Take care with the condition precedent for obtaining financing

Do you wish to purchase a property with financing? In this case, it is possible to use a condition precedent to make the purchase conditional on obtaining credit. There are several ways to make this contractual. Current article explains some points of interest about a condition precedent for obtaining financing.

What does a condition precedent for funding mean?

At a condition precedent you make the realisation of the purchase conditional on a certain, uncertain event. For example, you can make the lease come into effect only on condition that you find a job in the area within a certain period of time. As long as the uncertain event has not occurred (or not in time), the contract will not come into effect.

The same applies to a suspensive condition regarding financing. For example, you can stipulate that if you have not obtained financing within a certain period of time, the purchase of the property will not go ahead.

The condition precedent for funding and placing an offer

If you want to work with a condition precedent for financing, it is important that you explicitly state this when you place your bid. After all, a condition precedent for funding is not presumed.

If you do not explicitly state this when placing your bid, you will not be able to rely on it later. You will then be obliged to purchase the property even if you do not get financing. If you cannot pay the purchase price without financing, you will have to pay compensation to the seller. This is usually 5 to 10% of the sale price. The seller may be able to enforce this through the courts.

The different types of conditions precedent for financing

Typically, we distinguish between two types of suspensive conditions:

  • The purchase of the property lapses in case of failure to obtain credit.
  • The purchase of the property is deemed to have been completed in case of non-timely communication of the credit denial.

Each type of condition has its own advantages and disadvantages. However, the second type of condition generates more disputes in practice. This is in view of the severe consequences of not giving timely notice of the credit refusal. The sale is deemed completed.

However, in the absence of financing, you will often be unable to pay the purchase price. As a result, you will pay compensation to the seller of between 5 and 10% of the sale price.

Formulate the condition precedent for funding in sufficiently concrete terms

Obtaining credit is a best-efforts obligation. This means that as a buyer, you must make all necessary efforts in good faith to obtain a credit. In the event of a dispute, the court will ultimately
judge whether you have made sufficient efforts. This situation is not optimal for both the seller and the buyer. After all, the outcome of such an assessment is uncertain. It is therefore advisable to formulate the condition precedent sufficiently concretely.

That way, there is clarity on what the seller can expect from you. You also avoid discussions afterwards as a seller.

Decision: suspensive condition for obtaining funding

You will often need financing to purchase a property. It is important that you make this sufficiently clear when making an offer. Otherwise, there is a risk that you will be obliged to buy the property. This even if it later turns out that you cannot obtain financing. If you cannot pay the purchase price without financing, you will usually have to pay the seller compensation of between 5 and 10%.

Furthermore, it is important that you lay down sufficiently precise agreements in the clause. That way, you avoid disputes afterwards and it is clear what is expected of you as a buyer.

Do you have questions about including a condition precedent for financing? Confianz assists you with all your real estate transactions. Feel free to contact on.

Share this post?


Legal notice: Blog posts enjoy copyright protection and may not be reproduced without written permission from the author.

English (UK)