Back in the boom years, we rarely saw problems with buyers
withdrawing from a contract when the finance application failed:
the property price probably remained steady or even increased in
the interim, and the vendor had no problems finding another
Now that the market is cooling, we have had several recent
cases of vendors dragging their feet on releasing the deposit
after the purchaser's finance application failed. Though
none have ended up in court and the purchasers all eventually
got (most) of their money back, a bit of extra care with record
keeping could have saved a lot of anxiety.
In this article, we will cover:
What a purchaser is required to do when purchasing subject
A few examples from our practice and published court cases
of it going wrong for buyers.
How to comply with your obligations and avoid the
uncertainty of getting your deposit back.
Almost all Victorian property contracts use the general
conditions prescribed in the Victorian regulations. If
subject to finance, this section of the particulars of sale must
be filled in properly:
Loan (general condition 14)
The following details apply if this contract is subject to a
loan being approved:
Loan Amount: $____________
Approval Date: __/__/____
The general conditions of sale then provide at 14.2:
The purchaser may end the contract if the loan is not
approved by the approval date, but only if the purchaser:
(a) immediately applied for the loan; and
(b) did everything reasonably required to obtain approval of
the loan; and
(c) serves written notice ending the contract on the vendor
within 2 clear business days after the approval date or any
later date allowed by the vendor; and
(d) is not in default under any other condition of this
contract when the notice is given.
As you can see, there are actually quite a few requirements,
and if the vendor or the selling agent suspects that the buyer
has not met all of them, they can put you to the test before
returning the deposit.
In the 2013 case of Putt v Perfect Builders Pty Ltd, the contract was subject to loan approval for
$475,000. The purchaser applied for a loan of $476,000,
and that was declined. The court found that this was not
enough to satisfy the buyer's obligations to do everything
'reasonably required' to obtain approval of a loan for $475,000,
and refused to order the return of deposit.
We had a recent matter where the contract was subject to loan
approval from one particular bank, but the buyer got advice from
their broker that they would have a better chance at another
bank, so they applied through the other bank and was still
declined. This was not enough to get them out of the
In another matter, the contract was subject to finance
approval within two weeks, and the buyer only got all their
application materials together a few days before the
deadline. This allowed the vendor to argue that the
application was not made 'immediately'.
Conditional contracts often provide that only a small deposit
is required on signing, and then the rest of the deposit is
payable on a certain date (generally the same day that the
finance is due). Buyers often think that means they do not
need to pay the rest of the deposit unless the finance is
approved. But if you do not pay the rest of the deposit on
time, you are technically in breach of the contract and general
condition 14.2(d) would not prevent you from cancelling the
Our advice when buying subject to finance is:
Doing all this will ensure you meet all the requirements in
the contract, and have a paper trail to back that up in case
the vendor or agent is reluctant to release you.
Growing up in a family of property developers, real estate is
in Lucy’s blood. It’s that experience and her time at her
previous commercial and property law practice that allows Lucy
to cut to the chase, identify the real issues, give you
practical advice alongside the legal, and help you with anything
from the smallest purchase to your next major development
Call us on +61
3 9041 7733 if you would like to find out more.
Or check out our self-directed guide on purchasing property for more
Kai Legal publications provide general information, and are not
legal advice. These are not complete summaries of the law, and
only touch on select points and scenarios that may be relevant
to our readers.
This fact sheet is current as of 6 July 2018.
© Kai Legal 2018
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