Subject to finance: how this clause protects buyers

You've found a property, you've got a pre-approval from the bank, and you're ready to sign. But pre-approval isn't the same as formal approval, and a lot can change between the two. That's where the subject to finance clause comes in. It's the safety net that lets you walk away and recover your deposit if the bank ultimately says no.

But here's the catch: this clause only protects you if you follow the process precisely. Get the steps wrong, and you could lose your deposit or worse.

What is a subject to finance clause?

In a Victorian contract of sale, the subject to finance clause makes the contract conditional on the buyer obtaining formal loan approval from a specified lender by a specified date. If the buyer's finance application is rejected, they can terminate the contract and get their deposit back.

The clause is activated by ticking the finance box on the front page of the contract and filling in the loan amount, the lender's name, and the deadline (the "finance date"). Once ticked, General Condition 20 of the current LIV/REIV contract of sale sets out the rules.

What are your obligations as a buyer?

This is where most people trip up. The clause doesn't just say "if you don't get finance, you can walk away." It requires you to do three things:

1. Apply immediately. You must submit a formal loan application to the named lender without delay after signing the contract. A conversation with your broker, an online quote, or an indicative assessment doesn't count. It needs to be a genuine, complete application.

2. Do everything reasonably necessary. You need to cooperate with the lender, provide requested documents promptly, and not do anything that would sabotage the application (like changing jobs, taking on new debt, or withdrawing savings).

3. Serve written notice before the deadline. If your finance is rejected, you must give the vendor written notice of termination, including evidence of the rejection, before the finance date expires. Missing this deadline, even by a day, can mean the contract becomes unconditional.

What this means in practice: If the finance date is 14 days from signing and your lender hasn't made a decision by day 12, you need to act fast. Ask for an extension (in writing, through your lawyer) or prepare to issue a termination notice. The deadline doesn't pause while you wait for the bank.

Typical timeframes

Most finance clauses in Victoria run for 14 or 21 days from the contract date, though 7-day and 28-day periods are also used. The right timeframe depends on the complexity of your borrowing situation and how responsive your lender is.

If you know your lender is slow, and some are notoriously slow, talk to your lawyer about setting a realistic finance date before you sign. An overly tight deadline can leave you exposed.

What happens if the deadline passes?

If the finance date passes and you haven't served a termination notice, the contract may become unconditional. This means you're obligated to proceed with the purchase whether or not your finance has been approved. If you can't settle, the vendor can keep your deposit and potentially sue for damages.

This is one of the most common traps in Victorian conveyancing. Buyers assume the clause will automatically protect them, but it doesn't – it requires active steps.

Can you get an extension?

Yes, but only if the vendor agrees. Extensions of the finance date must be negotiated and confirmed in writing. Your lawyer can request an extension on your behalf, but the vendor is under no obligation to grant one. Asking early (a few days before the deadline) is much more likely to succeed than asking on the day it expires.

What about auction purchases?

There is no subject to finance clause at auction. When you buy at auction in Victoria, the contract is unconditional from the moment the hammer falls. You're committed to the purchase regardless of whether your bank approves the loan. This is why it's critical to have finance sorted before auction day: pre-approval, at minimum, with a clear understanding from your lender of their lending criteria.

If you're concerned about bidding at auction without a finance clause, talk to your lawyer beforehand. There may be strategies to manage the risk, but they need to be in place before the auction, not after.

How Nextstep Legal helps

At Nextstep Legal, we monitor every finance deadline on our files. We'll remind you when the date is approaching, check that your application is progressing, and, if needed, issue termination notices or negotiate extensions on your behalf.

We also review the finance clause wording as part of every contract review. Not all clauses are created equal, and some contracts include non-standard wording that changes your obligations. It's worth having a lawyer check before you sign.

Buying with finance? Send us your contract for a free same-day review and we'll make sure the finance clause is working in your favour.

This article provides general information about Victorian property law. It's not a substitute for legal advice on your specific situation. If you'd like to discuss your circumstances, get in touch.