Subject to finance extensions – not what they appear

2 December, 2010

We have seen circumstances recently where extensions to ‘subject to finance’ clauses were misunderstood. Many subject to finance clauses provide for an ‘approval date’, being the date by which the purchaser’s loan must be approved.

They also provide that the purchaser has two clear business days after the approval date to notify the vendor that approval has not been obtained and the contract is ended. Problems arise when an extension of time to obtain approval has been granted.

In some cases the vendor’s solicitor or conveyancer did not make it clear, or the purchaser’s solicitor did not ‘read the fine print’ or misunderstood the offer made to extend time. Often the purchaser’s solicitor thought that the extension was to the approval date, and that the provision in the contract providing for notification within two business days after the new approval date still applied. The vendor’s representative maintained that the extension of time was to a certain date and that notification had to be given by that date and not two days later.

Whenever extensions of time for finance are negotiated make sure it is clearly spelt out and understood by both sides when notification must be given. This is particularly important where the clients negotiate the extension between themselves. In such instances practitioners should always confirm in writing the client’s understanding of how the extension is to work.