Subject to Finance: Can a Buyer Simply Walk Away?

For many Queensland buyers, getting finance approved is the final piece of the puzzle.

A buyer may have found the right property and signed the contract, but if the purchase is subject to finance, the transaction may still depend on the buyer obtaining loan approval by the agreed Finance Date.

So, if the bank says no, can the buyer simply walk away?

Not necessarily.

Under clause 4.1 of the current REIQ Contract for the Sale and Purchase of Residential Real Estate, a buyer may have a right to terminate if the required finance approval has not been obtained by the Finance Date. But there are important requirements the buyer must satisfy.

First: is the contract actually subject to finance?

This is often overlooked.

A buyer needing a mortgage does not, by itself, mean the contract is subject to finance.

For clause 4.1 to apply, the relevant finance details must be completed in the contract, including the Finance Amount, Financier and Finance Date.

If those details have not been completed, the buyer may not have the protection they expect.

The buyer must make a genuine attempt

A buyer cannot simply decide they no longer want the property and use “finance” as a reason to terminate.

Clause 4.1 requires the buyer to take all reasonable steps to obtain approval.

That means progressing the finance application, providing information requested by the lender and otherwise cooperating with the approval process.

There is an important difference between a buyer who genuinely applies for finance but is refused and a buyer who never properly pursues finance because they have changed their mind.

What if the bank offers less than expected?

Finance approval is not always a straightforward yes or no.

For example, a buyer may have a Finance Amount of $700,000 but the lender only approves $600,000.

Whether the buyer can terminate will depend on the terms of the contract and the finance approval obtained. The buyer should not assume that any loan offer automatically satisfies the finance condition, nor should the seller assume that a reduced approval automatically means the buyer is in breach.

Don't forget the Finance Date

The Finance Date is critical.

If the required approval has not been obtained by that date, the buyer needs to consider the notice requirements under clause 4.1.

Simply waiting for the bank and allowing the Finance Date to pass can result in the seller having a right to terminate the contract.

If more time is needed, the buyer should consider seeking an agreed extension before the deadline expires.

The takeaway

“Subject to finance” does not mean a buyer can change their mind whenever they want.

For buyers, the important steps are to check that the contract is properly subject to finance, make the application promptly, take all reasonable steps to obtain approval and keep the Finance Date firmly in mind.

For sellers, a buyer saying “my finance fell through” should not necessarily be accepted without checking the contract and the buyer's compliance with its requirements.

In Queensland property transactions, the exact wording of the contract matters.