Myth #2: A finance clause is like a due-diligence clause
Some people see a finance clause as just a way of getting the property under contract while they think about whether they really do want to go unconditional. In other words, if the loan is not approved by the approval date or any later date allowed by the vendor, the purchaser’s deposit must be immediately refunded and the contract will be terminated.
However, under New Zealand law, the purchaser must do everything reasonably required to obtain approval of the loan. Clause 8.7 (2) of the standard ADLS contract requires purchasers to “do all things that may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.” What this means is that purchasers who have had conditions inserted into a contract need to make active steps towards having those conditions satisfied.
Specifically, they must do all things that may reasonably be necessary to work towards having that condition satisfied. In the case of a finance condition, this would mean that the purchasers would at least seek finance from banks and other lenders. Basically, delaying or doing nothing is not an adequate reason to exit the contract.
A buyer who chooses to rely on this ‘out’ should expect some rigorous debate from the vendor’s solicitor, including a request or the decline letter and proof of demonstrable and timely efforts to obtain the finance. And just because you didn’t get that on one offer you’ve made previously does not mean you will never get that question. Don’t play with fire.