A condition precedent to obtaining finance is a contractual clause which makes the validity of a property purchase contingent upon the approval of your mortgage. If you do not secure a loan within the agreed timeframe, the sale agreement will be deemed void and you may withdraw from the purchase free of charge. Without this clause, you are legally bound by the purchase, regardless of your financial situation.
In the current property market in Flanders, where lending criteria are becoming stricter, this clause is not a luxury but a legal requirement for prospective buyers who do not have the full purchase price available from their own funds.
The importance of the condition precedent when making an offer
You must expressly state the condition precedent at the time you make your offer. A condition precedent is, under Belgian law never suspected. If you make an offer by email, text message or through an estate agent without specifically stating this condition, the offer becomes binding as soon as the seller accepts it.
Failing to include this clause has serious financial consequences. If you are unable to pay for the property because the bank refuses to lend, you will be in breach of contract.
- Compensation: You are generally liable to pay a lump-sum compensation of 10% of the purchase price. For a property worth €400,000, this means a loss of €40,000 without you becoming the owner.
- Forced export: In theory, the seller can apply to the court to enforce the sale, which could result in your other assets being seized.
Expert Insight: “In practice, we see that many disputes over the promise to purchase arise because buyers assume that ‘subject to finance’ is standard practice. This is a misconception that costs tens of thousands of euros. Without written evidence in the offer, there is no protection.”
Types of conditions precedent: Two systems
In legal practice, a distinction is made between two types of wording, each with a different burden of proof and risk factor.
1. Lapse in the event of failure to obtain credit (Recommended for the buyer)
The sale shall be automatically cancelled if the buyer no credit obtains. Whilst the buyer must prove that they have made sufficient efforts, the default position is that the sale will not go ahead if the financing is not secured. This offers the greatest degree of security.
2. Sale completed in the event of late notification (High-risk)
With this type of sale, the sale is deemed to be final, unless the buyer notifies the seller (by registered post) within the specified period that the loan has been refused.
- The danger: If you fail to give notice of your refusal in good time or in the correct manner, the sale becomes final, even if you do not have the money.
- Consequence: You are immediately liable to pay the compensation of 10%.
Best-efforts obligation: What does the law require of you?
Obtaining a loan is an obligation to use one’s best endeavours, not an obligation to achieve a specific result. This means that, as a buyer, you in good faith You must do everything in your power to secure the loan. You cannot hide behind the clause if you do not take any action yourself.
To avoid disputes later on, the clause in the preliminary agreement (“private sale agreement”) must be as specific as possible. A vague clause will lead to a judge having to interpret it, which creates uncertainty for both parties.
Checklist for a watertight clause
Ensure that the following parameters are explicitly included in the agreement:
- The amount: Please specify the exact amount you need to borrow (e.g. 80% or 90% of the purchase price, or an exact amount in euros).
- The deadline: A realistic timeframe for approval (the default is 4 to 6 weeks (in the current market).
- Number of refusals: How many banks must refuse before the condition takes effect? (It is common practice to provide proof of at least two or three different financial institutions).
- Method of notification: Does the refusal have to be sent by registered post, or is an email sufficient?
Conclusion: Avoid a financial hangover
A property transaction without a binding financing condition is financially reckless. As the buyer, the burden of proof lies with you. Ensure that the wording in your offer and in the preliminary agreement is crystal clear to avoid being liable for damages of 10% without owning a single brick.
Frequently asked questions (FAQ)
What happens if I am not granted a loan and there is no condition precedent? If you have not included a condition precedent in your offer, the sale is final. If you are unable to secure the necessary financing, you will be in breach of contract. The seller is then entitled to compensation, which is usually contractually set at 10% of the purchase price.
How many bank refusals do I need to cancel the purchase? This depends on the exact wording of the sale agreement (pre-contract). If nothing specific is stipulated, case law often holds that you must make a ‘reasonable effort’. In practice, this means that you must be able to provide evidence of refusals from at least two or three different banks.
Can I add a condition precedent after making an offer? No, not in principle. An accepted offer is binding. You can only add a condition precedent if the seller voluntarily agrees to it. However, the seller is under no obligation to do so. That is why it is crucial to include the condition directly in your initial offer.
How long does a condition precedent to funding last? The timeframe may be agreed freely between the buyer and the seller. Given the current processing times at banks in Flanders, we recommend a timeframe of at least 4 weeks, but preferably 6 weeks, from the date the preliminary agreement is signed.
About the author: Niels Vansimpsen is an environmental law solicitor at Confianz. He assists with permit applications throughout Flanders. He also assists clients throughout Flanders with lodging objections or appeals against permit applications that have been submitted. In addition, he provides assistance in cases of construction and environmental offences and advises clients on the feasibility of their real estate projects.
