Understanding the Subject to Finance Clause in South Australia Property Contracts
Plain English Definition
"Subject to Finance" means that the purchase of the property is legally conditional upon the buyer receiving a formal, written loan approval from their bank or financial institution. In a South Australia property contract, this clause acts as a safety net, allowing the buyer to withdraw from the sale and recoup their deposit if their mortgage application is rejected by the specified "Finance Date."
The Danger Zone: Buyer's Risk
- Time of the Essence: In the standard REISA Contract, the finance deadline is strict; if you do not notify the vendor of your finance approval or rejection by the exact time and date specified, you may lose your right to terminate.
- Best Endeavours Requirement: You cannot simply change your mind about the purchase; South Australian law requires you to use "best endeavours" to obtain finance, meaning you must actually apply for a loan and provide evidence of a rejection if you wish to exit the contract.
- The "Deemed Satisfied" Trap: Some contracts are drafted so that if you remain silent past the deadline, the finance condition is "deemed satisfied," making the contract unconditional and putting your full deposit at risk if the loan eventually fails.
- Specific Lender Restrictions: If you name a specific lender in the REISA Contract (e.g., "Commonwealth Bank") and then apply through a different bank that rejects you, the vendor may argue you have not complied with the clause terms.
- Evidence of Rejection: To safely terminate under this clause, you must usually provide a formal letter of declination from a bank; a simple email from a mortgage broker is often insufficient to satisfy the legal requirements of the vendor's solicitor.
- Default Interest Penalties: If your finance is delayed and you miss the settlement date, the vendor can charge daily default interest (often 10% or higher) as specified in the South Australia property contract.
- Loss of Deposit: If you fail to secure finance but the clause was not drafted or managed correctly, the vendor may legally forfeit your entire deposit and sue for further damages if they resell the property at a lower price.
Real-Life South Australia Scenario
Li, an investor from Sydney purchasing a townhouse in Mawson Lakes, signed a REISA Contract with a 14-day Subject to Finance condition. Li's broker experienced delays, and the finance deadline passed at 5:00 PM on a Friday without Li requesting a formal extension in writing. When the bank eventually declined the loan on Monday, the vendor refused to refund the $45,000 deposit, arguing the contract had automatically become unconditional over the weekend. Li lost his entire deposit because he failed to monitor the strict timeline of the South Australia property contract.
Lesson: Always secure a written extension from the vendor before your finance deadline expires if your bank is still processing your application.