In Queensland, it is common for any person who enters into a contract to purchase a property, whether residential or commercial, to make the contract subject to finance approval being obtained.
The most common forms of contract used for property transactions in Queensland are the pro-forma contracts provided by the Real Estate Institute of Queensland (“REIQ”) and the ADL Software (“ADL”). Both of these contracts require the Buyer to state the name of their financier, the amount of finance required and the due date by which finance must be obtained.
The relevant Standard Terms of Contract for both a REIQ and an ADL form of contract both provide that the buyer must, promptly after signing the contract, apply to the stated financier for the stated finance amount and take all reasonable steps to obtain approval by the due date. The relevant clauses are clause 3 of a REIQ Contract and clause 5 of an ADL Contract.[1]
The Supreme Court of Queensland, in the case of Hauff & Anor v Miller [2013] QCA 48 has provided a useful decision which explains the extent of the buyer’s obligations when obtaining finance and the dangers for non-compliance.
In that case, the buyer signed a REIQ Standard Form Contract of Sale to purchase a unit within a community titles scheme. The finance clause was such that ING Bank, a specific financier was nominated.
The buyer did not make an application for finance through ING Bank, believing that the loan would not be approved by the due date in the contract. Instead, the Buyer sought to obtain finance through a different financier without even making an application to ING Bank. The other financier was not in a position to approve a loan within the time specified by the contract and the buyer purported to terminate the contract under the finance clause and sought a refund of its deposit.
The seller refused to accept the buyer had validly terminated the Contract, arguing that the buyer had failed to take all reasonable steps to obtain approval from the financier specified in the contract. A dispute arose and litigation ensued.
The seller asserted that as a result of the buyer’s failure to take all reasonable steps, the Buyer had defaulted and the seller was entitled to the remedies that would ordinarily arise on default. In the REIQ Contract, the relevant clause is clause 9 and in the ADL Contract, the relevant clause is clause 12.[2]
In short, these clauses state that if the Buyer defaults by failing to comply with a term of the contract, the seller is entitled to relief which upon termination (as it was in this case) includes (but may not be limited to):-
- Claiming forfeiture of the deposit;
- Sue the buyer for damages;
- Re-selling the property and claiming any price deficiency upon resale, provided the resale occurs in specific timeframes.
The Court of Appeal held that the language used in the finance clause constituted a term and that term had not been complied with by the buyer in that they had failed to even make application to ING Bank as the nominated financier, let alone take all reasonable steps to obtain approval.
The Court of Appeal considered that while the standard finance clause would ordinarily only give the seller the right to terminate the contract if the buyer fails to give the requisite notice, the buyer in this case had given notice but had done so after failing to take all reasonable steps to obtain finance approval by making the application to the nominated financier in first instance.
In these circumstances, the Court held that the seller was entitled to terminate and receive the remedies ordinarily available as a result of default (outlined above).
The critical point for all buyer’s to take away from this case is that buyers who want to rely upon rights to terminate a contract for failing to obtain finance must fulfil their obligations to try to obtain such approval. If a particular bank must be nominated for some reason, make very sure that at the least, an application is made to that particular bank.
Marino Law has acted for thousands of buyers and sellers in a wide variety of property purchases and sales, from the sale or purchase of residential homes to multi-million dollar commercial property transactions.
In our view, no contract for the sale of property should be signed by the buyer thinking the finance clause will offer an exit strategy if the buyer cannot or elects not to proceed. In contrast, we regularly advise our sellers not to take a purported termination on face value and to verify that the buyer has taken reasonable steps to apply for and obtain finance before accepting termination under a finance clause and agreeing to release a deposit.
For most people, property transactions are a significant life event which is often an extremely stressful process. Our team at Marino Law has the experience and knowledge to guide you through the entire process and to ensure that your interests are protected at all times.
If you need assistance, please do not hesitate to contact us on 07 5526 0157 and speak to one of our experienced property lawyers for a consultation as to your specific circumstances.
[1] These clauses are taken from REIQ and ADL Contracts for the Sale of House and Land. If another type of property is the subject of the transaction or an alternative form of contract is used, clauses may vary and further legal advice should be sought from Marino Law.
[2] Ibid.
