The Queensland Court of Appeal decision in Hauff v Miller reiterates that a purchaser will not always be able to rely on a ‘subject to finance’ clause to terminate a contract.
The purchaser (Miller) entered into a contract to purchase a home unit from the Hauffs. The parties used the REIQ/QLS standard form contract for the sale of residential lots under community title schemes. Clause 3.1 of the agreement stated that the contract was conditional on the buyer obtaining approval of a loan from the financier by the finance date on terms satisfactory to the buyer. Additionally, the buyer was required to take all reasonable steps to obtain approval.
The buyer did not apply to the nominated financier (ING) and instead applied to ‘The Rock Building Society’, on the presumption that an application would be more likely to be successful within time. When finance was not forthcoming, the buyer purported to terminate the contract.
The seller subsequently terminated the contract pursuant to clause 9.1 which allowed the seller to terminate if the buyer failed to comply with any provision of the contract. The effect of this termination was to give rise to other remedies available in the contract as opposed to the seller having to rely on common law relief.
At first instance, the trial judge found that the buyer had not taken all reasonable steps to obtain finance approval. However, in his Honour’s view, because cl 3.1 was entirely for the benefit of the buyer, a breach of it could not be considered a failure to comply with ‘any provision of the contract’ giving rise to a right to terminate by the seller.
On appeal the majority of the Court rejected this view. Characterising the obligation to take reasonable steps to obtain finance as a condition wholly for the benefit of the buyer would ignore the interests of both parties in the completion of the contract. Additionally, it was suggested that the buyer was not entitled to terminate the agreement where reasonable steps had not been taken to obtain approval.
This case highlights the obligations that ‘subject to finance’ clauses may impose. Where an agreement is simply expressed to be ‘subject to finance’ it may be that the clause is entirely for the buyer’s benefit; however, where it is accompanied with an obligation to take reasonable steps the view of the Queensland Court of Appeal appears to be that such a clause is for the benefit of both parties.