Cooling-off periods for residential property purchases in NSW — what is worth knowing

Buying a home or other piece of real estate is very exciting but still a big commitment, right?

In NSW, the standard position is that contracts for residential purchases come with a cooling-off period. This gives the purchaser only a short window to reconsider after contracts are exchanged (ie signed and dated).

Here’s a helpful overview, in case you’re wondering what a cooling-off period is or if you’d like a refresher:

What is a cooling-off period?

A cooling-off period is a set period of time after contracts are exchanged during which the purchaser is entitled to rescind (cancel) the contract, due to a change of mind or because a problem arises.

How long is the cooling-off period in NSW?

The standard cooling-off period is 5 business days. It can be shortened or extended by agreement. For example, a cooling-off period can be for 1 business day only or as long as desired, if it is agreed.

What happens if a purchaser ‘cools off’?

If a purchaser rescinds during a cooling-off period, they are typically required to forfeit a sum of money (0.25% of the purchase price) and the contract ends.

Where there is a cooling-off period, it is common for an initial deposit equal to 0.25% of the purchase price only to be paid at the time contracts exchange, with the balance of the deposit (usually 5% or 10%) to follow if the purchase wants to proceed past the cooling-off period. This is an effective way to deal with a forfeiture if the purchaser withdraws, as the 0.25% sum has already been paid on exchange.

When does a cooling-off period not apply?

Cooling-off periods generally do not apply in the following situations:

• Purchases at auction;

• Contracts exchanged on the same day as an auction (where the property is passed in at auction, negotiations occur afterwards, and the property is then sold);

• Where the purchaser’s solicitor or conveyancer signs what is called a section 66W certificate, which waives the standard cooling-off period. This certificate may be required by the vendor under the terms of the deal;

• Purchases of property greater than 2.5 hectares.

  
  

There are other situations too.

Why it matters

A cooling-off period can be useful for a purchaser (particularly a first home buyer) to ‘lock in’ the purchase, but use the additional time to complete their due diligence. This includes steps like:

• organising building and pest inspections

• reviewing strata records (for units/townhouses)

• confirming finance approval arrangements

• getting legal advice on the contract and its conditions, and to negotiate any necessary changes

If a vendor requires a purchaser to waive the cooling-off period (this is not unusual and is in fact commonplace in certain geographical markets), then the above steps must be completed before contracts exchange.

A cooling-off period can be a useful safety net, but it’s not a substitute for careful preparation before you sign. In some cases, a 0.25% sum is not an insignificant sum of money, and not worth losing in haste. In other cases, it can be several thousands of dollars.

If you’re buying residential property in NSW and want help to understand your rights and obligations before exchange, we welcome you to get in touch.

This is general information only and does not constitute legal advice. Advice should be sought on your specific circumstances. Information is relevant as at the date of publication.