When is Finance Arranged?22 Mar 2012 |
In this article, Lesley Brook examines when finance is deemed to be “arranged” by a purchaser.
Finance is deemed to be arranged when a suitable offer of finance is available to the purchaser, even if the purchaser has not accepted it, according to a recent Court of Appeal case.
When an agreement to buy property is subject to the purchaser arranging finance, a standard term requires the purchaser to do all things which may reasonably be necessary to arrange finance. That obliges the purchaser to notify the vendor when finance has been arranged.
As a result, the purchaser may not elect to cancel the contract in reliance on its own failure to notify the vendor that the finance condition has been fulfilled.
In these circumstances the vendor is still entitled to expect the purchaser to settle. If the purchaser refuses to settle, the vendor may either:
- Sue for specific performance, to get a Court order requiring the purchaser to settle; or
- Cancel the contract due to the purchaser’s repudiation of if, and sue for damages instead.
These issues were considered by the Court of Appeal recently in Purewal BS & JK Limited v Connell Street Limited  NZCA 42. The vendor elected to cancel the contract and successfully sued the purchaser for $649,416, which was the difference between the contract price and the current market value of the land.
Even if finance had not been “arranged”, if the offer of finance were unacceptable for example, the purchaser’s silence, in face of the vendor’s assertions that the contract was unconditional, was unconscionable. This would have also prevented the purchaser from subsequently cancelling the contract for non-fulfilment of the finance condition.
Prepared by Lesley Brook