I would like to bring to the attention (of anyone who may be interested) of problems that may arise using the standard REIWA Contract for Purchase by Offer and Acceptance containing a "subject to finance clause". The current version (not sure exactly when it came into effect, but current as of June 2010) provides that a buyer must IMMEDIATELY (that is upon acceptance of the offer) apply for finance and must give an approval notice "by the latest time" specified in the schedule (if not time specified this is only 14 days by default).
Notice of the approval of finance must be "subject to the banks usual terms and conditions".
If the Purchaser does not apply for finance within the time specified (for example if the purchaser thinks that he doesn't have to because settlement is not for many more months - eg if it is an "off the plan purchase") then he does not have the right to terminate the contract - even if finance is refused when he does apply. The end result could be that the vendor sues for specific performance and/or damages for breach of contract.
Another problem arises when the bank gives some form of approval of finance that is not unconditional (for example it may be subject to a valuation of the property upon issue of the title - which may be some time (even years) down the track. If the purchaser has not made this condition known to the Vendor, it may be that the Vendor is entitled to assume that finance is unconditional.
Purchasers should always make sure that:
1) They apply for finance immediately after signing the Offer and Acceptance;
2) Ensure their bank is provided with a copy of the Offer and acceptance and the bank specify the terms that apply to any finance approval (including any future valuation of the property);
3) Communicate the precise terms of the finance approval to the Vendor (so that the vendor can reject the offer if it (or its financiers) are of the view that final finance approval may not be given at settlement;
4) They do not rely on anything said to them by the selling agent as to the meaning of the Finance clause (or any other condition) because a) they are acting for the seller not the purchaser, b) only get paid when they make a sale and c) are not legally qualified to give advice in any event;
5) Get independent legal advice before they sign anything.
Notice of the approval of finance must be "subject to the banks usual terms and conditions".
If the Purchaser does not apply for finance within the time specified (for example if the purchaser thinks that he doesn't have to because settlement is not for many more months - eg if it is an "off the plan purchase") then he does not have the right to terminate the contract - even if finance is refused when he does apply. The end result could be that the vendor sues for specific performance and/or damages for breach of contract.
Another problem arises when the bank gives some form of approval of finance that is not unconditional (for example it may be subject to a valuation of the property upon issue of the title - which may be some time (even years) down the track. If the purchaser has not made this condition known to the Vendor, it may be that the Vendor is entitled to assume that finance is unconditional.
Purchasers should always make sure that:
1) They apply for finance immediately after signing the Offer and Acceptance;
2) Ensure their bank is provided with a copy of the Offer and acceptance and the bank specify the terms that apply to any finance approval (including any future valuation of the property);
3) Communicate the precise terms of the finance approval to the Vendor (so that the vendor can reject the offer if it (or its financiers) are of the view that final finance approval may not be given at settlement;
4) They do not rely on anything said to them by the selling agent as to the meaning of the Finance clause (or any other condition) because a) they are acting for the seller not the purchaser, b) only get paid when they make a sale and c) are not legally qualified to give advice in any event;
5) Get independent legal advice before they sign anything.
