This information has been provided by
Australian law firm, Australian Conveyancing Services and is applicable in New South Wales
only.
Introduction
In New South Wales, the Buyer has two major
opportunities to reconsider their proposed property purchase. The
first is after you have agreed verbally with the Seller to purchase
the property, but before contracts are exchanged.
The second is after contracts have been exchanged and during the cooling off period. However Buyers need to know
that there is a cost to changing your mind, once you have
exchanged contracts.
The Procedure up to Exchange
If you are going to bid on a property at auction, then you will need to arrange your finance, and all preliminary inspections and searches before you attend the auction. You can change your mind obviously at any point up until the hammer falls in your favour. After that you will be compelled to sign a Contract, which will normally be unconditional and usually requires a 10% deposit.
For non-auction sales, you as Buyer will normally make a verbal offer first, and if the Seller accepts that offer, then you can proceed
in one of several ways:
if you want to exchange contracts immediately (to take a sought after property off the market) you can do so, allowing the statutory cooling off period (5 business days, unless shortened) to quickly arrange building and pest inspections, as well as finance. Then, if you do cool off, you can terminate the contract, subject to the payment of a penalty.
More usually, it is considered better to conduct your preliminary inspections and arrange finance, and then exchange
contracts. Because the time lag between verbal offer and exchange can be anywhere between 1 and 3 weeks, the opportunity arises for the Seller or the Buyer to be gazumped. For instance, a Seller may be presented with a second and higher offer after verbally agreeing to a price with you as the first Buyer.
Similarly, you as Buyer can gazump the Seller, and can go and buy another property instead.
If you want to minimise your chance of being gazumped, then as a Buyer you should consider the immediate exchange of contracts, possibly
requesting the cooling off period to be extended slightly to allow you time to complete your enquiries.
In these scenarios, the gazumped party will not only bedisappointed, but also may have incurred expense – for
instance if you really wanted the property and were taking
all reasonable steps to make your arrangements, then you
would feel quite cheated if the Seller pulled out. The
Seller is not obliged to compensate you either for the money
you have spent on legal advice, inspection reports, finance
application costs and inquiries. As to who is more likely to
gazump or be gazumped really depends on the market – in a
falling market, it may be the Seller, in a rising market, it
may be the Buyer.
The Cooling off period
Following the exchange of Contracts between the Buyer and the Seller, the Buyer has a cooling off period in which to change their mind about purchasing the property. This ‘cooling off’ period starts on the Contract
date and lasts for a period of 5 working days, terminating at 5pm on the fifth working day (working day excludes weekends and public
holidays).
The situations where you as a Buyer do not have the right to a cooling off period
are:
if you buy a property at
auction or if you buy the property after the
auction and on the same day
if you have waived your
rights to the cooling off period by signing a s66W
certificate (with legal advice)
if you have purchased
the property pursuant to an option
Penalties
A Buyer may terminate the Contract, but only within the cooling-off period,
and must give a notice in writing to the Seller, their
Solicitor, or Agent. This is an absolute right and no reasons need to be given, however, there is a cost to terminating. If a
Buyer terminates under the cooling-off period a “termination penalty” must be paid to the
Seller. That termination penalty is 0.25% of the purchase price under the contract. If you would like to know what the amount could be, insert a purchase price in the calculator below.
The cooling-off period can be waived by a Buyer but only by the
Buyer
following a very strict procedure as set out in the Act. A
Buyer must obtain from a solicitor a certificate in the approved form,
(s66W Certificate) where the solicitor states amongst other things,
that they have explained the legal nature and consequences
to you of waiving the cooling-off period.
The cooling-off period may alternatively be shortened using a similar
procedure or by inserting a clause in the contract.
Pre-contractual legal advice
Just because you as a Buyer have got a cooling off period, doesn’t mean that you should be blasé about entering into a contract. Firstly, we have seen that there is a cost if you want to change your mind. Secondly, it is important to make sure that all of the terms and conditions that you want are in the Contract at exchange, as it is difficult to try and negotiate these at a later stage
Obtaining pre-contractual advice from your solicitor could be as simple as arranging for the agent to fax the proposed contract through to your solicitor, and your solicitor providing advice and input to you over the telephone.
If you are using the Quicklaw DIY service, you can have your
Contract reviewed before signing for a small additional fee.
