First in best dressed on finance approval notifications

The standard REIQ finance condition in residential contracts states the buyer must give notice to the seller:

• that finance approval has not been obtained by the finance date;
• that that the finance condition has been satisfied; or
• that the buyer waives the benefit of the finance condition.

The REIQ condition does not specify when the buyer must give the notice.

Rather, if the buyer fails to give it by 5pm on the finance date, the condition allows the seller to terminate the contract. This is subject to the buyer’s continuing right to give a termination notice or alternatively, to waive the benefit of the finance condition.

So if the buyer fails to instruct their solicitor that they are satisfied with their finance approval prior to 5pm on the finance date, then the buyer still has the right (provided the seller has not terminated the contract) to waive the benefit of the finance clause (meaning the contract would go unconditional) or they can still terminate the contract.

Naturally, if a seller thinks there is another buyer waiting who will offer better terms, they will be likely to terminate if there is no finance notification from the buyer by 5pm on the finance date. Such a seller is also unlikely to agree to any extension of the finance date where the buyer hasn’t given a satisfactory finance answer by then.

In this respect, the standard REIQ finance condition is “first in best dressed”.

The buyer can of course waive the finance clause butin so doing takes the risk that the lender will advance funds to allow the purchase to be completed.

Once the seller is notified that finance has been approved or waived, the contract is unconditional as to finance regardless of whether or not the lender makes the advance. Given the current lending environment, there is considerable risk to a buyer who waives the benefit of a finance clause without a formal unconditional finance approval being issued.

A buyer who cannot settle due to lack of finance after waiving or notifying that finance has been approved will be likely to forfeit the deposit at the very least.

It is always preferable that the buyer should first wait until they receive written confirmation from the financier confirming that the finance has been approved unconditionally. This is, even more, the case given recent changes in lending criteria.

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