Release of the 0.25 percent
By Bailey Compton
Leverage had an interesting inquiry from a real estate agent who wanted a release of the 0.25 percent for the vendor to purchase another property.
The facts are simple:
- The vendor sold the property to the purchaser and the contracts were exchanged with a five day cooling off period;
- 0.25 percent was paid as consideration under the contract;
- During the cooling off period, the vendor found a property to buy; and
- The vendor wanted to use that 0.25 percent to purchase the new house.
Section 64 of the Property, Stock and Business Agents Act 2002 permits an agent to exchange a contract. Upon this exchange, section 66S of the Conveyancing Act 1919, provides a cooling off period after exchange. Section 66S of the Conveyancing Act 1919 states that, the purchaser can rescind the contract for any reason within five business days provided that they pay 0.25 percent to the vendor. There is no requirement under either statute to pay the 0.25 percent on exchange. In fact, to exchange the contracts, the agent could take a five-cent piece to facilitate the task.
As a means of protecting the vendor, it has become practice between real estate agents and solicitors to collect 0.25 percent upon exchange. This has been primarily to avoid dispute if the purchaser rescinds.
Although the 0.25 percent is the property of the vendor, it does not become the property of the vendor until the contract is rescinded. Hence, in the cooling off period, the 0.25 percent cannot be released to the vendor, even if it is to purchase another property.
Finally, a point of warning for agents; Transferring 0.25 percent from a vendor’s ledger to another vendor’s ledger may be seen as an act of defalcation from the Office of Fair Trading. This practice should be avoided at all costs.