Subject to Finance Approval

If you are looking to buy a house, a unit or vacant land in Queensland, it is not uncommon to require finance from a bank to fund the purchase. Provided the Seller agrees to enter a conditional contract for the property on this basis, the standard contracts of sale (being, most commonly, the ‘REIQ Contract for Houses and Residential Land (14th Ed)’ for houses and land, or the ‘REIQ Contract for Residential Lots in a Community Titles Scheme (10th Ed)’ for townhouses and units) (‘Contract of Sale’), allow the Buyer to elect to have the Contract of Sale conditional on the Buyer obtaining satisfactory finance approval.

You have to take particular care when completing the Contract of Sale because if the relevant information is not inserted in the Contract of Sale as required, the consequence may be that the Contract of Sale is not formally made subject to satisfactory finance approval and accordingly, clause 3 of the ‘Terms of Contract’ (which deals with inter alia the Buyer’s obligations in respect of obtaining finance approval, and the parties’ respective termination rights in relation to the finance condition) may not be applicable.

If the Contract of Sale is properly completed, and therefore made subject to satisfactory finance approval, then the Buyer must comply with clause 3 of the Terms of Contract. The Terms of Contract is that section of the Contract of Sale (usually towards to the back of the document) which contains the standard terms and conditions applicable to the Contract of Sale. Clause 3 is entitled ‘Finance’ and will usually contain a statement with the following words or effect:

        This contract is conditional on the Buyer obtaining approval of a loan for the Finance Amount from the Financier by the Finance Date on terms satisfactory to the Buyer. The Buyer must take all reasonable steps to obtain approval. 

Basically, in circumstances where the Contract of Sale is subject to finance, the Buyer must take all reasonable steps to obtain the finance approval by the Finance Date. The Finance Amount and the Finance Date are particulars (or information) which are usually specified in the ‘Reference Schedule’ to the Contract of Sale (which is a section located at the front of the contract). Taking “all reasonable steps” will usually require that the Buyer make a finance application promptly following the execution of the Contract of Sale and to pursue the finance application in good faith and diligently. However, this is not an exhaustive list of what is expected of the Buyer, and what constitutes “all reasonable steps” will really depend on the facts and circumstances of the particular transaction.

The Buyer must then give notice to the Seller that finance approval has either not been obtained by the Finance Date and the Buyer terminates the Contract of Sale, or that the finance condition is either satisfied or waived by the Buyer (and the Buyer wishes to continue with the Contract of Sale). If the Buyer does not provide such notice to the Seller by 5:00pm on the Finance Date, the Seller may terminate the Contract of Sale by notice to the Buyer. The finance condition option under a Contract of Sale is a great feature to assist the Buyer in purchasing his or her own property (provided of course that the Seller is agreeable to entering a Contract of Sale conditional on satisfactory finance approval) but once it is entered on this basis, the Buyer should understand that it must take “all reasonable steps” to obtain finance, for a failure to do so may lead to a dispute with the Seller.

This commentary is of a general nature only, containing nothing more than some general information for the reader. It is not intended to be legal advice, nor cannot it be relied upon as legal advice. To this end, please read our Website Terms including the disclaimer contained therein carefully. Laws, rules and principles may be subject to sudden and unexpected changes and you should always consult a lawyer about your specific circumstances.