Case Study: Finance Clauses in the Sale of Land
Our Balwyn property lawyers have recently encountered two cases where buyers attempted to withdraw from a home purchase contract due to their inability to secure a loan from their banks.
The subject-to-finance clause in a land sale contract in Victoria offers buyers additional protection, making the sale contingent upon securing finance. This clause allows buyers to terminate the contract and retrieve their deposit if they cannot obtain financing. This provision is crucial for buyers who may need to exit the contract if their loan application is rejected by lenders.
It is critical to understand the elements of the clause found in general condition 20.2 of the Law Institute’s Contract of Sale to ensure purchasers comply appropriately.
The clause stipulates that the purchaser must:
Apply for the loan immediately;
Undertake all reasonable efforts required to secure loan approval;
Notify the vendor in writing and provide written proof of loan rejection within two business days of receiving the denial; and
Avoid breaching any other conditions.
Scenario 1
Buyers attempted to use the subject-to-finance clause when they believed their bank had not approved their loan application. The vendors requested a letter from the buyer’s bank confirming the application denial, as permitted under general condition 20.2.
Unfortunately, the bank had only declined the application pending further information, such as financial details about the buyer's business. Since the buyers did not fulfill all the bank’s requirements or make sufficient efforts to gain approval, they could not use the finance clause to terminate the contract and lost their deposit.
Scenario 2
In another case, buyers sought to invoke the finance condition of their contract. They provided a letter from their financial institution indicating that after reviewing all the submitted information, the bank could not approve the loan. Furthermore, they had applied for the loan on the same day they signed the contract.
Having exhausted all avenues to secure finance, the buyers successfully used the clause to exit the contract and reclaim their deposit.
These examples illustrate the complexities involved in purchasing property and emphasize the importance of consulting your conveyancing lawyer about your obligations and specific circumstances before signing a property purchase contract.
Our property law team is available to assist both buyers and sellers with any conveyancing transactions. We invite you to contact us through our website to receive personalised advice tailored to your needs.
