Subject to Finance Explained

Yes – they are two separate items and are not related to each other.  A ‘subject to finance’ clause is specific, and only allows you to withdraw from the contract if your finance application is rejected.  A cooling-off period allows you to cancel a sales contract because you change your mind.  It’s protection against making a rash decision which you regret in the next few days.  Cooling off periods in Australia range from none at all (in WA and TAS) up to five days (in ACT, NSW and QLD).  In VIC, it’s three business days, and in SA it’s two.

It’s most common in property purchase contracts to allow either 14 or 21 days for the necessary finance to be approved.  For car or caravan purchases, 7 or 14 days is the most common time to allow finance to be organised, because such loans tend to be smaller and less involved than home loans.

Yes – a vendor might be willing to grant you a time extension if you are still negotiating your finance after the initial 14-day or 21-day time period is up.  This does happen, although lenders are sensitive to time constraints and will usually give a borrower an answer within the period if at all possible.  However, being granted an extension to organise finance may rely on the vendor’s goodwill, who aren’t legally obliged to offer you an extension.  They would be within their rights to cancel the sale contract and sign one with another buyer.

Assuming the sale contract has been properly worded to make it clear that the sale is conditional upon receiving a satisfactory finance offer, the buyer should be fully protected if it becomes necessary to pull out of the sale contract, and the full deposit should be refunded.  However, a badly worded ‘subject to’ clause can cause legal difficulties if the buyer wishes to cancel the sale contract.