Posted by: Jozefina Ndoci | Date: 10 June 2016
Under residential land and house or unit contracts, buyers are entitled to a cooling-off period under the Property Occupations Act 2014. The right to terminate under cooling-off is not new, but is also not well understood. Many buyers think that they will be automatically stung with the termination penalty if they “cool off”. In fact, there is a bit more to it than that.
The right to terminate under cooling-off is only available for buyers of residential land, houses or units. The cooling-off rights only exist for 5 business days beginning when the buyer receives a fully signed contract. Key points here are:
There are no cooling-off rights for:
We are experts in cooling-off provisions and their application to contracts. Please contact our office if you have any queries about this important issue.
The cooling-off termination penalty which a seller may impose on a terminating buyer is one-quarter of one percent of the purchase price.
Therefore if the purchase price is $500,000.00, the termination penalty would be calculated as follows:
$500,000.00 x 0.0025 = $1,250.00.
Importantly, there is a catch to the seller charging the cooling-off termination penalty.
The seller can only apply the termination penalty against deposit moneys paid by the buyer.
The seller is not entitled to any part of the termination penalty that is greater than the deposit paid at the time of the termination.
This means that if a buyer terminates prior to paying the deposit – the buyer doesn’t lose out!
Using our above example, if the deposit held by the agent was only $1,000.00, the buyer would lose the deposit but would not have to pay the extra $250.00 out of what would otherwise be a cooling-off termination penalty of $1,250.00.
It is therefore important for sellers and agents to ensure that buyers pay their deposit as soon as they are required to do so under the contract. Letting it go for a couple of days can be costly to a seller!
In a recent case in Victoria, buyers notified the real estate agent that they terminated the contract during the cooling-off period. The buyers notified the seller’s real estate agent by email, text message and voice mail. However, because the notice wasn’t given to the seller itself, the buyer had not validly terminated the contract.
As a result, the cooling-off period ended without any valid termination and the seller was entitled to the full deposit, damages and interest because of the buyer’s unlawful termination of the contract.
The moral of the story is, it is not enough for a buyer to only “cool off” to the agent. A buyer must give formal notice to the seller in accordance with the contract.
We have expertise in these technical requirements and are keen to assist you with any queries.
If any buyer or seller needs help on cooling-off provisions, contact us. We handle all manner of conveyancing situations every day, and can give you the right advice fast.