What is a cooling-off period?
In Queensland, when purchasing a residential property, most Contracts have a 5-business day cooling-off period, which allows the Buyer to terminate the Contract for any reason. The cooling-off period was introduced to protect buyers from high-pressure sales tactics, preventing impulse purchases and to allow the Buyer a small window of time to reconsider the purchase and withdraw if necessary.
Circumstances where a cooling-off period does not apply
Not all Contracts in Queensland have a cooling-off period. There a several situations where the cooling-off period does not apply include, including (however, not limited to):-
- Properties sold at auction;
- A follow up sale after an unsuccessful auction where the Buyer was a registered bidder;
- If the Buyer has signed a waiver of the cooling-off period when entering into the Contract;
- Option Contracts; and
- Non-residential property (i.e. Commercial or industrial properties).
Due to the above exceptions, before entering into a Contract, as a Buyer or a Seller, it is important to confirm whether the cooling-off period applies.
When does the cooling-off period start
The cooling-off period starts on the day the Buyer (or the Buyer’s solicitor) receives a copy of the fully executed Contract (signed by both Seller and Buyer). If the Contract is received on a weekend or a public holiday, the cooling-off period will begin on the next business day, ending at 5:00pm 5 business days after.
Penalty for terminating within the cooling-off period
Even though the cooling-off period allows Buyers to potentially change their mind on the purchase of property, most buyers are not aware that this does not come without a cost. The law permits the Seller to retain 0.25% of the purchase price if the Buyer terminates the Contract within this period.
For example, even if your Contract has other conditions such as finance approval and/or building and pest, if you terminate under the cooling-off period (within the first 5 days of signing the Contract) the Seller is still entitled to retain the termination penalty. In this property market, the termination penalty can be quite significant (e.g. $2,500.00 on a property worth $1,000,000.00). Therefore, it is important to take this into consideration prior to entering into the Contract, in the event you need to exercise your rights.
If you decide to cancel the Contract within the cooling-off period, you must formally notify the Seller in writing before the deadline. Usually this would be communicated through your solicitor. Given the short time frame, it is important to notify your solicitor as soon as possible if you wish to exercise your termination rights. If the 5-business day deadline has passed, you will likely be bound by the Contract (if no other conditions are present).
Can the Seller terminate the Contract under the cooling-off period?
The cooling-off period is designed specifically to protect Buyers, not Sellers. Once the Seller signs the Contract, they are legally bound to proceed. The Seller can generally only terminate a residential Contract due to the buyer’s default or if the Buyer fails to satisfy conditions by the due date. Sellers are not able to terminate merely for change of mind.
Seller’s should however, be aware that until the cooling-off period expires, the Buyer still has the right to terminate the Contract, for any reason. This creates a short period of uncertainty in the transaction for the Seller.
Seller’s may wish to:-
- Request a larger initial deposit from the Buyer which is payable when they sign the Contract;
- Encouraging that a waiver of the cooling-off is signed with the Contract;
- Continuing to monitor the Buyer’s commitment to proceed with the Contract through the agent during the cooling-off period.
Considerations for Buyers
Buyers should treat the cooling-off period as a short safety net rather than a substitute for other contract conditions. 5 business days can pass quickly and is generally not enough time for Buyers to organise their finance, building and pest inspections or due diligence on the property.
It is recommended that Buyers:-
- Engage a solicitor prior to review the Contract, prior to signing;
- If you require finance approval to purchase the property, request that a finance condition is inserted into the Contract;
- Book in a Building and Pest Inspection as soon as you sign the Contract and make the Contract subject to you receiving a satisfactory report;
- Begin any due diligence over the property as soon as possible and request that a due diligence condition is inserted into the Contract, if necessary.
Conclusion
The cooling-off is designed to protect Buyers, however Sellers also need to be aware of the Buyer’s rights in order to protect themselves by ensuring the Contract is properly prepared and the deposit is sufficient to cover any potential termination. Buyers and sellers should therefore seek professional advice and ensure the contract contains appropriate conditions before committing to the transaction.
If you are buying or selling and have any queries around your rights during the cooling-off period or under the Contract in general, please do not hesitate to contact Jessica Smith at SPG Lawyers.
