The property buyers
guide to Cooling Off
The high hurdle to purchasing a property is an
unconditional loan approval. What if the real estate agent
is threatening that unless you sign straight away, they will
sell the property to someone else?
Do you take the risk and sign the contract, without an
unconditional loan approval?
The problem: property
contracts in NSW do not contain finance clauses
will find many clauses in a NSW property purchase contract,
but there is one clause I can guarantee you won’t find: it
is a finance clause which allows the purchaser to change
their mind and walk away if they don’t obtain finance
approval to purchase the property. In fact, the contract
contains a warning to purchasers to hold finance
approval before signing the contract (see photo).
Why are there no subject to finance clauses in
NSW? The reason is that in NSW, conveyancing practice has
always been that a property contract should be
unconditionally binding the moment it is exchanged. There is
clause’ if loan approval is not received. Solicitors
and conveyancers acting for vendors in NSW
simply refuse to agree to finance clauses.
In Queensland and in Victoria it is different. There is a
loan finance clause in the standard purchase contract which
can be activated to give the purchaser time (usually 14 or
21 days) to obtain unconditional finance approval for the
purchase. If not, the purchaser can terminate the Contract
and receive a full refund of the deposit. In Western
Australia, the period is set at 28 days.
Finance clauses are often necessary in Queensland and
Western Australia because financiers will not approve
finance unless and until they are given a signed purchase
contract. Financiers in NSW do not need to have a signed
Because there is no subject to finance clause in
the NSW Contract, is there another way that a purchaser can
safely sign a purchase contract straight away so as to not
miss out on buying the property, but still have the ability
to walk away if they don’t obtain unconditional loan
The solution: use the Cooling
Off Period to tie up a property while waiting for finance
Cooling Off is legal protection for purchasers under the
NSW Conveyancing Law against what is known as ‘gazumping’.
During the Cooling Off Period, a purchaser can walk away
from a legally binding Contract within 5 business days
without giving any reason. If they do, they lose their
cooling off deposit, which is 0.25% of the price. But while
the purchaser can walk away during the Cooling Off Period,
the vendor’s hands are tied in that they cannot sell the
property to anyone else.
To illustrate, a purchaser signs a contract to buy
a property for $500,000. They pay a cooling off deposit of
$1,250. They have a Cooling Off Period of 5 business days to
obtain their unconditional loan approval, and also building,
pest and strata inspections and searches. During those 5
days, the purchaser can walk away from the contract (the
legal term is to rescind) while the vendor is locked in. If
they don’t rescind, the rest of the 10% deposit is payable
by 5 pm on day 5, and the contract becomes unconditional.
Of course, what is given can also be taken away. Cooling
Off Periods are taken away in two circumstances: the first
is when the property is sold at auction or on the day of the
auction; the second is when a solicitor or conveyancer signs
a section 66W Certificate which removes the Cooling Off
Period because they have explained the Contract. This
partially explains why auctions are so popular with real
estate agents – a sale by auction results in an
unconditionally binding contract.
Speaking of Cooling Off Periods, is 5 days the most you
can get? The answer is no. While the standard Cooling Off
Period in NSW is 5 business days, it can be extended by
agreement. Currently, many purchasers ask for and receive 10
day cooling off periods when signing Contracts (not at
auctions!). Many real estate agents have ‘cooling off
extension’ pages for insertion into the Contract to give 10
day Cooling Off Periods.
In this way, purchasers in NSW can use the Cooling Off
Period to tie up a property for 5 or 10 days while waiting
to receive an unconditional loan approval, the same as if
they had a subject to finance clause in the purchase
What about off-the-plan
Off-the-plan purchasers are exposed to finance risk. They
cannot obtain unconditional loan approval before they sign
because the building is under construction and cannot be
valued until it is finished; and in any case, a loan
approval is valid for only 90 days. They cannot ask for a 1
or 2 year cooling off period until the building is built
because vendors do not agree to it.
Off-the-plan purchasers should obtain pre-approval at
least three months before the estimated settlement date,
then hope and pray that the property values up and they can
obtain finance approval when the time comes for settlement.
This applies not only in NSW, but all around Australia.
Note: Cooling off protection exists in other
states (except in Western Australia). But it is not used in
other states to cover loan approvals because the contracts
contain loan finance clauses.