Subject to Finance

Understanding Subject to Finance Clause QLD

Many land purchase contracts in Queensland include a standard “Subject to Finance Clause”. This condition means that it can make the contract subject to the buyer obtaining finance in order to settle. This condition doesn’t apply to all contracts. Notably, it often excludes contracts for properties purchased “off the plan.”

Why Subject to Finance Clause Matters?

Knowing whether your contract includes a subject to finance clause is crucial. It can significantly impact your obligations and risks as a buyer.

For tailored advice and to ensure your interests are protected, consult with our property lawyer.

Everything About Subject to Finance Clause QLD

The most commonly used standard form of the contract includes a subject to finance condition, provided certain details in the items schedule are completed. Here’s a breakdown:

Key Provisions

Conditional Approval: The contract hinges on the buyer securing finance approval from a financier listed in the items schedule, for an amount specified in the items schedule, and on terms satisfactory to the buyer. The buyer must take all reasonable steps to obtain this approval.
Notice Requirement: If the buyer does not notify that finance approval hasn’t been obtained by the finance date and the contract remains terminated, or alternatively, that the finance condition has been satisfied or waived, the seller can terminate the contract at any time until the buyer gives notice that the condition is satisfied or waived.

Typical Completion

The items schedule is often completed with the finance amount listed as “sufficient to complete” and the financier as “buyer’s choice” or similar. The finance date is usually set between 14-21 days after the contract date.

Genuine Termination Concerns

Sellers might doubt the genuineness of a buyer who terminates the contract for not obtaining finance by the finance date. They may suspect that the buyer is using the finance clause to back out of the deal and might question if the buyer truly complied with the subject to finance condition, particularly whether they took all reasonable steps to secure finance.

Case Study: Hauff & Anor v Miller [2013] QCA 48

In the case of Hauff & Anor v Miller [2013] QCA 48, the court dealt with a situation where the contract’s finance condition named ING as the lender. However, the buyers, advised by their broker, chose not to apply to ING. Instead, they thought another institution would approve their finance application faster. Unfortunately, this other institution did not approve their finance request.

The court decided that because there was no proof that applying to ING would have been pointless, the buyers hadn’t shown they had taken all necessary steps to get finance approval. Since they didn’t fulfil this obligation, they couldn’t legally end the contract. This meant they breached their contract, letting the seller cancel it due to their failure. This decision had serious consequences for the buyers, including possibly losing their deposit and being liable for damages.

Consequences for Buyers

Failing to comply strictly with the subject to finance clause can result in losing the deposit and potentially facing damages for breach of contract. In some cases, those damages could be hundreds of thousands of dollars.

The Takeaway

To avoid severe consequences, buyers must strictly adhere to subject to finance clause and take all reasonable steps to obtain finance approval, even if approval seems unlikely.

For expert advice on finance conditions, contact:

Peter Muller at peterm@qbmlaw.com.au

Sally Chipman at sallyc@qbmlaw.com.au