When a buyer enters into a contract to buy a property, more often than not the buyer will make the contract subject to them obtaining finance approval for the purchase. The standard terms of a contract say the buyer must ‘take all reasonable steps to obtain finance’.
Buyers have been known to try and use this clause as a ‘get out clause’ because they have changed their mind about the property or for some other reason unrelated to finance. They then give notice to the seller that they have not received finance approval for the purchase on terms satisfactory to them, terminate the contract and get their full deposit back.
A recent Supreme Court decision was faced with this situation where a buyer used the finance clause to get out of a contract. The buyer noted a particular lender as their financier in the contract however did not apply to that lender for finance. The court held that the buyer had not taken all reasonable steps to obtain finance under the contract because they had not made an application for finance with that particular lender which was noted in the contract.
What did this mean for the buyer? The seller was able to forfeit and keep the buyer’s deposit and the buyer was also liable for damages. Not a good result for that buyer.
So, to all buyers out there, be careful when entering into a contract to buy a property which is subject to finance, make sure that if you note a particular lender, you apply to that lender. If you are unsure, do not specify the lender but rather note “buyer’s choice”.