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Subject to Finance
Understanding subject to finance clauses in Queensland
Many contracts for the purchase of property in Queensland include a standard “subject to finance” clause. This condition makes the contract dependent on the buyer obtaining finance approval by a specified date.
The clause does not apply to all contracts and is often excluded in certain transactions, including some off-the-plan purchases.
Why subject to finance clauses matter
Understanding whether a contract includes a subject to finance clause is important, as it can significantly affect a buyer’s rights, obligations and risk exposure.
For advice on how a subject to finance clause applies to your circumstances, seek guidance from an experienced property lawyer.
Everything about subject to finance clauses in Queensland
Most standard contracts include a subject to finance condition, provided the relevant details are completed in the contract schedule. Key provisions typically include:
● Conditional approval
The contract is conditional on the buyer obtaining finance approval from a financier, for an amount and on terms specified in the contract or satisfactory to the buyer. The buyer must take reasonable steps to obtain that approval.
● Notice requirement
The buyer must give written notice by the finance date stating whether finance is approved, not approved or waived. If notice is not given, the seller may have rights to terminate the contract depending on the terms of the condition.
● Typical completion
The finance amount is often expressed as “sufficient to complete”, and the financier may be described as the buyer’s choice or similar. The finance date is commonly set between 14 and 21 days after the contract date
Genuine termination concerns
If a buyer terminates the contract on the basis that finance has not been obtained, the seller may question whether the buyer has genuinely complied with the finance condition. This may include whether the buyer took reasonable steps to obtain approval.
Case study: Hauff & Anor v Miller [2013] QCA 48
In Hauff & Anor v Miller [2013] QCA 48, the court considered a contract that specified ING as the financier under the subject to finance condition. The buyers, acting on advice from their broker, chose not to apply to ING and instead sought finance from another lender. Their application was ultimately unsuccessful.
The court found that the buyers had not taken all reasonable steps to obtain finance approval, as required under the contract. In particular, there was no evidence that applying to ING would have been futile.
As a result, the buyers were not entitled to terminate the contract under the finance condition. Their failure to comply with the condition constituted a breach, entitling the seller to terminate the contract.
The decision highlights the risks of not complying strictly with a subject to finance clause, including potential loss of deposit and liability for damages.
Consequences for buyers
Failure to comply with a subject to finance clause may result in loss of the deposit and liability for damages for breach of contract. In some cases, those damages may be substantial.
Key considerations
To avoid these outcomes, buyers must strictly comply with the finance condition and take all reasonable steps to obtain finance approval, even where approval appears unlikely. For advice on finance conditions, Peter Muller at peterm@qbmlaw.com.au Sally Chipman at sallyc@qbmlaw.com.auConveyancing Areas Of Practice
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