Subject To Finance – Beware Of The Long Term Finance Condition

A purchaser recently signed a contract to purchase an off the plan property, but could not have his home loan approved until his wife returned to work after maternity leave. The estate agent advised him to use the finance condition in the contract, and to set a long period of time to allow for the maternity leave. The estate agent explained that this would give the purchaser plenty of time, and that he would not have to apply for his home loan until next year.

Problem: General Condition 3 of the standard Contract of Sale of Real Estate, and reproduced in the standard Contract Note, requires that a purchaser must have “made immediate application for the loan”, failing which the purchaser is in breach and cannot rely on the finance condition.

General Condition 3 of the standard Contract of Sale of Real Estate states:

3. This contract is subject to the lender approving the loan on the security of the property by the approval date or any later approval dated allowed by the Vendor. The Purchaser may end the contract if the loan is not approved by the approval date only in the Purchaser:-
(a) has made immediate application for the loan;
(b) has done everything reasonably required to obtain approval of the loan;
(c) serves written notice ending the contract on the Vendor on or before two business days after the approval date, and;
is not in default under any other condition of this contract when the notice is given.
All money must be immediately refunded to the Purchaser if the contract is ended.”

The same finance condition is used in the Contract Note.

The problem in this case relates to the use made of the finance condition on the advice of the estate agent. The purchaser had explained to the estate agent the situation regarding his wife’s maternity leave, and the estate agent believed that a long finance period would assist, allowing the purchaser to apply for the home loan after the maternity leave ended.

Neither the purchaser, nor the estate agent, were aware that clause (a) of the finance condition required that the application should be made immediately.

By failing to apply for the loan immediately, the purchaser would have been in breach of the finance condition, and may not have been able to use it if finance was ultimately refused.

Of course, there are always arguments to be raised in any matter of this nature, and a court may have decided in favour of the purchaser. But as we often point out, the costs of court action in terms of fees, stress, and time often outweigh a favourable decision.

It’s just another example of the need for consumers to be fully aware of what they are doing when completing a contract, and the benefits of obtaining legal advice before committing to a purchase.

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