Contract on both parties immediately after exchange. NSW legislation requires the Certificate to be signed by a solicitor or licensed conveyancer.
So, which is the right option for me?
This will depend on several considerations, such as:
- Have you retained a solicitor or conveyancer to review the Contract and complete due diligence enquiries?
- Do you have a deposit readily available, or do you need to negotiate a reduced deposit (such as a 5% deposit)? Alternatively are you using a deposit guarantee bond?
- If you are obtaining loan approval, have you been unconditionally approved?
Purchasing a property is a very exciting time in anyone’s life but it’s important to understand your rights and responsibilities at all stages in the process. Our highly experienced Property Team is ready to guide you through your own individual transaction and circumstances. Call us on 4651 4800 or email: help@cmcox.com.au.