By Brendan Leahy, Naked Real Estate
A lot of buyers treat a finance condition as a safety hatch. If the loan does not come together, they assume the contract quietly dies and they walk away. That is the single most expensive misunderstanding I see, because the finance clause is not a way out. It is a set of obligations you have to actually perform, and a buyer who does not perform them can end up bound to the contract with no protection at all.
This is one part of a bigger picture. For how the finance clause sits alongside delays and outright refusals, see the full guide, can a buyer or seller back out of a WA contract.
General information only, not legal advice. Finance-clause wording is specific and can be varied by your contract, so read yours and get advice on it.
Finance approval is an active obligation
Under the current Offer and Acceptance, the buyer must apply for finance immediately after the contract date, and must use all best endeavours in good faith to obtain approval. The buyer must then immediately tell the seller or the seller’s agent whether finance has been approved or the application has been rejected.
Those words carry the weight: immediately, best endeavours, in good faith. They describe things you must do, not a right you can passively rely on.
The trap most buyers never see
Here is the part that surprises people, and it is the most important thing in this article. If the buyer does not apply for finance as required, does not use best endeavours in good faith, or does not give the seller notice once approval comes through, then the contract does not come to an end under the finance clause, and the buyer cannot terminate under it either. The seller’s rights are not affected at all.
Read that again. A buyer who sits on their hands does not get released. They lose the protection of the finance clause and stay bound to the contract, while the seller keeps every right they had.
Older versions of the finance clause worked differently, and a lot of outdated advice still circulates as a result. In my own experience, buyers who had a change of heart would sometimes simply let the finance date pass and treat the contract as dead. Whatever someone remembers from an earlier transaction, the current clause has to be followed as it is actually written.
What actually happens at the latest time
There are three possible positions once the latest time for finance arrives.
The application has been rejected, or a non-approval notice has been given, on or before the latest time. The contract comes to an end under the finance clause without further action by either party.
An approval notice has been given, or approval obtained. The finance condition is satisfied and the contract is in full force.
Neither notice has been given. This is the dangerous one. The contract stays in full force and effect. It does not lapse. While neither notice has been provided after the latest time, the seller may terminate by written notice, and that right remains until an approval notice or a valid non-approval notice is given. So a buyer still chasing their lender, who has not given notice either way, is in a contract the seller can end at any moment, and may still be liable if they never properly applied.
Finance termination does not use the default-notice process
This distinction catches out sellers and buyers alike, and it runs opposite to the rest of the contract. Where a party terminates under the finance clause, the default and remedy provisions do not apply. There is no default notice and no ten-business-day remedy period. Termination is by written notice, the deposit and any other money paid by the buyer must be repaid, and neither party has a claim against the other, except where the buyer has breached their finance obligations. That exception is the seller’s protection: a buyer who never genuinely applied does not get a clean walk-away.
Some conditional approvals are not “finance approval”
When a buyer says they have approval, ask what kind. The form treats an approval as approval where it is subject only to a lender’s usual terms, or to conditions the buyer has already accepted in writing. Where approval is subject to something else, an acceptable valuation, a particular loan-to-value ratio, the sale of another property, or the buyer obtaining mortgage insurance, it counts as approval only once that condition has in fact been satisfied. A conditional approval sitting in an inbox is not automatically finance
approval under the contract. If it remains subject to an acceptable valuation, that condition ordinarily needs to be met before it meets the contractual definition.
The seller can check on you
The seller or the seller’s agent can ask the buyer in writing for progress on the application, and for written evidence of the application, any loan offer, any rejection, and any preliminary assessment from a broker. If the buyer does not respond within two business days, the buyer is taken to have authorised the seller or agent to obtain that information directly from the lender or broker. This is not the agent being difficult. It is a contractual right, and it exists because sellers were being left in the dark.
Practical points that save buyers
If no date for finance is written into the contract, the latest time defaults to 4pm on the fifteenth business day after the contract date. Do not assume you have longer than you do.
A buyer can waive the finance clause in writing before the latest time, in which case the condition is treated as satisfied. That is a decision to take with advice, not on a hunch, because it removes your exit.
And practically: get your payslips, bank statements, identification, tax returns and details of existing debts to your broker before you sign, not after. The clock starts at the contract date, and applying immediately and using best endeavours in good faith are things you have to actually do.
Frequently asked questions
Is “subject to finance” a guaranteed way out of a WA contract?
No. It is a set of obligations. You must apply immediately, use best endeavours in good faith, and give notice of approval or rejection. Fail to do those and you lose the protection of the clause while staying bound.
What happens if the finance date passes and no one gives notice?
The contract stays in full force. It does not lapse. The seller can terminate in writing at any time until an approval or a valid non-approval notice is given, and the buyer may still be liable if they never properly applied.
Is a conditional pre-approval the same as finance approval?
Not necessarily. If approval is still subject to something like an acceptable valuation, the sale of another property, or mortgage insurance, it generally counts as approval under the contract only once that condition has actually been satisfied.
What if I decide I do not want the property, can I just let finance lapse?
No. Letting the date pass without giving notice does not release you and can leave the seller able to terminate on their terms. If you want out, get legal advice about your actual options rather than relying on the finance clause to fail for you.
The bottom line
Treat the finance clause as a job, not a safety net. Apply at once, chase your lender, give notice the moment you know either way, and check whether any approval is truly unconditional under the contract. A buyer who does all of that is protected exactly as the clause intends. A buyer who sits back is the one who gets caught. If your real problem is that you no longer want the property, do not rely on finance quietly failing. That is covered in the full guide on backing out of a WA contract, and it is a conversation for your lawyer.
Truth. Strategy. Sold.
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About the author: Brendan Leahy has been selling homes throughout the Perth Hills and Foothills since 2002, with more than 1,500 personal sales.
General information only, not legal advice. Finance-clause obligations are specific. Get advice from a property lawyer on your own contract.
