Facts
Less than 24 hours after Mr. and Mrs. Stewart (“the Stewarts”) signed a contract to purchase residential property  in New Gisborne from Mr. and Mrs. White (“the Whites”), a water pipe in the ceiling of the house burst, causing water flooding and collapsing part of the ceiling. Two days after signing the contract of sale, Mr. Stewart hand wrote and delivered a letter to the Whites’ real estate agent stating, “in light of the significant damage to the property since purchase, we give notice of withdrawal from the contract under the cooling off provisions.”

The day after handing the letter to the Whites’ agent, Mr. Stewart sent an email to the Whites’ solicitors stating that he no longer wished to terminate the purchase; requesting for the letter he handed to the estate agent be held in escrow while he and his wife got over the shock arising out of the damage to the property; and he wanted the Whites to disregard the letter he sent to their estate agent. 
The Stewarts then continued to act in a manner which showed their intentions of proceeding with the property purchase, such as paying the balance of the purchase deposit. However, as the settlement date approached, the Stewarts again had a change of mind. The Stewarts again wrote to the Whites’ solicitors advising of their intention to cancel and withdraw from the purchase of the property. Settlement never occurred. 

Subsequently, the Stewarts initiated legal proceedings for the return of their deposit monies. The Stewarts argued that they had validly terminated the contract through the cooling off notice period. The Whites on the other hand argued that the Stewarts did not terminate the contract during the cooling off period due to the subsequent letter sent by the Stewarts requesting for the letter to the estate agent be held in escrow and asked the Whites to disregard the letter.

 
In considering the arguments made by the Whites and the Stewarts, Macaulay J considered the requirements provided in section 31 of the Act. In particular, section 31(2) of the Act provides the following – “where a purchaser under a contract for the sale of land signs that contract he may at any time before the expiration of three clear business days after he has signed the contract give notice to the vendor that he wishes to terminate the contract and where he has signed that notice and given it in accordance with the provisions of this section the contract shall be terminated.”

Can a cooling off notice be held in escrow and can a cooling off notice be withdrawn?

First, his Honour held that a cooling off notice cannot be held in escrow. A cooling off period cannot be suspended, awaiting the satisfaction of a condition, once the notice has been given. His Honour also decided that to allow a purchaser to have a cooling off notice held in escrow would not only be inconsistent with the requirements under the Act but would also be inconsistent with the Parliamentary intention of the Act.

Secondly, his Honour held that a cooling off notice cannot be withdrawn, noting complications may arise when cooling off notices are permitted to be withdrawn. His Honour found that the Stewarts’ request to have the cooling off notice held in escrow was not valid. Accordingly, the Stewarts’ cooling off letter was consistent with the Act, the contract was validly terminated, and the Stewarts were entitled to have their deposit monies returned. 

In consideration of the decision made in Stewart v White, it is important that purchasers are aware of their cooling off rights and how to properly exercise these rights.

  
Cooling off rights are an important piece of consumer protection governing the purchase of what is, for most people, their largest life acquisition. Decisions to purchase or to cool-off and end contracts need to be made calmly after considering all the consequences and after seeking appropriate advice from De Marco’s expert conveyancing department. 

 

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This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice. 

 

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