Will the Finance Clause Fail Me?

The finance clause: genuine protection or false comfort?

How This Clause Protects You, or Quietly Exposes You to litigation

Finance condition may create false security

The contract has a finance clause. Finance doesn’t come through. You give the agent a call. The deposit comes back, right? You can’t get sued, right?

Not necessarily. A finance condition only protects you in proportion to how well it’s drafted and how carefully you comply with it. The standard clause is not the protection buyers think it is. Unrealistic timeframes can put buyers in harm’s way. The appearance of protection makes buyers drop their guard but when you need the clause to help you terminate a contract everyone finds out who’s been in the water without togs.

Finance conditions are not all the same. The wording matters. The way you notify the seller matters. The timeframe matters. And the way you apply for finance between signing and the deadline matters too.

A finance condition only helps you if it’s drafted and managed properly. Before you rely on it, you need to know exactly what it requires of you.

Deadly assumptions

Recklessly, you’ve been telling the agent that finance won’t be a problem.

The finance condition is usually one of the first things buyers look for in a contract. Its presence is reassuring: if finance falls over, there’s a way out. The deposit is safe.

That assumption depends entirely on the drafting. A clause that requires written notice of non-approval by a specified date provides different protection from one that simply says the contract is “subject to finance.” A finance condition that requires the buyer to make genuine efforts to obtain approval on specific terms demands a lot from you as a buyer. Small differences in wording can produce very different outcomes when the clause is actually needed to exit the contract.

One big problem is that buyers think that a finance condition is a ‘get out of jail free card’ without knowing how narrow the pathway to terminating is, even in the standard REIQ finance clause. They assume that if they make a finance application then getting knocked back is enough to exit the contract cleanly and recover the deposit. But the standard REIQ finance condition includes “the buyer must make all reasonable attempts to obtain approval”. The cases indicate that courts require buyers to make multiple attempts to obtain finance to avoid being in breach and potentially losing the deposit. It’s not just the deposit that’s at risk. If a buyer is in breach, the seller may have to resell at a lower price and sue the first buyer for the difference in price, the deposit, interest and the seller’s legal fees. The finance clause should be clear, workable, and aligned with the actual finance process. It should not be relied on without being read.

How it works

Below assumes an REIQ contract with a standard finance clause, your contract might be different.

Critically, a seller is generally a ‘passenger’ and the buyer is the ‘driver’ if the contract is conditional (on finance, for example). However, if the condition isn’t waived or satisfied before the deadline, then the seller gains the right to terminate. Read that again because buyers simply can’t process it the first time they hear it. If you don’t terminate by 5:00pm on your finance date, the seller can choose to terminate the contract. Before 5:00pm they were just waiting on you but after 5:00pm suddenly they’re a player too.

A standard finance condition makes the contract conditional on the buyer taking all reasonable steps to obtain finance approval by a specified date (often 14 – 28 days). If approval isn’t obtained within that period and the seller is properly notified, the buyer can terminate the contract and recover their deposit.

There are four elements that all need to work together: the contract must be conditional in the relevant terms, the buyer must have genuinely pursued approval, approval must not have been obtained by the specified date, and the buyer must give written notice of termination in the correct form (and sometimes) within the required time.

If any of these elements fails, the protection may not operate as intended. A buyer who didn’t make genuine efforts to obtain approval may not be entitled to rely on the clause. A buyer who gave notice after the deadline, or in the wrong form, may find the contract has already been terminated by the seller.

It’s not enough for finance to fall over. The clause must be complied with and also triggered correctly. That requires understanding exactly what it requires.

Is my finance clause a trap?

Lender: Buyer’s choice. Amount: Sufficient to complete. Finance Date: 14 – 28 days

Specific lender versus any lender

Where the finance condition names a specific lender, approval from a different institution may not satisfy the clause. If the named lender declines but another lender approves, the contract may not become unconditional on that basis. Also, terminating on the named lender’s refusal may also create challenges if the buyer didn’t genuinely pursue that lender’s approval in good faith.

Amount and terms of the approval

A finance condition that specifies the loan amount and required terms provides clarity about what counts as sufficient approval. If the approval is for a lesser amount, or on materially different terms, the condition may not be satisfied. This specificity can be protective where it reflects the genuine funding requirement, but it can create problems if the specified terms are unrealistic or if the approval is close to but not precisely matching what’s required.

Evidence requirements

Some finance clauses require the buyer to provide written evidence that finance has been declined, a formal letter from the lender confirming non-approval. Others simply require the buyer to give notice of non-approval without specifying what evidence supports it. Where evidence is required, obtaining it promptly and in the right form is part of correctly terminating for finance. A buyer who gives notice of non-approval but can’t produce the supporting evidence the clause requires may find the termination is contested.

Good faith and genuine efforts

Many finance conditions – either expressly or implicitly – require the buyer to make genuine and timely efforts to obtain approval. A buyer who signs a contract with a finance condition and then fails to lodge an application, or takes steps to ensure the application fails, cannot rely on the condition to exit a contract they never intended to proceed with. The good faith obligation is real, and a vendor who suspects the buyer hasn’t genuinely pursued finance has grounds to contest the termination.

The wording controls the exit pathway. A finance condition that looks protective in general terms may not provide the specific protection you need in the specific circumstances you face. Reading the clause before signing is what tells you which it is.

The wording controls the exit pathway. A finance condition that looks protective in general terms may not provide the specific protection you need in the specific circumstances you face. Reading the clause before signing is what tells you which it is.

Where Buyers trip up

Most buyers think the finance condition is a get-out-of-jail-free card. It isn’t.

If the deal stops feeling right, the instinct is to say finance fell through and walk away with the deposit intact. The standard REIQ finance condition doesn’t work that way. It’s narrow by design, and most buyers have no idea how narrow until they’re already in trouble.

The condition protects buyers who genuinely cannot obtain finance after making real, repeated attempts. It does not protect buyers who tried once, got knocked back, and called it done. It does not protect buyers who changed their mind about the deal and are using finance as cover.

More than once is the charm

This is the part that catches buyers out. The cases show that the standard REIQ finance condition requires more than one genuine, good faith attempt to obtain finance. One approach to one lender is not enough. If you’ve had a single knock-back and immediately moved to terminate, the seller may have grounds to challenge that and, in some cases, to sue to establish whether you genuinely tried.

The seller generally can’t force you to produce a formal finance decline letter. But if the purchase price is significant and the seller suspects the attempts weren’t real, litigation is a realistic outcome.

Genuine dissatisfaction is not the same as cold feet

The condition allows termination where the buyer is genuinely unsatisfied with any offer of finance received. That’s different from being unsatisfied with the deal. If a lender has offered finance on terms the buyer finds genuinely unworkable, that can support termination. But the dissatisfaction needs to be reasonable, and the attempts to find finance need to be real.

The distinction matters. Buyers who conflate the two, who are actually uncomfortable with the purchase but frame it as a finance issue, are exposed. The condition was not drafted to solve that problem.

What this means in practice

If you’re approaching the finance deadline and things aren’t moving, get advice before you do anything. The decision to terminate, extend, or push on has legal consequences that depend on exactly where you are in the process: what attempts have been made, what responses have come back, and how the condition in your specific contract is drafted.

The finance condition gives you real protection. But only if you’ve used it correctly from the start.

Notice given late or in the wrong form

The notice mechanism in a finance condition is typically strict. Notice must be given in writing, within a specified time, in a manner that complies with the contract’s notice provisions. A phone call to the agent isn’t sufficient. An email that doesn’t comply with the notice requirements may not be effective. A notice given the wrong way may not be valid. The buyer who correctly invokes the clause exits the contract and recovers the deposit. The buyer who gives notice incorrectly, or too late, may find the contract has become unconditional.

Assuming protection without confirming it

The most common failure mode is the simplest. Finance wasn’t approved, the buyer calls the agent, and the assumption is the deposit will come back. Whether that’s correct depends entirely on whether the clause was properly invoked. This is a scenario that ends up in litigation. Checking before assuming is what prevents it.

Finance risk in a commercial property contract is often timing risk. The question is rarely whether finance will ultimately be approved. It’s whether the contract can be correctly terminated on the facts.

Balancing keeping the seller happy and realistic lender timelines

The finance condition in the contract and the lender’s actual approval process need to match. If the finance period is shorter than the lender’s realistic timeline, the buyer is set up to fail before they’ve started.

Pre-qualification by a broker is not formal approval. It’s an initial read on likelihood, not a binding commitment. The formal application, credit assessment, valuation, and satisfaction of conditions all come after, and they take time.

Valuations for commercial properties, including warehouses, can take several weeks, particularly where the property has a complex lease or limited comparable sales evidence. If the finance period doesn’t allow enough time for the valuation to be completed and approval issued, the buyer hits the deadline without approval through no fault of their own.

The right question before signing isn’t whether finance ‘should be fine.’ It’s how long the specific approval process will actually take, and whether the finance period in the contract is long enough to accommodate it.

Before signing

Before You Sign

Step 1: Understand the finance condition before you sign

Not after. The standard REIQ finance condition is narrower than most buyers expect. Before you sign, understand what it actually requires of you: what attempts you need to make, what standard of satisfaction applies, and what notice you need to give if you’re terminating.

If the drafting is unclear, or if the clause doesn’t accurately reflect the funding arrangement you’re pursuing, raise it before you’re committed. The finance condition is one of the most important clauses in the contract. It’s worth understanding before you sign, not after the deadline is looming.

Step 2: Align the finance period with realistic lender timing

Before agreeing to the finance period, speak with your broker about how long the full approval process is genuinely likely to take: the credit assessment, the valuation, the satisfaction of conditions, the formal documentation. Then set a finance period that reflects the realistic worst case, not the optimistic one.

If the finance period is shorter than the lender’s realistic timeline, the buyer is set up to fail before they’ve started.

A finance period that reflects the realistic process doesn’t weaken your negotiating position. It’s a basic element of a contract that can actually be performed.

Step 3: Manage the deadline actively

Once the contract is signed, treat the finance deadline as a hard date. Bear in mind that your broker’s urgency and your urgency are not always the same thing. Monitor the application yourself, stay in contact with your broker, and identify early if the timeline is running tight. If the deadline is approaching without approval, seek an extension before the deadline passes. Not after.

If you need to terminate, give notice in writing, to the correct party, before the deadline expires. Don’t rely on an informal call through the agent. And don’t assume the deposit will be returned without confirming the notice was given correctly.

What changes depending on how the finance condition is handled

When the finance condition is drafted carefully, set to a realistic timeframe, and actively managed, it provides genuine protection. If the lender doesn’t approve within the period, the clause can be invoked correctly, the contract is terminated, and the deposit is recovered. The buyer isn’t left committed to a transaction they may not be able to fund.

When the finance condition is treated as a formality, accepted without reading, set to an unrealistic timeframe, not actively managed, the protection it appears to provide can evaporate at exactly the moment it’s needed. The buyer is exposed to being sued by the seller. The options available narrow quickly.

That’s the difference between assuming the finance clause protects you and knowing what it requires.

How we approach the finance condition for warehouse buyers

When we review a contract for a warehouse buyer, we read the finance condition as one of the most commercially significant clauses in the document. We check the standard of approval required, whether the lender reference is consistent with the funding arrangement being pursued, whether the amount and terms match the broker’s advice, and whether the notice mechanics are clear and workable. Is there vendor finance? What are the requirements there?

We recommend a realistic finance period after talking with the broker, before the contract is signed, so the deadline reflects the actual approval process rather than an aspirational one. And we monitor the critical dates between signing and the deadline, so that the condition is managed properly.

Our role is to give you the best chance that your finance condition works as genuine protection, not false comfort.

Before you rely on the finance condition

The finance clause is often the buyer’s primary safeguard in a warehouse purchase. It protects the deposit if the funding doesn’t come through. But it only works if it’s drafted clearly, set to a realistic timeframe, and invoked correctly when needed.

Before you sign, it’s worth understanding exactly what that clause requires of you, whether the finance period gives the lender enough time to complete their assessment, and how notice must be given if the clause needs to be triggered. That’s what turns the clause from an apparent protection into a real one.

If you’re reviewing a warehouse contract and want to make sure the conditions really help you, get in touch to book a call before you sign.