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Practitioners need to ensure purchaser clients understand their obligations when a contract of sale is conditional on obtaining finance.

The standard form contract places an onus on the purchaser to expressly terminate the contract if finance is not approved within the period allowed. If this is not done, the contract automatically becomes unconditional. These clauses must be explained to purchaser clients and the advice documented. Practitioners then need to obtain clear instructions about whether finance has been obtained and confirm them in writing.

In one claim, a practitioner acted for both the vendor and purchaser of a property. The practitioner said he sent a letter to the purchaser containing general advice on what was initially an unconditional contract of sale. As it was a standard letter, it contained some information about subject to finance clauses. Following execution of the contract, the purchaser asked the practitioner’s conveyancing clerk to request an amendment to make the contract subject to finance. The clerk discussed some issues regarding the way subject to finance clauses worked but the extent of the advice was unclear. The vendor agreed to insertion of a two-week subject to finance clause.

Three days before the two week-period ended, the purchaser informed the clerk in person that his bank loan was approved and provided a bank guarantee for the deposit amount. The practitioner acted on these oral instructions and advised the vendor that he had received the deposit and the contract was now unconditional.

The purchaser had not in fact obtained finance. Settlement did not occur and the deposit was forfeited to the vendor.

The purchaser then alleged the practitioner had failed to advise on the meaning and effect of the subject to finance clause, including the need to notify the vendor of the intention to terminate the contract within the specified time. The purchaser denied receiving the general letter of advice from the practitioner which referred to subject to finance. The purchaser also denied instructing the clerk that finance was approved.

The claim was difficult to defend because the practitioner acted for both parties and did not have contemporaneous records of instructions and advice. Key advice about the meaning and effect of the contract of sale should have been provided by the practitioner rather than the clerk. This was especially important where the contract terms changed and the advice needed to be confirmed in writing.

The practitioner should also have confirmed the purchaser’s instruction that finance had been obtained in writing.