The Myth of the ‘Standard’ Contract and REIWA’s Subject to Finance Clauses

Marcus Procopio

Time and time again I have land buyers coming to me shocked by the effect of the ‘subject to finance’ clause in the standard form Western Australian REIWA contract of sale for land.

The myth

Without exception, land buyers far too often hold the misconceived views that:

1. The contract terms in REIWA’s standard form contract cannot harm them – seemingly because they think that REIWA (being a reputable organisation) would not draft an ‘unfair’ document.

2. Therefore, if a buyer needs finance to complete a contract and cannot get a loan acceptance to their liking, they can simply walk away from the deal without liability.

3. There is no harm in submitting multiple offers to buy various pieces of land as acceptance of one offer means that the others will ‘fall away’.

The reality

The reality is that:

1. REIWA is a private organisation which is influenced by multiple stakeholders such as lawyers, real estate agents and property developers - as well as various community interest groups.

2. While REIWA has undoubtedly gone to great lengths to draft an even handed document, reconciling the various competing interests in this respect is no easy task.

3. Where a buyer requires finance in order to complete a contract, the subject to finance clause in REIWA’s standard form contract imposes substantial obligations on buyers to use ‘best endeavours’ to obtain finance. Whether the available finance is to the buyer’s liking is irrelevant.
   

What can be done?

Here are some things to consider when it comes to REIWA’s standard finance clauses:

1. Buyers should seek to amend the finance provisions of the REIWA contract via a special condition drafted by a lawyer. Ideally, the finance clause should be amended so that the contract is subject to the buyer obtaining finance of their choice at their absolute discretion (within a set period of time) – failing which, the buyer can terminate the contract without liability.

2. If the contract cannot or has not been amended in this way, and finance cannot be obtained, buyers should ensure that they complete the borrowing application and assessment process and obtain a formal rejection of finance from the relevant lending institution (or mortgage broker in the case of the 2022 revision of the REIWA joint form conditions). Alternative sources of finance may also need to be considered, possibly at higher interest rates – failing which, it is possible for a seller to argue that the buyer has not used their best endeavours to obtain finance.

   
   

3. Carefully review the notice requirements under the contract when it comes to notifying the seller of rejection of finance. A failure to give notice in the proper form and serve it in the proper manner can be fatal! Using a lawyer for this process is highly recommended.
   

Remember, buying land is an expensive and often risky exercise which calls for careful thought and consideration.