For quite some time now, purchasers of residential real estate property in NSW have the benefit of statutory cooling off rights for a minimum of 5 business days.
I'll get to the main point of this post now:
Sellers, please note that these cooling-off rights are SOLELY for the benefit of buyers, not the seller!
I recently had a situation where a vendor client authorised her agent to exchange contracts in the sale of her house. Nothing unusual there. Within a few days of entering the contract, after I routinely asked about where she next intended to live, she told me that if she couldn't quickly find a rental property, she intended to rescind the contract. She explained how the agent had told her "...something about a cooling-off period". She gave herself a sense of reassurance when she contacted the agent to again confirm the existence of the cooling-off period, but it seems that she and the agent were at cross-purposes, notwithstanding my client telling him she intended to withdraw from the contract if she couldn't find suitable rental accommodation.
She was almost panicky when I explained to her that what she had (mis)understood wasn't the case at all; this is when she first was told explicitly that the cooling-off option could only be exercised by the buyer, not her. In the end all turned out okay but it could've easily not done so for her.
The current scheme of cooling-off rights provided to purchasers in NSW is an anti-gazumping measure. It follows a number of previous legislative attempts to tackle the problem of gazumping.
What is gazumping? It's probably easier to explain it by describing how it typically occurs, but first some background.
In NSW, there is a law inherited from England called the statute of frauds. For our purposes, the statute of frauds requires that certain kinds of contracts must be made in writing and signed for the contract to be legally binding. This covers contracts transferring or creating an interest in land. In NSW we find this requirement in section 54A of the Conveyancing Act.
When a buyer of a residential property has an oral (or "verbal") agreement with a seller (or the seller's agent) to buy a property at a certain price but the seller, despite this agreement, decides to sell the property to someone else, most often for a higher amount, the first buyer is said to have been "gazumped".
When a buyer is gazumped in these circumstances, neither the seller or their agent is legally liable to that buyer despite there being a breach of the oral agreement. That buyer loses whatever money spent on building inspections, solicitor costs and any bank fees. If the buyer paid a deposit to the agent however, that deposit is refundable in full.
For there to be a binding legal contract, the contract must be in writing, signed by the parties and, in NSW, duplicate copies of the contract are exchanged between the two parties, either by the agent or the parties' solicitors.
If the agent conducts the exchange, then in almost every case the buyer has the benefit of the cooling-off rights. If the buyer exercises those rights and properly rescinds the contract, the buyer forfeits to the seller an amount equal to 0.25% of the purchase price.
Returning to the making of contracts involving land, it is an area of law where the quote (attributed to the famous Hollywood movie producer, Samuel Goldwyn) holds true, that "a verbal contract isn't worth the paper it is written on"!
I'll get to the main point of this post now:
Sellers, please note that these cooling-off rights are SOLELY for the benefit of buyers, not the seller!
I recently had a situation where a vendor client authorised her agent to exchange contracts in the sale of her house. Nothing unusual there. Within a few days of entering the contract, after I routinely asked about where she next intended to live, she told me that if she couldn't quickly find a rental property, she intended to rescind the contract. She explained how the agent had told her "...something about a cooling-off period". She gave herself a sense of reassurance when she contacted the agent to again confirm the existence of the cooling-off period, but it seems that she and the agent were at cross-purposes, notwithstanding my client telling him she intended to withdraw from the contract if she couldn't find suitable rental accommodation.
She was almost panicky when I explained to her that what she had (mis)understood wasn't the case at all; this is when she first was told explicitly that the cooling-off option could only be exercised by the buyer, not her. In the end all turned out okay but it could've easily not done so for her.
The current scheme of cooling-off rights provided to purchasers in NSW is an anti-gazumping measure. It follows a number of previous legislative attempts to tackle the problem of gazumping.
What is gazumping? It's probably easier to explain it by describing how it typically occurs, but first some background.
In NSW, there is a law inherited from England called the statute of frauds. For our purposes, the statute of frauds requires that certain kinds of contracts must be made in writing and signed for the contract to be legally binding. This covers contracts transferring or creating an interest in land. In NSW we find this requirement in section 54A of the Conveyancing Act.
When a buyer of a residential property has an oral (or "verbal") agreement with a seller (or the seller's agent) to buy a property at a certain price but the seller, despite this agreement, decides to sell the property to someone else, most often for a higher amount, the first buyer is said to have been "gazumped".
When a buyer is gazumped in these circumstances, neither the seller or their agent is legally liable to that buyer despite there being a breach of the oral agreement. That buyer loses whatever money spent on building inspections, solicitor costs and any bank fees. If the buyer paid a deposit to the agent however, that deposit is refundable in full.
For there to be a binding legal contract, the contract must be in writing, signed by the parties and, in NSW, duplicate copies of the contract are exchanged between the two parties, either by the agent or the parties' solicitors.
If the agent conducts the exchange, then in almost every case the buyer has the benefit of the cooling-off rights. If the buyer exercises those rights and properly rescinds the contract, the buyer forfeits to the seller an amount equal to 0.25% of the purchase price.
Returning to the making of contracts involving land, it is an area of law where the quote (attributed to the famous Hollywood movie producer, Samuel Goldwyn) holds true, that "a verbal contract isn't worth the paper it is written on"!
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Great article Frank. I came across this whilst trying to explain the cooling off laws to a buyer who thought I was trying to pull a stunt. I utilise the cooling off laws for the benefit of both parties. I always explain to my vendor once signed they are bound and we discuss issues of time frames etc ~ however I can see it could be utilised unscrupulously by some. The benefit for the vendor is a qualified buyer and if in the small chance of a rescinded contract some consideration for their expense. It allows the agent to be forthright and honest in negotiation ~ something we are always accused of not being! Over the past 13 years I have participated in over 200 exchanges with cooling off and have had less than 5% not proceed. If the purchaser opts to proceed through a solicitor using a 66w certificate instead then I do warn them that under the legislation I must continue to present all offers to the vendor until contracts have been exchanged. The funniest part about this being that after explaining this I get accused from the buyer that I will 'gazump' them ~ after they have refused to utilise the 'anti-gazumping' legislation! regards James
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