So, you have been hunting for a new home, at long last have found ‘the one’ and had your offer to purchase accepted. The next words often out of the agent’s mouth though will be that you need to go off and get a Section 17 Certificate (if you are buying in the ACT) or a Section 66W Certificate (if you are buying in NSW). But what are these certificates, and why are they requiring you provide one?
Cooling Off Period
Where you are buying a residential property the legislation in both the ACT (the Civil Law (Sale of Residential Property) Act 2003) and NSW (the Conveyancing Act 1919) provides buyers with a five-business day “cooling off period”. If the buyer changes their mind and does not want to continue with the purchase, then providing they give notice to the seller before the end of that cooling off period they can pull out of the Contract. This right is not entirely without cost – in exercising the right a buyer agrees to forfeit 0.25% of the purchase price for the property – but this is the only penalty. As an example, for a property worth $1,000,000 ‘cooling-off cost’ to the buyer would be $2,500.
In contrast, if a buyer wants to pull out of the Contract after the cooling off period has ended they will generally be subject to the default and damages clauses in the Contract. These damages are generally 10% of the purchase price, plus the difference between the price that the buyer was supposed to pay and the price paid by a subsequent buyer. As a further example, if the price for the property were $1,000,000 but the buyer backed out and the agent later sold the property to a different buyer for $800,000, the original buyer may also be required to pay that $200,000 difference in price.
What about the Certificates?
Just as both the ACT and NSW legislation provide buyers with this cooling off right, they also both allow for buyers to waive the benefit of this right. Where a buyer agrees to waive this right, they are agreeing that no cooling off period will apply to the purchase and as soon as Contracts have exchanged that’s it – no pulling out for change of mind.
Because of the significance of this, the legislation imposes restrictions on how this right can be waived. Specifically, to waive the right a buyer must obtain either a Section 17 Certificate for ACT property or a Section 66W Certificate for NSW property. This certificate, signed by a lawyer (and not the buyer) confirms that:
- the buyer has received independent legal advice explaining the nature and effect of the cooling off period; and
- that by the lawyer signing the certificate, the buyer will not have the benefit of a cooling off period in respect of the purchase.
These certificates must be provided at or before Contracts are exchanged – the cooling off period cannot be waived retrospectively – so if the agent or seller’s solicitor have requested the buyer provide this waiver, they will not proceed to exchange Contracts until it has been provided.
Is it Usual for a Certificate to be Requested?
Yes – in fact we often describe it as a ‘mythical cooling off period’ given how near-universal the request is.
From a seller’s perspective they often want the assurance of knowing that once Contracts have exchanged the deal is locked in and the property can be taken off the market. If the cooling off period is in play the property still needs to stay on the market just in case the buyer changes their mind, and this often means stringing along other potential buyers just in case a replacement is needed.
From a buyer’s perspective though it means you need to be ready to unconditionally commit at the time of exchange. This means making sure you have competed your due diligence of the property, you are fully satisfied with its status and condition and your finance is order before exchanging Contracts. If you don’t and find an issue with the property, or the bank refuses finance for the purchase, it’s too late – there’s no pulling out for change of mind.
If you have further questions or are uncertain about any aspect of the cooling off period or the Section 17 and 66W Certificates, please contact us, we are here to help.