Subject to loan clause - a review

Conveyancing 02/06/2017

The Conveyancing Committee has been asked to review its recommendation issued in its practice note published in the June 2009 issue of the Gazette (‘Timelines in loan approvals and revaluation of security by lenders’) that “solicitors acting for purchasers where a loan is required in order to complete the purchase transaction insert a special condition (or amend their usual form of special condition regarding loan approval) to provide that the contract and the completion thereof is subject to the purchaser’s loan approval being in place at the date of completion in a sum sufficient to allow the purchaser complete the contract.”

Representations have been made to the committee that the economic circumstances surrounding the issue of the 2009 practice note have changed and that the recommendation should change accordingly. It is also contended that developers cannot access funding from their lending institutions unless they can confirm that there are unconditional contracts for the sale of sites and units in place.

The committee has given the matter full consideration. While it is aware of the changed economic circumstances, it is also aware that the practices of lending institutions have not changed and that borrowers are still subject to loans being reduced or withdrawn prior to drawdown in certain circumstances. The committee is cognisant of the requirement that lenders carry out valuations not earlier than four months before advancing a loan (previously two months). The committee is also aware that, in the absence of a loan clause in a contract, a purchaser would not be in a position to exchange contracts until nearer to closing.

Balancing the points for and against recommending a change in practice, the committee concluded that it would be unsafe for purchasers if it changed its recommendation. The dangers of proceeding without a loan clause in a contract are too serious for the majority of purchasers relying on loan finance to complete the purchase.