Cooling-Off Periods When Buying Property in Victoria
A cooling-off period can allow a purchaser to end a Contract of Sale after signing it but the right does not apply to every Victorian property purchase.
The period is also shorter than many purchasers expect and ending the contract has a financial cost. It is therefore important to understand whether the right applies and when the deadline expires before relying on it.
What is a cooling-off period?
For many private sales of residential and small rural properties in Victoria, a purchaser has three clear business days to reconsider the purchase after signing the Contract of Sale.
This is a statutory right under Victorian law. It does not need to be included as a special condition in the contract and cannot generally be removed by a term in the contract.
However, there are several situations where no cooling-off right applies.
When does the cooling-off period begin?
The cooling-off period begins from the date the purchaser signs the contract, not from the date the vendor signs it.
The day the purchaser signs is not counted. The following three clear business days are counted excluding Saturdays, Sundays and public holidays.
For example, if a purchaser signs a contract on a Monday and there are no public holidays that week, the three clear business days will usually be Tuesday, Wednesday and Thursday.
The deadline can be easy to miscalculate when a contract is signed late in the week or near a public holiday. If you are considering cooling off contact your conveyancer immediately rather than attempting to calculate the deadline yourself.
How does a purchaser cool off?
The purchaser must give written notice that they are ending the contract.
The notice may be given to the vendor, the vendor’s estate agent or another authorised agent. It must be given before the cooling-off period expires.
A telephone conversation with the estate agent is not enough. Telling the agent that you are still thinking about the property or no longer wish to proceed does not necessarily amount to valid written notice.
If more than one purchaser is named in the contract, or the purchaser is acting in another capacity, advice should be obtained about who must give the notice and how it should be signed.
Because the timing and validity of the notice are important, speak with your conveyancer before sending anything to the vendor or estate agent.
Is there a cost for cooling off?
Cooling off is not a cost-free cancellation.
The purchaser is generally entitled to a refund of the money paid under the contract, less the greater of:
$100
0.2% of the purchase price.
For example, 0.2% of a $750,000 purchase price is $1,500. In that situation, the vendor would generally be entitled to retain $1,500 rather than $100.
The amount can therefore be significant particularly when purchasing a higher-value property.
When does the cooling-off period not apply?
A purchaser will not have the usual cooling-off right in several circumstances.
These include where:
the property is purchased at a publicly advertised auction
the contract is entered into within three clear business days before or after a publicly advertised auction
the property is used mainly for industrial or commercial purposes
the property is more than 20 hectares and is used mainly for farming
the purchaser is an estate agent or agent’s representative
the purchaser is a corporate body
the purchaser has previously entered into a contract with the vendor for the same property on substantially the same terms.
The identity of the purchaser named in the contract matters. For example, if a company is purchasing the property, the company will generally not have a cooling-off right even if individuals are the directors or the company is purchasing as trustee.
If there is any uncertainty, the contract and the particular circumstances should be reviewed before it is assumed that cooling off is available.
What happens with a pre-auction offer?
Purchasers sometimes assume that a property bought before the auction is a private sale and therefore attracts a cooling-off period.
That is not always correct.
If a contract is entered into within three clear business days before a publicly advertised auction the cooling-off right does not apply. The same exclusion extends to contracts entered into within three clear business days after the auction.
This can affect a purchaser who makes a late pre-auction offer or negotiates with the vendor after the property is passed in.
If you are considering making an offer close to an advertised auction date obtain advice before signing. You can read more in Buying Property at Auction in Victoria: Before You Bid.
Is cooling off the same as a contract condition?
No. Cooling off is different from making the contract subject to finance, a building inspection or another negotiated condition.
The cooling-off right is provided by law and only applies where the statutory requirements are met.
A contractual condition operates according to its own wording. For example, a subject to finance condition may allow the purchaser to end the contract if finance is not approved but only if the purchaser complies with the particular application, evidence and notice requirements.
Similarly, a building and pest inspection condition may provide rights if a qualifying report identifies the type of major defect or infestation required by the contract.
The deadlines for contractual conditions may continue beyond the cooling-off period. Each right must be considered separately.
Should you rely on cooling off instead of obtaining a contract review?
Cooling off should not be treated as a substitute for having the Contract of Sale and Section 32 Vendor Statement reviewed before signing.
Even where a cooling-off right applies the purchaser may lose a substantial amount of money by using it. The short timeframe may also make it difficult to complete finance enquiries, building inspections or other investigations before the period expires.
A pre-contract review can help identify:
unusual or unfavourable special conditions
changes to the standard general conditions
issues disclosed in the Section 32 Vendor Statement
easements, covenants and restrictions affecting the property
owners corporation information
settlement and deposit requirements
whether finance, building inspection or other conditions should be requested
whether an auction-related cooling-off exclusion may apply.
The time to negotiate amendments or additional protections is generally before the contract becomes binding.
What if you change your mind after the cooling-off period?
Once the cooling-off period has expired a purchaser cannot simply end the contract because they have changed their mind.
The purchaser may still have rights under a finance, building inspection or other condition if that condition applies and its requirements are met. There may also be other legal rights in particular circumstances.
However, attempting to end a binding contract without a valid right can place the purchaser in default and may have serious financial consequences.
These consequences can include loss of the deposit, interest, legal costs, resale losses and other amounts claimed by the vendor.
Obtain advice immediately if you have concerns about a contract you have signed.
How I can assist
I can review the Contract of Sale and Section 32 Vendor Statement before you sign and explain the terms, risks and any conditions that should be considered.
If you have already signed and are considering cooling off please contact me urgently. The period is short and it is important to confirm whether the right applies and ensure that any notice is given correctly and on time.
If you are considering purchasing property in Victoria, early advice can help you make an informed decision before the contract becomes binding.
This information is general in nature and does not constitute legal or financial advice. Cooling-off rights depend on the type of property, method and timing of sale, identity of the purchaser and the individual circumstances. Advice should be obtained promptly about the particular Contract of Sale.