Subject to Finance in South Australia: REISA Contract Guide

Plain English Definition

"Subject to Finance" means a contractual condition within a South Australia property contract that makes the transaction contingent on the purchaser securing formal, unconditional home loan approval by a nominated date. Under this clause, if the buyer makes genuine, timely applications to a lender but suffers a written rejection, they hold a legal right to terminate the agreement and receive a full refund of their deposit. Without this protective term, the signed agreement is unconditional, leaving the buyer legally bound to settle regardless of whether a bank agrees to advance the mortgage funds.

Who This Affects

• Purchasers: Borrowers relying on residential mortgage funds to complete settlement must ensure this clause is inserted correctly, monitoring tight approval deadlines to protect their deposit from total forfeiture.
• Vendors (Sellers): Property owners accepting a conditional offer temporarily pull their home off the open market, bearing the commercial risk that the transaction may collapse weeks later if the prospective buyer's credit application fails.
• Auction Attendees and Unconditional Buyers: Bidders at public auctions in South Australia are legally barred from introducing conditional finance clauses, meaning anyone purchasing under the hammer must have absolute certainty of funds prior to auction day.

The Danger Zone: Buyer's Risk

• Lapsing notification deadlines: The standard REISA Contract establishes a strict cut-off—typically 5:00 pm on the finance date—by which the buyer must give written notice to the vendor or the vendor's agent. If this deadline passes without either formal notification of termination or an agreed, written extension, the clause expires and the contract automatically defaults to unconditional status.
• Confusing pre-approval with formal approval: An indicative pre-approval or "approval in principle" generated online is merely an invitation to apply, not formal loan sanction. Relying on pre-approval as justification to let a finance clause lapse exposes the buyer to catastrophic breach if the bank's formal valuation subsequently falls short.
• Failing the best endeavours standard: South Australian courts hold purchasers to an implied and express obligation to act reasonably and make genuine efforts to obtain finance. Submitting an application days late, applying for an amount higher than stated in the schedule, or applying to a lender offering rates out of market alignment can forfeit the right to terminate.
• Improper refusal documentation: Lenders often communicate delays or issues verbally or via informal text messages from mortgage brokers. The REISA condition routinely requires formal written proof of refusal from the nominated financial institution; an email from a broker stating "we couldn't get it across the line" does not meet the legal threshold.
• Leaving key schedule items blank: Writing "any financial institution" or failing to specify loan amounts and terms creates legal ambiguity that can work against the buyer. If the schedule states "Purchaser's choice of lender" without an upper borrowing cap, the vendor may argue the buyer must exhaust every non-bank lender in Australia before claiming an inability to secure credit.
• Forfeiture of statutory deposit and damages: When finance falls over after a contract becomes unconditional, the buyer not only loses their full 10% deposit (or the agreed deposit held in trust), but they can also be sued by the vendor for shortfall losses if the property re-sells months later at a lower price.

What to Check Before Signing

1. Specify the nominated lender accurately: State your exact preferred lender or explicitly list "a recognised Australian bank or financial institution of the buyer's choice" rather than ambiguous terminology.
2. Define realistic loan terms in the schedule: Clearly document the minimum loan amount required, the maximum interest rate, and the loan term, preventing disputes over whether you should have accepted a punitive, high-interest private loan.
3. Calculate adequate approval processing times: Request at least 14 to 21 business days from contract signing to the finance approval date to absorb current bank turnaround delays, desktop valuations, and credit underwriting queues.
4. Confirm exact methods for serving notice: Check the contract's notice provisions to identify who must receive the finance notification (e.g., the listing agent or the vendor’s conveyancer) and verify permissible delivery methods (email, registered post, or hand delivery).
5. Align finance dates with your Form 1 cooling-off period: Understand that statutory cooling-off typically concludes well before the finance date; ensure you have independent conveyancer representation locked in before signing both documents.

Key South Australia Rules

In South Australia, property transactions commonly use the standard form contract prepared by the Real Estate Institute of South Australia (REISA). The standard REISA Contract contains a specific finance condition in its schedule and general terms, requiring the purchaser to make a prompt, bona fide loan application and serve formal written notice—including written confirmation of rejection—prior to the Finance Approval Date if the contract is to be terminated. This contractual finance right exists entirely separate from the statutory two-business-day cooling-off right granted under Section 5 of the Land and Business (Sale and Conveyancing) Act 1994 (SA). While cooling off permits a purchaser to exit for any reason with the loss of a statutory holding deposit of up to $100, the Subject to Finance clause protects the full deposit (often tens of thousands of dollars) across an extended timeframe, provided the buyer rigorously adheres to the clause's procedural notice mandates.

Real-Life South Australia Scenario

Asha signed a standard REISA Contract to purchase a three-bedroom house in Modbury for $640,000, paying a $35,000 deposit into the agent's trust account. The contract contained a Subject to Finance clause with a 14-day approval window ending at 5:00 pm on 18 October, listing her lender as a major domestic bank. Asha's mortgage broker encountered unexpected delays due to a complex employment history, but assured Asha that approval was "practically guaranteed."

Asha failed to request a written extension before the 5:00 pm deadline on 18 October, mistakenly believing her broker's verbal assurances protected her position. Two business days later, the bank formally declined the loan following a low property valuation that left an unbridgeable $50,000 funding gap. Because the deadline had lapsed without Asha serving a formal termination notice accompanied by the bank's rejection letter, the contract had automatically transitioned into an unconditional agreement. Asha was unable to come up with the remaining cash to complete settlement, forcing the vendor to issue a Default Notice, terminate the contract, retain the entire $35,000 deposit, and bill her an additional $4,200 for conveyancing fees and bridging finance interest.

Calendar vigilance matters far more than broker optimism: never let a finance deadline expire on an assumption.

Frequently Asked Questions

Can I terminate the contract if the bank approves my loan at a higher interest rate than I wanted?

Only if your finance clause specifically stipulated a maximum interest rate threshold within the contract schedule. If the schedule leaves the rate blank or states "prevailing market rates," an approval from your nominated lender binds you to proceed, even if the approved product carries a higher rate or less favourable fees than you anticipated.

What documents must I give the vendor if my mortgage is declined?

Under the REISA Contract, you must supply written evidence directly from the nominated financial institution confirming that your formal loan application was submitted and formally declined. An email, summary statement, or phone memo from your independent mortgage broker will usually be rejected as inadequate by the vendor’s conveyancer, which can invalidate your attempt to cancel the contract.

What happens if I need more time for loan approval?

You must formally request a written extension from the vendor prior to the finance deadline expiring. The vendor is under no legal obligation to grant an extension; if they refuse and the deadline passes without you serving a valid notice of termination based on a lender refusal, your contract automatically turns unconditional.

Does the statutory cooling-off period override the finance clause?

No, the two mechanisms operate independently under South Australian property law. The statutory cooling-off period gives you two clear business days from receiving the vendor's Form 1 disclosure statement to walk away for any reason (forfeiting a maximum statutory fee of $100), whereas the Subject to Finance clause governs finance-specific rights for a prolonged period, typically lasting two to four weeks.