I entered into a Contract to buy a property in NSW, can I get out of the Contract?

Buying a house or any property is one of the most important financial investments that any person can make during their life. It’s not uncommon for Buyers to second guess their decision after signing a Contract to purchase a property. 

If you have signed a Contract to buy a residential property in New South Wales (NSW) and are wondering whether you can get out of the Contract, it is important to understand the legal implications of your situation. While there are some options and opportunities to exit the Contract, the process can be difficult, and it may involve financial consequences.

In this article, we will discuss the options available for a purchaser to withdraw from a Contract to buy a house or apartment in NSW, as well as the potential costs and legal implications.

How does a cooling off period work?

In NSW, there is a standard five (5) business day cooling-off period that applies to most residential property purchases.There are certain instances where a cooling off period does not apply such as those sold by way of auction, or if the property is sold on the same day as an auction that passes in.

A cooling off period allows a purchaser after signing the Contract, and before the end of the cooling off period, to change their mind and withdraw (rescind) from the sale without facing the significant penalties that arise out of a breach of Contract, such as loss of deposit and being sued for damages. However, there are some very important details to keep in mind when considering withdrawing from a purchase

• Cooling-off period: The cooling-off period begins on the date the contracts were signed and expires at 5pm on the fifth business day after the Contract Date. This period is able to be extended by negotiation at the time of a purchase. The Real Estate Agent may be able to negotiate on your behalf, alternatively they can occur with the Seller directly and can even take place during the cooling off period. If you decide to no longer proceed with the purchase within this period, you must notify the Seller in writing through a formal Notice of Rescission before the cooling-off period expires. It is important that the Notice of Recission is drafted a certain way to be considered valid. It must be in writing, signed by the purchaser or their solicitor and served upon the Seller or their solicitor before the expiry of the Cooling-Off period. Timing is another critical factor, as serving the Notice of Rescission after 5:00pm on the expiry of the cooling off period deems the Notice of Rescission invalid.

• Penalty for rescinding the Contract: If you exercise your right to withdraw during the cooling-off period, you will forfeit 0.25% of the purchase price to the Seller. This may be considered a relatively small amount compared to the full deposit price that would be forfeited if there is no cooling off period. It is important to make enquires as to the cost of your solicitor to draft a Notice of Recession.
  

• Waiving the cooling-off period: In some cases, Buyers may choose to waive the cooling-off period, particularly in competitive property markets where they want to make their offer more attractive to the Seller. If you have signed a 66W certificate, which waives the cooling-off
  
  
  
  
  • 1) Section 66S (3) (b) of the Conveyancing Act 1919
  
  
  • 2) Section 66T of the Conveyancing Act 1919
  
  
  • 3) Section 66U of the Conveyancing Act 1919
  
  
  • 4) Section 66V (2) of the Conveyancing Act 1919
  
  
  • 5) Section 66W of the Conveyancing Act 1919
  
  
  period you will be bound by the Contract immediately. A section 66W certificate is only recommended if you have unconditional loan approval and are satisfied with all enquiries as to the property.
  

Exemptions from a Cooling-Off Period

It’s also crucial to note that the cooling-off period does not apply to all types of property transactions. Some exemptions include:

• Properties purchased at auction: If you buy a house or unit at auction or sign a Contract on the same day that an auction has passed in, a cooling-off period does not apply.

• Commercial properties: Cooling-off periods only applies to residential properties, so if you’re purchasing commercial real estate, this protection is unavailable. However, there may be other similar mechanisms for rescinding a Contract in commercial property matters such as a due diligence period.

• Buyers who choose to waive the cooling-off period: As mentioned previously, providing an executed 66W certificate waives your right to the cooling-off period, leaving you binded by the Contract unconditionally.

Exiting the Contract After the Cooling-Off Period

In the instance the cooling-off period has expired, and you still would like to exit the Contract, it will be a more complex process. Once the cooling-off period expires, the Contract becomes unconditional, and withdrawing from the sale could lead to serious legal and financial consequences, including:

• Losing the deposit: In most property transactions, the Buyer is required to pay a 10% deposit at the time of signing the Contract. This deposit is non-refundable and therefore puts you at risk to losing your deposit to the Seller.

• Breach of Contract: Withdrawing from the contract may be considered a breach of Contract. The Seller may have the right to take legal action to recover any losses, which could include legal fees and the costs of having to re-list and re-sell the property.

• Damages: In some circumstances, the Seller may claim damages if they are financially impacted by your withdrawal. For example, if the property is sold at a lower price to another Buyer after you do not proceed, the Seller could sue for the difference in the price. These damages may be substantial depending on changes in the housing market from the time you exit the contract to the time another Buyer enters into a new one.

Special Conditions in the Contract

Some Contracts may include special conditions or clauses that give you the option to withdraw under certain circumstances. These conditions are negotiated between the Buyer and the Seller and should be carefully reviewed before signing the Contract. Some examples of these special conditions include:

• Subject to finance: This clause allows you to not proceed with the sale if your loan application is not approved or if you cannot secure the necessary financing to complete the purchase.

• Subject to building and pest inspection: If a building or pest inspection report is undertaken and the results indicate issues with the property, this clause may give you the right to withdraw from the Contract without penalty.

• Subject to sale: If you are selling your current home to finance the new purchase, this clause allows you to exit the Contract if your property doesn’t sell in time.

• Subject to an event occurring by a particular date: Sunset Clauses are a provision that allows a party to exit a Contract if an event has not occurred by a certain date. This is more common in off the plans Contracts, which will be discussed further in a future post.

6) Section 66T of the Conveyancing Act 1919

If any of these conditions are included in the Contract, you may be able to end the Contract without facing significant penalties, as long as the terms of the special condition are met.

Negotiating with the Seller

If you find yourself in a situation where you need to exit the Contract after the cooling-off period, it may be worth discussing the issue with the Seller. In some cases, the Seller may be willing to negotiate a mutual rescission of the Contract, particularly if they believe they can quickly find another Buyer or if the reason for withdrawing is reasonable. This could help you avoid a costly legal battle or losing your deposit.

How can Legal One help?

Exiting a Contract to buy a property after signing it is a complex legal matter that requires expert advice. If you are unsure about your rights or options under a Contract, it is crucial to consult with a property lawyer in Sydney who can assess your situation and guide you through the process involved.

They are able to help you understand the terms of the Contract, whether any conditions apply that allow you to exit the Contract, and what steps you can take to minimise the financial impact of withdrawing from the purchase.

Can You Get Out of a House Purchase Contract in NSW?

While it is possible to exit a Contract to buy a property in NSW, the timing and circumstances matter significantly. The standard five-day cooling-off period provides a safety net for those who quickly reconsider their decision, but after this period ends, the consequences of withdrawing can be severe and costly. Special conditions in the Contract and negotiating with the Seller may offer some flexibility, but it’s always wise to seek legal advice before making any decisions particularly where the financial investment is significant.

If you’re ever unsure about a property purchase, it’s best to think carefully and carry out the necessary research and due diligence enquiries, before signing the Contract such as liaising with your financiers as to whether you have the necessary finance approvals, conduct thorough inspections such as Building and Pest and Surveys, strata reports (if property being purchased is a unit) and review all special conditions of the Contract before committing to entering into a Contract to purchase a property as it is a significant financial investment.

If you are looking to purchase a property of your own, the team at Legal One are ready to assist all home Buyers ranging from first home Buyers to investors and developers on their acquisitions of property.

For expert guidance from a property lawyer in Parramatta, Revesby, Auburn, Merrylands, or Burwood, reach out to us.