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This article looks at a case study for Putt v Perfect Builders Pty Ltd [2013]

A purchaser who enters into a contract ‘subject to finance’ must act reasonably and without delay in fulfilling their contractual obligations. This is the lesson to be learnt from the case of Putt v Perfect Builders Pty Ltd [2013] VSC 442 and [2013] VSC 600. You can read this case here.

In Putt’s case, general condition 14 of the contract prescribed by the Estate Agents (Contracts) Regulations 2008 (Vic) applied as the particulars of sale specified that the contract was subject to a loan of $475,000 being approved by 4 June 2013 from AGF Home Loans. The purchaser had applied for a loan greater than the amount specified.

The court refused to grant an order for the return of the deposit to the purchaser, as the court was not satisfied that the purchaser had “……….fulfilled their obligation under general condition 14.2(b) to do everything reasonably required to obtain approval of such a loan…..”.

For an example of a case where a purchaser did use their best endeavours to obtain finance see Stoilas & Tsogas v Mazzocchetti [2013] SADC 74. You can read this case here.

In this case, the purchaser’s application to NAB was rejected. The purchaser also approached Commonwealth Bank and used a mortgage broker with no success. The purchaser successfully obtained judgment for return of the deposit on the basis that the purchaser had validly terminated the contract having failed to obtain finance.

At the LPLC 2010 Rural Regions Risk Management Tour a session was presented in relation to loan approval conditions in contracts of sale of real estate.

Here are some tips for practitioners taking into account the material from the 2010 session and the cases mentioned above:

  1. When providing pre-contractual advice, make sure the proposed date for the approval of the loan is realistic.
  2. Make sure any approval or refusal is in writing.
  3. Inform the purchaser client of their obligation to use their best endeavours to obtain finance.
  4. Consider the need to seek an extension of the approval date.
  5. If the contract is to be terminated, it must be done so in accordance with the contract and in clear and unequivocal terms.

For more information on what can go wrong with conditional contracts of sale and other conveyancing mistakes see our Practice Risk Guide – Claim Free Conveyancing.

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