The Finance Clause in a Qld Property Contract: What It Actually Protects

As  you know, when you buy or sell property in Qld, the contract of sale is a critical part of the process. 

However, with so many other things on your mind it can be easy to skim over details that you should pay close attention to.  Be aware that this contract contains conditions that can have a significant impact on the final outcome.

One of these is the ‘subject to finance’ condition. 

This can give the buyer the right to terminate the contract if they do not obtain satisfactory finance by an agreed date. If the contract is validly terminated under the condition, the buyer will generally be entitled to the return of their deposit.

If you’re a buyer who needs finance to complete your purchase, it’s important to make sure that the appropriate finance condition is included in the contract, and worded correctly. As a seller, you need to know if the contract is subject to finance and understand what this means for the sale.

This article explains how a standard finance condition works in Queensland residential property contracts, what buyers need to do to rely on it and when to seek professional help. Individual contracts and special conditions can differ, so always have your own contract checked by a solicitor or conveyancer.

Why have a ‘subject to finance’ clause?

A standard contract of sale in Queensland can include conditions that make the sale dependent on certain events such as finance approval, a satisfactory building and pest inspection or the sale of an existing property.

For buyers,  conditional approval, also known as pre-approval, does not necessarily mean a lender will approve finance for the property you want to buy. Your financial circumstances can also change between receiving pre-approval and signing a contract, which is why a finance condition can provide important protection when you need a loan to complete your purchase.

The Queensland Government's guidance on contracts of sale makes it clear that conditions need to be included in the contract when you sign it for them to be legally binding. Nothing is automatic and you should never assume this clause will be written into your agreement.

If you sign an unconditional contract and then can’t get the finance you were relying on, you could risk losing your deposit and potentially face other consequences for failing to complete the purchase.

It makes sense for buyers to work with a specialist property lawyer who can guide you on whether you need a “subject to finance condition”, and what the wording should look like.

What should a subject-to-finance clause contain?

Under the standard Qld residential contract, three important finance fields need to be completed: the Finance Amount, Financier and Finance Date.

• Finance amount: This specifies the finance the purchase is conditional on. Wording such as ‘sufficient to complete’ is commonly used rather than a specific dollar amount, but the appropriate wording will depend on your circumstances. Speak with your solicitor or conveyancer about how this field should be completed.
• Financier: You can nominate a particular lender or use broader wording such as the ‘buyer’s choice of financial institution’. Naming a particular lender can restrict the operation of the condition if you ultimately seek finance elsewhere, so again, advice is important.
• Finance date: This is the date by which the finance condition needs to be dealt with. Allow enough time for your lender to assess your application and the property (lenders need to see that it’s worth what you have agreed to pay) before agreeing to this date, then make sure you and your solicitor or conveyancer keep track of the deadline.

Another thing to keep in mind is that changing your mind about buying the property is not the same as being unable to obtain satisfactory finance. A finance condition is not a general change-of-mind provision. 

What counts as ‘taking reasonable steps’?

The standard finance condition requires the buyer to take all reasonable steps to secure a loan. Exactly what is reasonable will depend on the circumstances, but this could include:

• Submitting a genuine finance application promptly after signing
• Providing the information and documents your lender needs without unnecessary delay
• Responding promptly to requests from your lender or broker
• Genuinely pursuing the application rather than doing something that deliberately prevents finance from being approved

Failing to apply for finance and then attempting to terminate the contract is unlikely to satisfy this obligation.

It’s also worth keeping records of your finance application and communications with your lender or broker. While the standard finance condition does not automatically require you to provide the seller with a rejection letter, evidence may become important if there is a dispute about whether you genuinely took reasonable steps to obtain finance.

Where buyers can put their finance protection at risk

A finance condition needs to be followed carefully. Problems can arise from:

• Leaving the Finance Amount, Financier or Finance Date incomplete or completing them incorrectly
• Applying to a different lender when a particular financier has been specified in the contract
• Failing to deal with the finance condition by the Finance Date or obtain an agreed extension
• Failing to give the required written notice about satisfaction, waiver or termination promptly
• Failing to take reasonable steps to obtain finance

Under the standard contract, missing the finance date does not necessarily mean the contract automatically becomes unconditional at that moment. However, if the required notice has not been given by the deadline, the seller may gain a right to terminate the contract. 

Each of these issues can potentially be avoided with the right advice from a property lawyer before you sign an exchange contract, and prompt communication if your finance application is delayed.

Include a ‘subject to finance’ clause and get it right

A subject to finance condition needs to be completed correctly and followed carefully.

Having a solicitor review your contract before you sign can help confirm that the finance details are appropriate and the timeframes are realistic. This forms part of a broader contract review that checks the rest of the contract for other risks as well.

If you would like your Qld contract of sale reviewed as part of a property sale or purchase, our property conveyancing team can check the finance condition and the rest of your contract and explain exactly what you are agreeing to.