Buyers under residential property Contracts need to exercise caution before seeking to terminate under the Finance clause. Clause 3 in the standard REIQ residential Contract has a notorious reputation as a ‘get out of jail free card’ for Buyers. Also known as the Finance Clause, Buyers have historically used the Clause to terminate contracts for other reasons that have nothing to do with finance by obtaining a letter from their broker or bank.
However, Buyers beware! The Court in recent times has not taken lightly to Buyers using such a loophole. On a closer reading of Clause 3, it requires that if the Buyer is unsuccessful after taking all reasonable steps to obtain finance, the Buyer may terminate. Sellers are permitted to request evidence of the reasonable steps taken should a Buyer terminate under the Clause and the Buyer may lose their deposit and be liable for damages if they haven’t complied.
A recent Queensland Court of Appeal case of Hauff & Anor v Miller  QCA 48 explains the extent of Buyers’ obligations in order to successfully terminate under the Finance Clause. In that case, ING was specifically nominated as the financier however the Buyer did not apply with ING because she believed the loan would not be approved by the due date. Instead, the Buyer sought to obtain finance through an alternate lender. Subsequently, her application was not approved by the due date and the Buyer terminated under the Finance Clause. The Court held that she had not taken all reasonable steps to obtain finance by her failure to apply for finance with the banking institution nominated on the contract. Accordingly, the Sellers retained the Buyers deposit and the Buyer was liable for damages and costs of the proceedings.
If you are entering into a contract for a residential purchase, be certain the terms of the contract are correct and sufficient. You should always have your Solicitor review a contract before you sign it to ensure you aren’t caught out. You should also avoid nominating a specific lender so as to avoid the issued noted above. In any event, caution is required for Buyers before terminating under the Finance Clause.
Article Written By: Nathan Symes