Court finds ‘subject to finance’ is not an easy way out
Posted on Wednesday, May 15 2013 at 3:20 PM
A recent court decision has demonstrated the ‘subject to finance’ clause is not a simple path to exit from a contract of sale.
In
Hauff v
Anor v Miller [2013], the Court of Appeal found against the buyers, the Hauffs, who purchased a home unit
subject to obtaining finance from ING within seven days.
Kristy
Richardson, an associate professor at CQUniversity, says the buyer failed to
stay within the terms of the deal.
“The Hauffs did not make any attempt to
obtain finance from ING but their broker made application to a building
society. The building society could not approve finance by the nominated date
under the contract and, accordingly, the Hauffs terminated the contract on the
basis that they could not obtain finance,” Richardson says.
The sellers argued the buyers hadn’t
appropriately complied with their contractual obligations and brought
proceedings to keep the deposit, sue for damages and force the Hauffs to resell
the property.
“The Court of Appeal agreed… so on that
basis ‘no reasonable steps’ to obtain finance from ING, they had failed to
comply with the relevant clause of the standard contract.”
Richardson says the decision is a cautionary one.
“Under a contract of sale, you as a buyer will
be required to take ‘all reasonable steps’ to obtain the finance that you are
saying that you will under the contract.
“Also bear in mind that documents
supporting your attempts to obtain finance can be called upon to be produced by
the seller to support any contention by you that finance ‘has not been
approved’,” Richardson says.
Stephen Maule, partner and
property law specialist at Aitken Partners, says buyers should never treat
contractual clauses lightly.
“Our
advice would always be if this clause is in the contract, you must always
comply with it, and you need to comply with it in a timely and efficient
manner. If you don’t, you can be in trouble.
“Fundamentally,
apply for your finance, be diligent about it, give your bank everything they
need and if you get knocked back, tell us within the time period so we can tell
the other party,” he says.
Simon
Au, a selling agent with Remax Results Morningside, says agents are often anxious
about buyers’ attempts to get out of contracts due to the clause.
“Sometimes
the buyer is declining the contract not due to finance, but due to them now not
wanting the property any more – that’s a concern to agents, using the finance
clause as an excuse to get out of sale.”
“If the buyer signs
on a clause and they breach it, it’s really their fault. They are always asked
to consult with a solicitor,” Au says.
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