When purchasing a property by negotiation (also known as by private treaty), there can often be an urgency to exchange contracts quickly in order to secure the property at the price agreed and to lock out any other potential purchasers. In this rush to exchange contracts, it is common for the purchaser to be asked by the vendor or the agent, for a section 66W certificate, or to be told that the vendor will only agree to exchange contracts on an unconditional basis; that is, to sign an unconditional contract of sale. This can be fraught with risks for the purchaser.
A section 66W certificate is a certificate signed by your lawyer or conveyancer that will waive your right to a cooling off period on exchange (see below). Providing a section 66W certificate on exchange will make the exchange of contracts unconditional.
When exchanging with an unconditional contract, it is essential that you have your finance approved unconditionally and that you complete all of your inspections of the property.
An exchange of contracts is the time at which the contract for sale becomes binding on both parties, the agreed deposit is paid, and the cooling-off period (if applicable) commences.
After the exchange of contracts, the vendor is unable to sell the property to any other interested party and the purchaser is obliged to complete the contract (subject to any cooling-off rights).
Before the exchange of contracts occurs, the vendor could agree to sell the property to another purchaser.
In NSW, purchasers of residential property are entitled to a 5-day cooling off period from the date of exchange of contracts under the Conveyancing Act 1919, unless the property is purchased at an auction.
A cooling off period is a short period after agreeing to purchase a residential property, where the purchaser can change their mind.
During the cooling off period, the purchaser enjoys a statutory right enabling them to rescind (cancel) the contract, where they would forfeit only 0.25% of the purchase price, instead of the full 5% or 10% deposit.
There is no cooling off period if:
The cooling off period timeframe is 10 days for off-the-plan purchases.
Where an exchange of contract occurs without a cooling off period or where the cooling off period has been waived with a s66W certificate, then if the purchaser changes their mind or is unable to complete the contract, they would risk losing their full deposit and the vendor could also sue for damages.
The cooling off period provides purchasers with an opportunity to:
Some of the key risks to purchasers of rushing to exchange contracts before completing their due diligence are:
It is often necessary to act quickly in order to secure property that you want to purchase. However, in proceeding to an exchange of contracts, particularly if that exchange is expected to occur unconditionally, all necessary steps should be taken to ensure that your finance is approved, you are satisfied with the condition of the property, and you are certain that you want to proceed.
At E&A Lawyers, we have a team of property lawyers able to assist you and guide you through the most secure purchase process for your new property.
For more information or to arrange a consultation with a lawyer, you can call or email us.
This article is of a general nature and should not be relied upon as legal advice. If you require further information, advice or assistance for your specific circumstances, please contact E&A Lawyers.
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