The Right to Cool Off in 2013 (Cooling Off Laws in Victoria)
Most of us are aware of the purchaser’s right to change their mind after signing a contract to purchase real estate (even if the vendor hasn’t signed anything to accept your offer). Although this is at odds with the basic principle of contract law it was nevertheless legislated to protect the consumer.Click Here For FAQs On Cooling Off Rights
This right to change one’s mind is popularly known as the “cooling off” right or the right to “cool off”. It should be noted that this rule is not without qualification. Here are the conditions which would allow a purchaser to cool off in Victoria (as per section 31 of the Sale of Land Act 1962)
Power of purchaser to terminate a contract for sale of land:
- Must be a purchase of residential property*.
- Right must be exercised within three clear business days after you sign (even if the vendor has not yet signed to accept the written offer).
- Cannot be exercised if purchased at or within three business days before or after an auction.
- If you have previously entered into a contract to purchase the same property.
- If you are a real estate agent (or a real estate company).
*A purchase of commercial property is not protected. A corporate or company purchaser of residential real estate is still protected by the cooling off rights. Also note that as at the date of this post there is no cooling off right for vendors in Victoria.
The definition of three clear business days as interpreted by conveyancers is three full business days not including the day of sale. Obviously a business day is any day other than a weekend or a public holiday. The three days also do not include the day in which you signed. In other words, if you signed a contract on a Monday morning, then you would have until 5pm on Thursday to cool off.
New changes in 2012
Previously you could not exercise your right to “cool off” if you obtained independent legal advice before signing the contract. This changed on 30 March 2012. Even if you did receive independent legal advice, your right to end the contract within the three clear business days is no longer affected.
It should also be noted that ending the contract after you have signed isn’t without cost. If you paid a deposit you are entitled to a refund. This refund however would have a penalty deducted from it. The penalty is either $100.00 or 0.2% of the purchase price, whichever is greater. It goes without saying that most likely the sum won’t be $100 given Australia’s current residential property prices.
Exercising the right
You must communicate your intention to cool off by delivering a written notice to the agent or the vendor at the address noted on the contract. Your notice ending the contract must be signed and delivered to the agent/vendor or left at their address for service under the contract (It is unclear whether email or fax is sufficient; to avoid doubt personal delivery is recommended). At what time does the cooling off period expire? There is no guidance in case law or legislation as to the deadline on the day of expiry. General practice suggests that the appropriate time is 5pm. Although some practitioners posit a deadline of midnight.
There may come a time when there is uncertainty as to whether the right to cool off still applies. This may occur in instances where:
- the cooling off period of three clear business days has expired; and
- the vendor has not accepted the purchaser’s offer; and
- the vendor makes a counter offer in which the purchaser accepts.
In this scenario the cooling off period will commence from the day the purchaser accepts (both verbally and in writing) the vendor’s counter offer. The right to cool off is not excluded as the vendor did not accept the first offer from the purchaser. Where the vendor has not accepted the offer, there is no contract to found a right to cool off.
By default written offers expire after three (3) days. In other words, if the vendor has not accepted a buyer’s offer after three clear business days then the offer is withdrawn. We highly recommend prospective buyers to insert a two (2) day (or even one day) expiry time frame. This provides an added level of protection to the buyer in the event that: (1) the buyer wishes to end the contract under the cooling off provisions, but fails to do so within time or correctly; and (2) the vendor fails to accept the offer within the buyer’s offer deadline.
Frequently asked questions
Vendor’s breaches or home no longer fit for occupation (destroyed home) Other situations which allow you to end (rescind) the contract include: breaches by the vendor/vendor’s representative of the Sale of Land Act or any other relevant legislation; OR where the house is destroyed or damaged prior to settlement and no longer fit for occupation as a house-dwelling.
Where the vendor fails to accept your written offer within time When buyers make their written offer and there is an expiry date on which the vendor can accept that offer, effectively there is no contract in place, and you can avoid the contract without relying on the cooling off provisions.
There may be other methods available to you to validly end the contract. Please contact our us for further information.