FAQ - "subject to" clauses in conveyancing

What are the legal implications if a "subject to" clause is not fulfilled

If a "subject to" clause in a property contract is not fulfilled, the legal implications can vary based on the specific terms of the contract. Generally, if the condition specified in the "subject to" clause is not met, the contract may be terminated, releasing both parties from their obligations. Any deposit or funds paid are typically refunded.

The non-fulfillment of a "subject to" clause means the contract remains conditional and does not become binding or enforceable. This allows either party to terminate the agreement without penalty, provided the termination is in accordance with the terms outlined in the contract. For example, if a contract is "subject to finance" and the buyer fails to secure a loan, the buyer can terminate the contract without facing legal repercussions.

It's important for parties to carefully review the timeframes and conditions outlined in "subject to" clauses to avoid unintended consequences. Seeking legal advice is recommended to ensure that these clauses are properly drafted and enforceable, thereby protecting the interests of both parties involved in the transaction.

What happens to the deposit if a "subject to" clause is not fulfilled

If a "subject to" clause is not fulfilled, the handling of the deposit generally depends on the specific terms outlined in the contract. Typically, if the condition specified in the "subject to" clause is not met, the contract may be terminated, and the deposit is usually refunded to the buyer. This is because the contract remains conditional and does not become binding until the conditions are satisfied.

However, it's important to note that the terms can vary, and in some cases, if the buyer fails to comply with the requirements of the clause, such as not making a genuine effort to secure finance, the deposit might be forfeited. For instance, if a "subject to finance" clause is not properly adhered to, and the buyer does not follow the stipulated procedures, the vendor may retain the deposit.

To avoid disputes, both parties should ensure that the contract clearly outlines the conditions under which the deposit will be refunded or forfeited. Legal advice is often recommended to navigate these clauses effectively.

What are the typical timeframes for fulfilling "subject to" clauses

The typical timeframes for fulfilling "subject to" clauses in property contracts can vary depending on the specific condition being addressed. Generally, these clauses include clear deadlines within which the conditions must be met to ensure the contract remains valid and enforceable.

Subject to Finance: This clause often requires the buyer to secure financing within a set period, commonly ranging from 14 to 30 days from the date of the contract. If the buyer cannot obtain financing within this timeframe, they may terminate the contract and receive a refund of their deposit.

Subject to Inspection: For clauses related to building or pest inspections, the timeframe is usually around 7 to 14 days. This period allows the buyer to conduct necessary inspections and decide whether to proceed with the purchase based on the results.

Subject to Sale: When a buyer needs to sell their existing property before purchasing a new one, the timeframe can be more extended, often around 30 to 60 days. This allows the buyer sufficient time to finalize the sale of their current property.

Subject to Approvals: For conditions requiring approvals, such as building permits, the timeframe can vary widely depending on the complexity of the approval process and local regulations.
Meeting these timeframes is crucial, as failure to do so may result in the termination of the contract.

What are the common reasons for extending the timeframe of a "subject to" clause

Common reasons for extending the timeframe of a "subject to" clause in property contracts include:

Delays in Financing Approval: Buyers may require additional time to secure financing, especially if there are unforeseen delays in the approval process from lenders.
Inspection or Appraisal Issues: If inspections reveal issues that need further investigation or negotiation, such as structural problems or pest infestations, additional time may be needed to resolve these matters.
Sale of Existing Property: In "subject to sale" clauses, buyers might need more time to sell their current property, especially in a slow market or if initial offers fall through.

Legal or Regulatory Approvals: Obtaining necessary permits or approvals from local authorities can take longer than anticipated, requiring an extension to meet these conditions.
Negotiation of Terms: Sometimes, parties need more time to negotiate amendments or address concerns that arise during the contract period, leading to an extension of the clause timeframe.

Extensions are typically negotiated between the parties involved, and legal advice is often recommended to ensure that the terms of the extension are clear and enforceable.

What are the consequences of failing to meet a "subject to" clause timeframe

Failing to meet the timeframe specified in a "subject to" clause can have significant consequences, primarily resulting in the termination of the contract. This occurs because the clause acts as a condition precedent, meaning the contract remains conditional until the specified condition is fulfilled. If the condition is not met within the agreed timeframe, the contract does not become binding, and both parties are typically released from their obligations.

The specific consequences can vary depending on the contract's terms. Generally, if a "subject to" clause is not fulfilled, any deposit or funds paid by the buyer may be refunded, as the contract is not enforceable without the condition being satisfied. However, if the failure to meet the timeframe is due to negligence or lack of effort, the deposit might be at risk, depending on the contract's stipulations.

It is crucial for parties to clearly understand and agree on the timeframes and conditions in "subject to" clauses to avoid disputes and potential financial losses. Seeking legal advice can help ensure these clauses are reasonable and enforceable, protecting the interests of all parties involved.

What steps can I take to avoid failing to meet a "subject to" clause timeframe

To avoid failing to meet a "subject to" clause timeframe in a property contract, consider the following steps:

Understand the Timeframe: Carefully review the specific timeframe outlined in the "subject to" clause. Ensure it is realistic and aligns with your needs. If necessary, negotiate a timeframe that provides adequate time to fulfill the condition.

Seek Legal Advice: Consult with a property lawyer to fully understand the implications of the clause and to ensure that you are aware of all obligations and deadlines.

Prepare in Advance: For clauses like "subject to finance," have pre-approvals in place and ensure all necessary documentation is ready before entering into the contract. This preparation can help avoid delays.

Communicate with Relevant Parties: Maintain open communication with lenders, inspectors, or any other parties involved in fulfilling the clause. Prompt communication can help address any potential issues quickly.

Negotiate Extensions if Needed: If you anticipate difficulty meeting the timeframe, negotiate an extension as soon as possible. Some sellers may be open to extending the deadline if reasonable justification is provided.

Monitor Progress: Regularly check the status of any pending approvals or inspections to ensure they are on track to meet the deadline. This proactive approach can help identify and resolve potential delays early.

By following these steps, you can reduce the risk of failing to meet a "subject to" clause timeframe and ensure a smoother transaction process.

How can I negotiate a more flexible timeframe for a "subject to" clause

Negotiating a more flexible timeframe for a "subject to" clause requires careful consideration and strategic communication with the other party involved in the contract. Here are some steps you can take:Understand the Needs:

Before entering negotiations, clearly understand why you need more time. Whether it's securing financing or completing an inspection, knowing your requirements will help you present a strong case.

Seek Legal Advice: Consult with a legal professional to understand the implications of the current timeframe and to get advice on how to propose changes effectively.

Communicate Early: Initiate discussions about the timeframe as early as possible in the negotiation process. This shows that you are proactive and serious about fulfilling the contract terms.
Present a Reasonable Proposal: Offer a specific and reasonable extension period. Be prepared to explain why this additional time is necessary and how it will benefit both parties.

Highlight Mutual Benefits: Emphasize how a flexible timeframe can lead to a smoother transaction and potentially avoid the need for contract termination, which can be beneficial for both parties.
Be Open to Compromise: Be willing to negotiate and find a middle ground that satisfies both parties. This might involve agreeing to other terms that the seller finds favorable in exchange for the extended timeframe.

Include a 48-Hour Clause: Consider proposing a 48-hour clause, which allows the seller to continue marketing the property and accept other offers, but gives you a short period to fulfill the condition if another offer is received.

By following these steps, you can increase your chances of successfully negotiating a more flexible timeframe for a "subject to" clause.

What are the best tactics to negotiate a more flexible timeframe with the other party

To negotiate a more flexible timeframe with the other party, consider the following tactics:

Understand Your Needs and Goals: Clearly define why you need a more flexible timeframe and what you aim to achieve. This clarity will help you communicate your needs effectively during the negotiation.

Build Rapport and Trust: Establish a positive relationship with the other party. Building trust can make them more amenable to accommodating your request for flexibility.

Communicate Clearly: Use clear and concise language to explain your reasons for needing more time. Ensure that the other party understands your perspective and the benefits of a flexible timeframe for both sides.

Be Flexible and Creative: Explore alternative solutions that might satisfy both parties. This could involve offering something in return for the extended timeframe, such as additional concessions or value-added services.

Highlight Mutual Benefits: Emphasize how a flexible timeframe can lead to a more successful outcome for both parties. This might include reducing the risk of rushed decisions or ensuring higher quality results.

Negotiate Strategically: Be prepared to make strategic concessions that are advantageous to you. Only offer concessions when they are beneficial and ensure you receive something in return.
Prepare for Hard-Bargaining Tactics: Be aware of and ready to counter any hard-bargaining tactics the other party might use, such as time pressure or take-it-or-leave-it offers.

By employing these tactics, you can improve your chances of negotiating a more flexible timeframe that meets your needs while maintaining a positive relationship with the other party.