Contract subject to Finance – what does it mean?

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If a contract to purchase a residential or commercial property in Queensland is subject to finance, it means that the contract is subject to and conditional upon the buyer obtaining finance approval, which is satisfactory to them to complete the purchase. If the buyer doesn’t obtain satisfactory finance approval in accordance with the condition, it allows them to terminate the contract.

How do I know if my Contract is subject to Finance?

There should be a Finance section in the contract. On Queensland’s common REIQ contracts, the section is on page 3. If the section is left blank on any of the three sections being ‘finance date’ , ‘finance amount’ or ‘financier’ the contract is likely not subject to finance (there are exceptions to this, such as if there is a special clause providing otherwise).

If the contract is subject to finance, the finance section of the contract should provide a date by which the finance condition is to be complied with (usually 14 or 21 days from the date the contact is signed by all parties).

It is best to check with your Solicitor, as all contracts are different. You should always send your Solicitor a copy of the draft contract prior to signing to ensure it has all necessary conditions that you require, and that they are correctly worded.

Does my contract have to be subject to finance?

No, it does not. If you do not require a loan and are paying for the property with cash, there is no need to have a finance condition in the contract of sale. You should advise the sales agent accordingly.

However, it is extremely risky to exclude the finance condition if you do require finance. In the event that your loan is not approved, for whatever reason, and you therefore do not have the funds to complete the purchase by the time the settlement date arrives, you may not be able to terminate the contract.

If you cannot complete your purchase (i.e. don’t have the required funds), you will be in breach of the contract and risk the Seller keeping your deposit or potentially suing you. It is therefore in a buyer’s best interests to have a finance condition included in the contract if a loan is needed to complete the purchase.

What happens if I do not receive satisfactory finance approval?

In the event that you do not receive satisfactory finance approval (i.e. if you are approved for less than you require and therefore not satisfied or not approved at all) by the finance condition due date, you are able to terminate the contract if the contract is subject to finance. You are then able to receive your deposit back in full.

If this is the case, please ensure you advise your Solicitor, as notice of termination should be provided to the Seller by 5pm on the finance condition date.

You will be unable to terminate the contract if the contract is not subject to finance.

Please note, you must take all ‘reasonable steps’ to obtain approval in accordance with the contract. If you have not done this, you may not have grounds to terminate the contract. This prevents buyers from using the finance clause to terminate for other reasons (like changing their mind).

What happens if I receive satisfactory finance approval?

If you do receive finance approval on the other hand, then you must notify your Solicitor, who then notifies the seller’s Solicitor by 5pm on the finance condition date.

If your solicitor does not notify the seller’s solicitor before 5pm on the finance due date, then you risk the seller terminating the contract, but the deposit will usually be refunded to you in full.

Please see our other blog post explaining the steps you should take if your contract is subject to finance.

If you are signing a contract and are unsure whether your contract is subject to finance, please contact FC Lawyers to assist. We always recommend sending the contract to us to review prior to signing it to ensure that all is in order for you to sign.

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