Cooling Off Under a Contract for the Sale of Land
Section 31 of the Sale of Land Act 1962 (Victoria) provides a purchaser who signs a contract of sale for the purchase of land the ability to terminate the contract where certain conditions are met.
Generally, a purchaser has 3 clear business days from when they signed the contract to exercise rights to cool off. It is important to note that cooling off does not apply to land used primarily for industrial or commercial purposes, and land which is more than 20 hectares and used primarily for farming.
The following exceptions apply to this general rule, we note a purchaser cannot cool off where:
- The sale is by publicly advertised auction.
- The property was sold:
- within 3 clear business days before the day on which a publicly advertised auction for the sale of that land is to be held.
- on the day which a publicly advertised auction for the sale of that land is to be held.
- within three clear business days after the day on which a publicly advertised auction for the sale of that land was held.
- The vendor and purchaser have previously entered into a contract for the sale of the same land in substantially the same terms.
- The purchase is an estate agent or body corporate (i.e./ company).
It should be noted that in the case a purchaser does cool off a cool off fee may apply. Per section 31(4) of the Sale of Land Act 1962 (Victoria), where a contract for the sale of land has been terminated under the cool off provisions, the purchaser shall be entitled to the return of all moneys paid by them under that contract except for the sum of $100 or 0.2% of the purchase price (whichever is the greater) which may be retained by the vendor. For illustrative purposes where the purchase price under the contract of sale is $750,000 the cool off fee would be $1,500.
With the above said, section 31(4) was explored further in the Supreme Court case Leahy v Javni [2020] VSC 680. In this case the Mrs Leahy sought to recover monies from Mr Javni who had cooled off before the deposit was paid. The Court held that section 31(4) of the Sale of Land Act 1962 (Victoria), applies when a contract has been terminated after the purchaser has paid moneys under the contract to the vendor. It states that all moneys are to be returned to the purchaser save for the amount stipulated. No money was paid under the contract, so in this case s31(4) does not apply. In this case the Court took a strict plain reading of the provision and the matter itself stands as an authority which provides purchasers comfort in the case, they did exercise cool off rights and did not pay a deposit that the vendor cannot demand payment. On the flip side if acting for a vendor, the case itself stands as a lesson to ensure a deposit is paid upon signing.
Stewart v White [2020] VSC 116 was a matter heard to the Supreme Court of Victoria and concerned a contract of sale entered into on 28 August 2018. The Stewarts were the purchasers of the residential property under the contract. The following day, however, a water pipe burst causing significant damage to the property. On 30 August 2018, the Stewarts delivered a letter to the agent providing notice to withdraw from the contract under the cooling off provisions within the Sale of Land Act 1962 (Vic). The Stewart’s advised the agent to hold the letter is escrow (while they got over the shock and made a firm decision) however this was passed on to the White’s (vendor) solicitor. On 31 August 2018 Mr Stewart (who was a solicitor) advised the White’s solicitor they wanted to proceed with the purchase via email and the deposit was paid in full by 3 September 2018. The matter proceeded however before the scheduled settlement date of 25 January 2019, the Stewart’s wrote to the White’s stating they wished to cancel and withdraw from the sale in reliance on the cooling off notice. Settlement did not occur, and proceedings commenced as the Stewart’s sought the return of their deposit.
In relation to the cooling off provisions, the Court considered whether section 31 contemplated an arrangement where a cooling off notice could be held in escrow or otherwise be capable of being withdrawn by a purchaser. It was held that a cooling off notice cannot be held in escrow and put differently “a cooling off notice cannot be deferred or suspended, once given, pending the satisfaction of a condition”. In addition, even if given unconditionally a purchaser cannot simply withdraw the notice to cool off.
The Judge found that the contract was terminated by the cooling off letter on 30 August 2018. Overall, when considering cooling off under the Sale of Land Act 1962 (Vic), as a purchaser you need to be sure this is how you would like to proceed as once the notice is served it cannot be withdrawn.
As a final note, we will raise cooling off should only be considered as a last resort and not a safety measure. All due diligence should ideally occur prior to signing the contract of sale and would include having the contract itself looked over by a property lawyer, making relevant enquiries with council, town planners, building surveyors etc.
Please note that this is summarised information only. For further information with respect to cooling off, please feel free to contact us on (03) 9942 7790 or email our Principal Lawyer, Nick Karolidis at nick@karolidis.com.au.