By Bindi Norwell | REINZ | Guest Article
Subject To Finance Clause

The subject to finance clause in the Sale and Purchase Agreement when buying a property can no longer be used by buyers to back out of a property purchase the Real Estate Institute of NZ (REINZ) is warning.

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With the recent launch of the tenth edition of the REINZ/ADLS Agreement for Sale and Purchase, changes to the subject to finance clause mean purchasers will now be required to provide evidence if they can’t raise finance. Evidence might include a letter or email from the purchaser’s bank confirming that finance has been declined.

Buyer's word no longer sufficient notice for subject to finance clause when buying a property

Currently, if a finance condition is inserted into a sale and purchase agreement and the purchaser can’t obtain finance, their word is generally enough for an individual to pull out of a contract.

“This is a significant change to the sale and purchase agreement," REINZ chief executive Bindi Norwell said.

"It’s imperative that consumers understand the implications, as if they can’t provide evidence they can’t raise the finance, they could be forced to proceed with the purchase or face other legal action by the vendor.

Subject To Finance Clause Sale Purchase Agreement

“It’s also essential that anyone looking to purchase a property takes legal advice and talks to their financial provider so they understand exactly what they’re signing or else the implications are pretty significant,” she said.

New provisions in Sale and Purchase Agreement

Other changes made to the sale and purchase include:

  • An optional toxicology report condition is included on the front page and in the general terms
  • A detailed process to resolve compensation disputes between vendors and purchasers has been added
  • 'Fixtures' and ‘chattels’ have been removed and replaced with new definitions and warranties
  • The GST clauses have been revised
  • The timeframe in which deposits may be released has been clarified
  • References to fax machines have been removed
  • Tenancy documents to be provided by the vendor on the settlement date
  • Various other changes to language and formatting.
Sale Purchase Subject To Finance

Important to understand new finance clause conditions

“The last time changes of this scale were made to the sale and purchase agreement was seven years ago so it’s a really important that anyone looking to buy a house understands the elements of these changes that impact consumers directly,” Norwell said.

The 10th Edition of the REINZ/ADLS Agreement for Sale and Purchase was updated in 2019 to be in line with current legislation and requirements after more than 18 months of legal and industry consultation.

REINZ is currently running education/training for its members to ensure they are up to speed with the changes.

This article has been republished with the consent of REINZ.

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Page updated April 5, 2023 by Trish Willis | Member of Property Institute of NZ (IPAC)

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