What is the cooling off period
In NSW, the cooling off period is a five business day window after exchange of contracts during which the buyer can withdraw from a property purchase. It exists to protect buyers who may have acted in haste or who need time to finalise finance or due diligence after committing to a contract.
The right to a cooling off period is created by section 66S of the Conveyancing Act 1919 (NSW). It applies automatically to most residential property transactions in NSW unless the parties agree in writing to waive or shorten it.
When the cooling off period applies
The cooling off period applies to most residential property purchases in NSW conducted by private treaty. This includes houses, units, townhouses, and vacant residential land. The five business days run from the day after exchange of contracts. If the fifth business day falls on a weekend or public holiday, the period extends to the next business day.
Key detail
Business days exclude weekends and NSW public holidays. If you exchange on a Thursday, your cooling off period ends at 5pm on the following Thursday (assuming no public holidays in between).
When the cooling off period does not apply
There are important situations where the cooling off period does not exist:
- Auction purchases: If you are the successful bidder at auction, you are immediately bound. There is no cooling off period whatsoever. This is why due diligence must be completed before auction day.
- Section 66W certificate: Either party can request that the cooling off period be waived entirely by having a licensed solicitor sign a section 66W certificate. This is sometimes requested by vendors who want certainty. Do not sign a 66W certificate without understanding what you are giving up.
- Contracts exchanged on the same day as auction: Even if sold before auction under private treaty on the auction day itself, the cooling off period does not apply.
How to exercise the cooling off period
To exercise the cooling off period, written notice must be given to the vendor or their solicitor before 5pm on the fifth business day. Your solicitor or conveyancer will handle this on your behalf. The notice must be in writing and must be received by the vendor's representative within the period.
Simply not turning up to settlement or failing to obtain finance does not constitute exercising the cooling off period. The written notice requirement is strict.
What it costs to pull out
If you exercise the cooling off period, you forfeit 0.25% of the purchase price. On an $800,000 property, that is $2,000. The vendor is entitled to keep this amount regardless of the reason for withdrawal. You are not required to explain why you are pulling out during the cooling off period.
After the cooling off period
Once the cooling off period has expired, you are legally bound to complete the purchase. Withdrawing after this point entitles the vendor to keep the full 10% deposit and potentially sue you for additional losses. This is a significant financial exposure.