Finance conditions for Sale & Purchase Agreements

With the standard ADLS/REINZ Agreement for Sale & Purchase containing a ‘subject to finance’ condition, a purchaser must do all things reasonably necessary to arrange finance on or before the finance date. At what point, however, is the ‘subject to finance’ condition satisfied? You may be surprised to learn that the Court of Appeal has held in one case¹ that it is when an offer of finance has been made which is sufficiently clear and certain. There need not be any formal documentation in place between the purchaser and their lender, and it is not necessary that the purchaser has accepted the offer of finance.

In this case the court said that it was at the time the offer of finance was made that finance had been arranged and the purchaser was therefore obliged to notify the vendor that the finance condition had been satisfied. The purchaser could not rely on its silence as to the non-fulfilment of the condition when later cancelling the agreement.

There is no requirement in the ADLS/REINZ agreement that the finance also be available on settlement date. This leaves purchasers vulnerable in situations where an offer of finance is withdrawn. Purchasers must ensure that the arrangements with their lender will allow finance to be available on the settlement date.

There are ways to mitigate this risk. If you are concerned about your situation, do talk with us before entering into any contract which is conditional on finance being available.

¹ Purewal BS & JK Limited v Connell Street Limited [2012] NZCA 42