Buying a property is a big decision, and it is important to understand the conditions attached to your offer. A subject to finance clause gives you time to seek formal loan approval after the seller accepts your offer. However, it does not automatically give you the right to change your mind or withdraw from the contract.
The wording of the clause is important. Your responsibilities, deadlines and options will depend on the contract you sign. Fully understanding these requirements early can help you avoid missed dates, incomplete applications and uncertainty about whether the purchase must proceed.
To simplify the process, contact a property settlement lawyer today.
Understanding a subject to finance clause
The term “subject to finance” means that the property contract is conditional on the buyer obtaining finance on the terms recorded in the contract. In Western Australia, the condition is commonly included in the Offer and Acceptance when a buyer needs a loan to complete the purchase.
A subject to finance clause usually records the required loan amount, any nominated lender, the latest date for approval and how approval or rejection must be communicated. The parties may also agree to different or additional wording.
This protection is particularly important because WA property contracts do not have a mandatory cooling-off period. Once an offer has been accepted and acceptance communicated, the parties are generally bound by the contract. The finance condition only operates according to its wording and the steps taken by the buyer.
How the finance approval process works
After the contract is formed, the buyer should promptly submit a complete finance application and provide the information requested by the lender.
The lender assesses your financial position and the property. This is why pre-approval is not final approval. Pre-approval is an initial indication of how much a lender might lend. Final approval usually involves further checks, including the signed contract and, where required, a satisfactory property valuation.
The finance period and approval deadline are set by the contract. Under commonly used WA finance provisions, the buyer is expected to apply immediately after the contract date and use their best endeavours in good faith to obtain approval.
What buyers must do during the finance period?
The finance period is not a passive waiting period. You need to take genuine steps to obtain the loan and respond promptly to requests from the lender, broker, agent or settlement representative.
Depending on the clause, you may need to apply to the nominated lender, provide supporting documents, follow up outstanding requests and give written notice when finance is approved or declined. You may also have to provide evidence that an application was made or rejected.
Keep copies of your application and correspondence. If approval is delayed, raise the issue before the deadline. The buyer and seller may agree to an extension, but the change should be properly recorded rather than assumed.
What happens when finance is approved or declined?
When finance is formally approved, and relevant lender conditions have been satisfied, the buyer should give the notice required by the contract. The transaction then moves towards settlement, subject to any remaining conditions.
A conditional approval needs careful review. An approval that still depends on a valuation, sale of another property or another event might not meet the contract’s definition of finance approval.
If finance is declined, the outcome depends on the clause, the buyer’s actions and whether the required notice and evidence were provided. A contract does not necessarily end automatically when the latest finance date passes. Under the standard WA contract, it may continue until finance is approved or the appropriate contractual notice is given.
Do not withdraw or refuse to settle without first confirming your position under the signed contract.
Common subject to finance mistakes
Problems often arise when buyers:
- Rely on pre-approval as though it were final approval
- Fail to apply to a nominated lender
- Deal only with a broker without ensuring an application reaches a lender
- Wait until the deadline to follow up
- Assume the contract ends automatically
- Fail to give written notice or evidence
- Use the clause because they have changed their mind
These mistakes may affect whether you are entitled to rely on the finance condition.
How a settlement lawyer or conveyancer can help
A property settlement lawyer or conveyancer helps manage the legal transfer and checks that contract conditions are addressed before settlement. They may monitor dates, liaise with the parties and lender, prepare transfer documents and keep you informed.
Where you need advice about the wording or effect of the finance clause, a lawyer can review the contract and explain the risks. Our property lawyers also assist when a deadline is approaching, the clause is unclear, or a dispute has arisen.
Lotus Legal provides practical legal services for buyers across Perth and regional Western Australia. We focus on clear advice, personal support and helping you understand what your contract requires.
Examples from Western Australian cases
The cases below are examples from other law firms and are not matters handled by Lotus Legal.
Dodds v Kennedy [No 2] [2011] WASCA 131
Issue: The buyer filled out loan paperwork with a mortgage broker. The broker told the buyer, “You won’t get approved,” so the broker never actually sent the paperwork to a bank. Did the buyer follow the contract rule to apply for a loan?
Decision: The court ruled that a mortgage broker is just a middleman, not a lender. To follow the rules of a WA property contract, your loan application must actually be sent to a real bank or credit union that lends money.
Outcome: The Seller won. The buyer lost their deposit and was in breach of contract.
Jetcity Pty Ltd v Yenald Nominees Pty Ltd [1999] WASC 1042
Issue: Does a “subject to finance” clause let a buyer back out of a property purchase whenever they feel like it?
Decision: The court made it clear that a finance clause isn’t an excuse to pull out of a deal if you get buyer’s remorse. You are legally required to make an honest, genuine effort to get a loan.
Outcome: The Seller won.
Fay v Sheridan [1999] WASC 61
Issue: If a buyer fails to secure a loan and wants to terminate the contract, who has to prove whether “best endeavours” (best effort) were made to get finance?
Decision: The WA Supreme Court held that the legal burden of proof falls on the seller. If a seller accuses a buyer of breaching the contract by not trying hard enough to get finance, the seller must legally prove that accusation.
Outcome: The buyer won. Because the buyer showed they made a genuine loan application to a bank that was ultimately declined, they met their basic duty under WA property law, and they were entitled to get their deposit back.
Need Help?
Not sure how the condition affects your purchase?
Speak with a local Perth lawyer before signing or taking steps to withdraw. You can also contact our team for clear advice based on your contract and circumstances.
Disclaimer: Laws are subject to change, and the information provided is general in nature. Readers are encouraged to seek professional legal advice tailored to their specific circumstances to ensure accurate and relevant guidance.