What is a Cooling Off Period?
6-MINUTE READ
Purchasing property in Australia from overseas has risks involved. What do you do if you feel like you have made a mistake after signing on the dotted line? Fortunately, Australian expats are eligible for the cooling-off period. Read on to find out everything you need to know about the cooling-off period and why you might need it.
What Is a Cooling-off Period?
A cooling-off period is when the buyer and vendor have signed the sale contract where the former can back out of the deal without any legal or financial repercussions. There are numerous reasons a buyer might want to leave the agreement. They don’t have to offer any explanation for their decision.
To back out of the contract during the cooling-off period, the buyer must give written notice to the vendor. Rules surrounding the cooling-off period vary from state to state.
The only instances where the cooling-off period does not apply are:
- When the property is sold at auction
- When the property is sold within two business days of an unsuccessful auction to a registered bidder
Buyers can also waive the cooling-off period. However, it’s best to seek professional advice as backing out of a contract without a cooling-off period but come back to bite.
Is the Cooling-off Period Law?
Cooling-off period legal requirements vary depending on the state. The cooling-off period is law in most states, except Western Australia and Tasmania, as part of fair trading. However, the length of the cooling-off period and penalties differ between states.
In all states, you can legally waive the cooling-off period.
Can Expats Get a Cooling-off Period?
Whether they’re expats or living in Oz, all Australians are eligible for the cooling-off period. Even foreign residents can access the cooling-off period. It’s especially valuable for homebuyers living abroad as you won’t have had a chance to view the property firsthand.
With the additional foreign resident surcharges (e.g. stamp duty), going ahead on a property you’re not 100% comfortable with could be a costly mistake. Australian expat mortgages and contracts should also include a subject to finance and subject to building and pest inspections to ensure that the property is up to scratch.
Does the Vendor Get a Cooling-off Period Too?
No, the cooling-off period is to protect the buyer if any unforeseen circumstances arise. There is typically no equivalent for sellers who change their minds after signing the contract. Once both parties have signed the sales contract, the vendor cannot go back on the deal unless they have reasonable grounds.
If a seller were to negotiate a cooling-off period into the sales contract, they would struggle to attract buyers who might not trust the lack of security. If the seller wishes to withdraw from the agreement, they must do so before signing the contract.
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When Does It Start?
Generally speaking, the cooling-off period starts when both parties sign the contract. If the signed contract starts on a weekend or public holiday, the period begins on the next business day. Plus, if a representative, or Power of Attorney, signs the contract on your behalf, the cooling-off period still starts from the moment it’s signed.
If there is a dispute or disagreement over when each party signed the contract, the seller will have to prove when they gave it to you. You might want to leave this to your conveyancer or solicitor to organise in such cases.
When Does It End?
In most states, the cooling-off period ends at 17:00 on the final day. It’s best to check the individual rules for your state, as the cooling-off period can last between two days and five business days. Therefore, if you sign the contract on a Thursday, a five-day cooling-off period would end the following Wednesday.
The home buyer should organise final property inspections and evaluations within this time. If you’re purchasing from overseas, you may want your solicitor to manage these checks for you. However, if you haven’t yet seen the property firsthand, the cooling-off period is your final chance to do so and withdraw without consequences.
Cooling-off Period: State by State
Each state has different rules regarding the cooling-off period. Let’s check out the periods and regulations in each state.
- New South Wales: Buyers have five business days after signing the contract of sale to withdraw. They may face a penalty of 0.25% of the property purchase price to pay.
- Victoria: Buyers have three business days after signing the contract of sale to withdraw. Depending on which is higher, they may face a penalty of 0.2% of the property purchase price or a $100 fine.
- Queensland: Buyers have five business days after signing the contract of sale to withdraw. They may face a penalty of 0.25% of the property purchase price to pay.
- South Australia: Buyers have two business days after signing the contract of sale to withdraw. They may face a maximum penalty of $100 if they terminate the deal.
- Western Australia: There is no mandatory cooling-off period. The buyer can negotiate a period of any length with the seller if they wish.
- ACT: Buyers have five business days after signing the contract of sale to withdraw. They may face a penalty of 0.25% of the property purchase price to pay.
- Northern Territory: Buyers have four business days after signing the contract of sale to withdraw. There is no penalty for terminating the agreement; buyers receive their 20% deposit back in full.
- Tasmania: There is no cooling-off period applied to any property in Tasmania.
Buyers can negotiate more extended cooling-off periods on Australian property with the vendor. However, sellers might disagree and accept another offer if you require too many conditions.
Why Might I Withdraw From Buying During the Cooling-off Period?
There are many reasons Australian expats might withdraw from buying a property during the cooling-off period. For example:
- The building and pest inspection uncover issues, and you change your mind.
- Your lender doesn’t approve your home loan application – although this is usually a separate clause, ‘subject to finance‘ or ‘subject to loan approval’.
- Your financial position changes, and you no longer wish to buy property, e.g. your income sources decline, and you cannot afford to maintain an investment property.
- Another property you would prefer to buy becomes available.
- Other information comes to light, and you decide you no longer wish to buy. For instance, local construction companies might build a new development in the area, which changes the property’s value.
Remember that you don’t need to provide your reason to the vendor. You could quite simply change your mind for no reason at all and escape the contract without repercussions. Although, as mentioned, some states might still require you to pay a penalty fee. 0.25% for every $100,000 is $250. On a property valued at $600,000, you would lose $1,500.
How to Cancel the Sale
To cancel your contract during the cooling-off period, you’ll need to inform the seller’s agent with a written notice. Typically, your conveyancer or solicitor will prepare a letter on your behalf and send it to the relevant parties. In most states, it must be before 17:00 on the final day of the cooling-off window. You will need to sign the written notice.
The buyer is responsible for ensuring the vendor receives the written notice in time. You can send it via fax, email or deliver it in person. The seller must return the deposit (minus any penalties) within 14 days. If you withdraw, the vendor will keep the penalty payment.
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How to Waive a Cooling-off Period
Not everyone wants or needs a cooling-off period. Waiving it is a weighty decision. After all, you’re locking yourself into an agreement with no way out. However, some home buyers might choose to waive the period to make their offer more attractive to the seller.
This might be the case in a particularly popular area. If you’re bidding against a lot of competition, waiving the cooling-off period could put your offer one step ahead of the crowd. If you waive the clause, it’s known as an ‘unconditional contract’. Your lawyer will need to waive the cooling-off period on your behalf formally.
Once you have waived the right to withdraw, you cannot back out of the contract, even if your lender fails to approve your home loan application. You’ll have to find another way to fund the purchase in such cases.
As an Australian expat, waiving the period is particularly risky. You have a weaker borrowing power as you’re applying for a home loan with foreign currency income. Ask your mortgage broker about whether your foreign currency will affect your application. Tier 1 currencies tend to have a greater chance of approval than tier 2.
Tier 1 currencies:
- Great Britain pounds sterling
- Euro
- US dollar
- Singapore dollar
- Japanese yen
Tier 2 currencies:
- South African rand
- United Arab Emirates dirham
- South Korean won
- Taiwan new dollar
- Saudi Arabian riyal
- Philippine peso
- Malaysian ringgit
- Indonesian rupiah
- Thai baht
- Vietnamese dong
- Kuwaiti dinar
- Qatari riyal
Will I Lose Any Money?
Depending on which state you’re purchasing property in, you’re likely to lose some funds if you withdraw from sale contracts. You will only lose between 0.2 – 0.25% of the property purchase price in most cases.
Even on a property costing $1 million, you’ll lose $2,500. In the grand scheme, it’s better to sacrifice a few hundred to a few thousand dollars than to go ahead with a purchase you’re not happy with. For example, if you withdraw because the house has a significant pest problem, it could easily cost you more than $2,500 to fix the issue.
What Happens After the Cooling-off Period?
Once the cooling-off period ends, your conveyancer will settle the property if you still agree to continue with the sale, and it will officially become yours. From this stage, it’s far harder to leave the agreement should you wish. You might end up losing far more than 0.25% of the property price.
Final Thoughts
The cooling-off period is a good safety net for buyers, protecting them from disadvantageous property purchases. If you decide to waiver your right to back out, ensure you’re optimistic you can continue with the sale without funding from your lender. Speak to mortgage brokers about your loan approval chances and financial circumstances.
Get a free Australian mortgage assessment today.
Frequently Asked Questions
How Long Is the Cooling-off Period?
The cooling-off period varies between states. In Western Australia and Tasmania, there is no mandatory cooling-off period. In most other states, it ranges between two to five business days. Buyers can negotiate more extended cooling-off periods if they wish.
How Do Cooling-off Periods Work?
The buyer can leave the contract of sale without repercussions during the cooling-off period. They do not need to give any reason for their withdrawal but must notify the vendor with a written notice by 17:00 on the final day.
Can I Get a Mortgage as an Expat?
Australian expat mortgages are available with specialist lenders. Speak to mortgage brokers about which real estate institute will accept your foreign currency income and approve your financial position.
How Much Deposit Do You Need for an Expat Mortgage?
Expats need a 20% deposit for a home loan in Australia. However, if you’re earning a foreign income, your borrowing power may not be as strong.
See What You Qualify For
