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Just because you changed your mind about buying a
property during a legitimate cooling-off period doesn’t
mean you’ll get away scot-free.
Although statutory cooling-off rights for residential buyers vary
across the nation, it’s fairly common for buyers who change their
minds to be liable for cooling-off (or termination) penalties. Some
cooled-off buyers escape this penalty. Others don’t.
No one at XYZ Realty* considered a possible cool-off after
customers Mary and John Brown* signed up to purchase a unit
in Queensland’s Surfers Paradise for almost $1 million and paid a
10 per cent deposit by personal cheque.
At the same time XYZ was banking this into its trust
account, the Browns were having second thoughts.
Before the deposit cheque had time to clear, the
Browns terminated the contract pursuant to their
cooling-off right and cancelled the cheque.
The sellers accepted the sale had crashed, but XYZ
was upset the Browns had stopped their cheque so
there would be no deposit money in trust from which
the termination penalty of $5362.50 could be deducted.
Maintaining this rage a nd enthusiasm, XYZ proceeded –
apparently in its own right – to sue the Browns for that sum.
The first issue for consideration for the Consumer Tribunal,
which was hearing this quite unprecedented action by a real
estate agency, was whether XYZ had legal ‘standing’ to bring
about such a claim.
Clearly the sellers, as parties to the failed contract with the
Browns, had the necessary standing themselves to sue to
recover any penalty allegedly owed to them.
Because the listing agreement between XYZ and the sellers
provided that the agency was entitled to half of any termination
penalty, and because the sellers had authorised XYZ in writing
to pursue this on their behalf, the tribunal found the agency did
have standing to pursue the claim – albeit only on behalf of its
The tribunal soon sailed into murkier waters before reaching,
in my opinion, some legally dubious conclusions. The question
now posed was: “Does the cancellation of the deposit cheque
distinguish a deposit being paid?”
The difficulty was the Queensland legislation states that
after a buyer has validly cooled-off, a seller may “deduct” the
termination penalty “from any deposit paid” and must within 14
days “refund to the buyer” the balance of any deposit paid after
“deducting” the penalty.
Nowhere does the law actually obligate a cooled-off buyer to
“pay” the penalty to the seller (or seller’s agent). No deposit, no
deductible penalty, no refund, it would seem.
The Browns’ simple defence was that, having cancelled their
cheque, there was no deposit paid and therefore no lawful
requirement on them to pay anyone any penalty.
The tribunal found nevertheless that when the cheque was
paid, the Browns “intended those funds to be the deposit”
payable under the contract.
The tribunal adjudicator explained: “While they’re entitled
to terminate the contract during the cooling-off period, I can’t
rely upon any evidence that would persuade me they were
discharged from their obligation to pay a termination penalty... I
find that the mere cancellation of the personal cheque they gave
as payment of deposit does not remove their liability to pay a
Accordingly, the tribunal couldn’t construe the relevant section
of the legislation “to limit the implementation of a termination
penalty only if a deposit was held at the date of the termination
of a contract during a cooling-off period”.
The cheque was given to the agent, according to the tribunal’s
rather convoluted reasoning, “in good faith of a deposit
Cancellation of the cheque, this argument continued “didn’t
render a finding that a deposit had not been paid and therefore
that liability for a termination penalty does not arise merely
because a penalty fee could not be deducted”.
In other words, while a seller may deduct a penalty from a paid
deposit, a seller also has the discretion to seek payment of the
penalty from the buyer.
The tribunal concluded, therefore, that it was “entirely
reasonable for the seller to make that election and decision to
recover the termination penalty”.
No deposit, penalty still payable, in the view of this tribunal.
The Browns consequently were ordered to pay their
termination penalty to XYZ, which, in turn, had to pay half to the
*Names have been changed to maintain privacy.
All names in this article are fictitious.
Agent sues buyers
for crashing contract
æAt the same time XYZ was banking
this into its trust account, the Browns
were having second thoughts.Æ
TIM O’DWYER \\ REAL ESTATE ESCAPES
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