The Important of Having a Finance Clause In A Contract

The finance clause in a Queensland Real Estate Institute (REIQ) residential Contract is a critical element that protects the Buyer in a property transaction. A finance clause specifies that the Contract is subject to the Buyer obtaining satisfactory financial approval from a lender to complete the purchase. Its significance cannot be overstated, as it provides a legal framework within which the Buyer can secure financing without the risk of losing their deposit should the loan not be approved, or if the Buyer is not satisfied with the terms of the approval.

What Is Required In A Finance Clause?

In Queensland, the standard REIQ Contract outlines specific requirements for the finance clause to be considered valid. It must clearly state the loan amount, the financier, and the date by which finance approval must be obtained. If all “Finance Amount, “Financier” and “Finance Date” are not completed, the Contract is not subject to finance, and clause 3 of the standard terms and conditions does not apply, meaning that the Buyer does not have the right to terminate should they not receive finance approval. This precision is crucial because any uncertainty can lead to disputes and potential litigation.

Additionally, the finance clause serves as a protective measure for Buyers, allowing them to terminate the Contract if they are unable to secure finance approval, thereby ensuring that they are not legally bound to a purchase they cannot afford. However, it does not allow for Buyers to withdraw from a Contract without consequence. Buyers must demonstrate that they have taken all reasonable steps to obtain finance, as failure to do so can result in the forfeiture of their deposit and potential liability for damages.

Legal professionals often stress the importance of obtaining independent legal advice before entering into a Contract with a finance clause. This advice can help Buyers understand their obligations and ensure that the Contract terms are correctly stated, in order to avoid the consequences that can arise from an incorrectly drafted finance clause.

In conclusion, the finance clause in an REIQ residential Contract is an important component that serves to protect the interests of a Buyer in a property transaction. It ensures that Buyers are not unfairly penalised for financing issues beyond their control. As such, understanding and correctly executing the finance clause is essential for a smooth and legally sound property transfer process.

For further information regarding purchasing residential property in Queensland, contact Townsville Conveyancing Centre today.