Cooling Off Period - A Case Study

Monday May 30, 2016

Cooling-Off - A Case Study

Cooling-Off – don’t assume a real estate agent has the authority to accept a ‘cooling-off’ notice

Cooling-off periods are recognised as an important consumer protection tool.  However, to benefit from such protection, consumers must follow the prescribed process; the failure to do so can be costly.

A cooling-off period of three clear business days applies in Victoria to private sales of residential land and small rural property (less than 20 hectares).

To cool-off, a purchaser of such land must give the vendor or his agent a written notice of termination of the contract. Contrary to popular belief, ‘agent’ in this context does not necessarily mean ‘real estate agent’.

This point was clarified in the Supreme Court of Victoria, Tan v Russell [2016] VSC 93, where the purchasers failed to exercise their statutory right to cool-off because they did not give their notice to the proper person.

Key facts of the case

  • Mr Russell (Vendor) appointed Marshall White Real Estate (Real Estate Agent) to sell his Richmond residence.
  • Mr Tan and Dr Lo (Purchasers) agreed, after extensive negotiations through the Real Estate Agent, to purchase the property for $4.48m and signed a contract of sale on 4 April 2014.
  • The Purchasers made a part payment of the deposit ($350,000) with the balance due on 30 June 2014.
  • On 9 April 2014, the Purchasers sent an email to the Real Estate Agent purporting to terminate the contract of sale within the three business day cooling-off period.
  • On 1 July 2014, the Vendor issued a notice of default on the Purchasers requiring payment of the balance of the deposit ($98,000) within 14 days.
  • The Purchasers did not comply with the notice.
  • On 15 July 2014, the Vendor rescinded the contract and re-sold the property for $4.07m.

The decision and the cost

The Court found that the Purchasers had not validly terminated the contract of sale because the Real Estate Agent was not the Vendor’s agent for the purpose of receiving a notice of termination during the cooling-off period under s31 of the Sale of Land Act 1962 (Vic) (Act).

The Purchasers failed to provide evidence that the Real Estate Agent had any authority beyond the usual retainer between a vendor and real estate agent to sell the property.  The inclusion of the Real Estate Agent’s details in the contract of sale did not constitute an agreement that notices could be served on the Real Estate Agent.  Further, the contract of sale contained a special condition that notices could be served on the Vendor’s legal practitioner and conveyancer; in other words, the Real Estate Agent was not listed as an agent for that purpose.

The Court also found that the Real Estate Agent did not have ostensible authority to receive notice under s31 of the Act; the Vendor had not ‘held’ out the Real Estate Agent as his agent for all purposes and the Real Estate Agent had not engaged in conduct beyond his retainer.

As a result, the Vendor was entitled to retain the deposit of $350,000 already paid, the balance of $98,000 not yet paid, the loss on the resale of the property ($4.48m - $4.07m), the costs in respect of the resale, interest and costs.

It’s vital for both vendors and purchasers to follow the cooling-off process

The exercise of a statutory cooling-off period is no simple matter and should be approached with care by both vendor and purchaser, as demonstrated by this case.  For a valid termination to occur, careful attention needs to be paid to the process set out in s31 of the Act:

  • the purchaser must give a written notice of termination;
  • the notice must be given before expiration of three clear business days after the purchaser has signed the contract; and
  • the notice must be given to the vendor or his agent or left at the address for service of the vendor specified in the contract or the address of the vendor’s agent.

Vendors are advised to obtain legal advice before accepting that a purchaser has validly exercised their cooling-off right to terminate a contract of sale.

Purchasers seeking to exercise their cooling-off rights should ensure that a valid notice of termination is served on the vendor or an agent who has express authority to receive such notices.