What is a cooling off period?
A cooling off period is the period of time given to a purchaser/s in a contract for the sale of residential land. During the cooling off period a purchaser is entitled to serve a notice on the vendor to rescind (or cancel) the contract.
The purchaser does not need to provide a reason to rescind the contract if the notice is given during the cooling off period. The cooling off period is five (5) business days (pursuant to the Conveyancing Act (NSW) 1919), but can be lengthened or shortened by agreement between the purchaser and vendor.
If a notice is served upon the vendor during a cooling off period the vendor might choose to pursue the purchaser/s for 0.25% of the purchase price (commonly referred to as a holding deposit), but will not be able to pursue the purchaser/s for the balance of the purchase price (usually 5 to 10% of the purchase price).
Once a cooling off period has expired, or if the cooling off period has been waived, the contract becomes unconditionally exchanged and the purchaser will be unable to rescind the contract without penalty, and will likely lose their full deposit.
The Section 66W Certificate
A section 66W certificate (by reference to section 66W of the Conveyancing Act (NSW) 1919) waives the cooling off period. The following requirements must be met in order to comply with Section 66W and waive the cooling off period:
- The certificate must be in writing;
- The certificate must be signed by a solicitor or barrister (with some restrictions);
- The certificate must state the purpose of the certificate; and
- The certificate must provide a statement from the solicitor or barrister to the effect that the nature and effect of the certificate has been explained to the purchaser.
Advantage for the vendor if the cooling off period is waived
The advantage for a vendor in having the purchaser/s waive the cooling off period is that the vendor has immediate certainty that the property has been sold unconditionally on exchange.
This approach is commonly used when the property has been listed for auction. An unconditional exchange of contracts prior to auction allows the vendor to sell the property without fear of the purchaser rescinding the contract during the cooling off period.
This is of major benefit to the vendor, because if a contract for the sale of land is exchanged before an auction without a section 66W certificate, and the purchaser later rescinds the contract during the cooling off period, the vendor misses out on a sale and wastes the costs incurred in advertising for the auction.
Where a purchaser does not proceed to settlement following the unconditional exchange of contracts, the vendor has rights against the purchaser for breach of contract (including the right to pursue the purchaser for the balance of the agreed deposit).
Disadvantages for Purchaser waiving their cooling off period
The cooling off period allows a purchaser/s time to conduct searches, and if so required to arrange their finances for the purchase of the property. Having an exchanged contract with the benefit of a cooling off period allows the purchaser/s to undertake their enquiries without the stress of another purchaser outbidding, or even exchanging on the contract before their investigations are finalised.
If however investigations are not undertaken before the unconditional exchange of contracts (without a cooling off period), then the purchaser is at risk of unconditionally exchanging on a contract for the purchase of a property that might have structural or land defects, and or without their financial approval for the loan.
Advantages for a purchaser in waiving their cooling off period
Most vendors prefer the certainty provided by an unconditional exchange of contracts. This often gives the purchaser greater bargaining power over a purchaser that is not in a position to exchange contracts without a cooling off period.
Additionally, whilst it is not always the case, some vendors may need the certainty of an unconditional exchange of contracts. This may be to meet financial commitments, or other non disclosed reasons (such as a family law dispute requiring a quick settlement). Vendors in such circumstances may be persuaded to exchange contracts on a reduced purchase price for the certainty of exchanging contracts without a cooling off period.
Should you exchange with or without a section 66W certificate?
Whether you exchange contracts unconditionally with a section 66W certificate (therefore without a cooling off period) will depend entirely upon your circumstances.
For a vendor, it is always preferable to exchange contracts with a section 66W certificate, so as to ensure that the contract is not rescinded during a cooling off period. However a purchaser should strongly consider whether they are in a position to waive their cooling off period (ensuring that their investigations have been completed, and their finances are in order) before considering exchanging on a contract with a cooling off period.
Do not hesitate to contact Joshua Randall if you would like any assistance with reviewing, exchanging or preparing a contract for the sale of land, so that you are ready and able to provide a Section 66W certificate if this is advantageous for you.