Cooling-Off Rights Clarified

The Supreme Court of Victoria has recently clarified the operation of cooling-off provisions under the Sale of Land Act 1962 and the obligations that exist between vendors and purchasers of recently sold land.

Cooling-off rights

Section 31 of the Act provides purchasers with the right to terminate a contract within three business days of signing, with some notable exceptions, including where:

• the land was sold at auction (or within 3 days of a publicly advertised auction);

• the purchaser is a corporate body;

• the land is primarily used for industrial or commercial purposes;

• the land is more than 20 hectares and primarily used for farming or a contract; or

• the vendor and purchaser have previously entered into a contract of sale of land on substantially the same terms;

However, section 31(4) notes that where a purchaser exercises their right to cool off, “the purchaser shall be entitled to the return of all moneys paid by him under that contract except for the sum of $100 or 0.2 per centum of the purchase price (whichever is the greater) which may be retained by the vendor.”

The section deals with ‘the return of all moneys paid.’ A plain reading of this clause suggests that where a purchaser has not yet paid any money (including a deposit), the vendor would not be entitled to retain or demand any amount under section 31(4). However, until recently, this point had not been clarified and vendors may have sought to demand payment from a purchaser despite no deposit having been paid at the time of termination.

Leahy v Javni

The ‘plain reading’ interpretation of section 31(4) was recently affirmed by the Supreme Court in the matter of Leahy v Javni [2020] VSC 680. In that matter, the court considered whether a vendor had a right to demand 0.2% of the purchase price where a contract had been validly terminated under section 31 but no deposit had yet been paid. The court made the following relevant judgement:

“s 31(4) 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 purchase save for the amount stipulated. No money was paid under the contract, so s 31(4) does not apply. No authority was referred to which supported … reading s 31(4) as if it said ‘all moneys that should have been paid or were promised to be paid by him under the contract’ rather than its actual wording of ‘all moneys paid by him under the contract’. I see no basis for reading s 31(4) as referring to moneys that should have been paid."

As such, vendors will definitively not be able to demand any amounts be retained under section 31(4) unless money has already been paid under the contract.

In Practice

The judgement should serve as a warning for vendors who may be inclined to agree to delayed timeframes for the payment of deposits, rather than having the deposit payable on the day of sale (as is the standard procedure). They should be aware that if the contract is terminated, they will not be able to retain any money where the deposit has not yet been paid. Vendors inclined to grant longer timeframes may alternatively wish to insist on ‘holding deposits’ while awaiting the receipt of the full deposit.

Purchasers should also be aware that they are not obliged to make any payment where they exercise their cooling-off rights before a deposit is paid. They would also be well-advised to exercise any cooling-off rights early and before payment of deposit is made (where possible).

Jack Kelly

Lawyer