With Melbourne’s growing skyline filling up with apartment buildings, many small investors and first home buyers purchase apartments “off the plan” to reap the benefit of stamp duty savings. Most often, purchasing these apartments is reliant on obtaining finance to settle the purchase many months later.

Inherent in many of these contracts for the sale of real estate is a condition whereby purchasers are entitled to end the contract in circumstances where their loan application has been refused or declined. This term is known as the “subject to finance clause”.

Rudstein Kron Lawyers successfully represented a property developer in two separate proceedings in the Victorian Supreme Court arising out of the same transaction with the same purchaser. The Court’s decision should alert purchasers to do everything reasonably required to secure finance where a Contract contains “subject to finance” provisions. 


The case concerned a Contract of Sale for an “off the plan” purchase of a residential home in Caulfield South. The Purchasers paid a deposit of $59,500 upon signing the Contract. The Contract was “subject to finance” and general condition 14 of the Contract provided as follows:

14. LOAN

14.1. … this contract is subject to the lender approving the loan on the security of the property by the approval date or any later date allowed by the vendor.

14.2. The purchaser may end the contract if the loan is not approved by the approval date, but only if the purchaser:

(a) immediately applied for the loan; and

(b) did everything reasonably required to obtain approval of the loan; and

(c)  serves written notice ending the contract on the vendor within 2 clear business days after the approval date or any later date allowed by the vendor; and

(d) is not in default under any other condition of this contract when the notice is given.

The particulars of the Contract included the following details:

                Lender: AFG Home Loans

                Loan amount: $475,000

                Approval date: 4 June 2013

The Purchasers applied for a loan in the sum of $476,000, which was $1,000 more than the loan amount provided for under the Contract. The loan application noted that the Purchasers sought approval for “an 80% LVR facility of $476,000 to enable them to purchase an owner occupied property to the value of $595,000”. The loan application was rejected.

On the last day of the finance period, the Purchasers advised the Vendor that the loan application had been declined, and requested that the Vendor’s agent issue a cheque for the refund of the deposit.  The Vendor refused to return the deposit.

Findings of Putt & Anor v Perfect Builders Pty Ltd [2013] VSC 442 (“the first proceeding”)

The Purchasers first commenced proceedings to enforce refund of their deposit in the Victorian Supreme Court by relying on section 49(2) of the Property Law Act 1958 (“the PLA”), which is a “fast-track” method of bringing relief under a Contract of Sale and dispenses with the usual evidentiary rules required when prosecuting a claim in the Supreme Court.

The Court held that based on the evidence, it was not satisfied that the Purchasers satisfied the stipulated pre-conditions for their entitlement to end the Contract under general condition 14.2, triggering the Vendor’s obligation to refund the deposit.  The Court was also not satisfied that the Purchasers had done “everything reasonably required” to obtain approval for the loan.

The Court held that there was insufficient evidence of any dealings between the Purchasers and AFG Home Loans to indicate what the Lender required, and what was done by the Purchasers to satisfy those requirements.

The Court also held that the letter sent to the Vendor’s solicitors on the final day of the finance period was not sufficient notice of termination under general condition 4.2(c).  The letter simply demanded that the deposit be refunded.

The Court also considered section 49(2) of the PLA, which allows the Court to do justice between the parties. The Court referred to old case law and authorities which have provided that “exceptional circumstances” must be shown to justify return of a deposit, and the purchaser must establish that an innocent party would not be hurt by the exercise of the discretion. The Court was not satisfied that the circumstances in this case were “exceptional” or that fairness demanded that the deposit be refunded to do justice.

Findings of Putt & Anor v Perfect Builders Pty Ltd [2013] VSC 600 (“the second proceeding”)

The Purchasers being disappointed with the outcome of the first proceeding, filed fresh proceedings pursuant to the usual process in the Supreme Court. This second proceeding was not brought as an appeal of the first proceeding’s findings.

Rather than file a Defence, the Vendor applied to have the proceeding summarily dismissed and/or struck out on the following grounds:

  1. The Purchasers had no real prospects of success (section 63 of the Civil Procedure and rule 23.03 of the Supreme Court General Civil Procedure Rules (“the Rules”)) and the Vendor has a good defence on the merits; or
  2. The Purchasers’ claim was an abuse of process as they were seeking to re-litigate matters that had already been dealt with (rule 23.01 of the Rules).

The Court determined that the proceeding was an abuse of process, and should be permanently stayed. The Court held that public confidence in the system of the administration of justice would be eroded if litigants were permitted to bring multiple proceedings over the same issues. It is in the public interest for litigants to fully and effectively litigate issues only once, subject to any available avenues of appeal or judicial review, rather than being able to treat an initial proceeding as a “practice run”, to be improved in subsequent proceedings based on lessons learnt in the initial proceeding.

This article provides information that is general in nature and not a substitute for legal advice. Please contact RKL on (03) 9519 9888 if you wish to obtain legal advice tailored to your situation.