Before You Sign: Common ‘Subject To’ Clauses in Property Contracts
When buying or selling real estate, the Contract of Sale isn’t always unconditional. Many contracts include ‘subject to’ clauses which outline certain special conditions that must be satisfied before the contract becomes unconditional, or unable to be set aside. These clauses (also called special conditions) protect vendors and purchasers by allowing them to walk away from the contract, without any penalties, such as losing your deposit, if certain requirements aren’t met.
In residential property transactions across South Australia, ‘subject to’ clauses form a key part of modern conveyancing practices. Whether you are buying your first home, upgrading, investing or selling, understanding how these clauses operate under your Contract of Sale is essential.
It is also important to note that if a property is purchased at auction, the contract is generally unconditional. A purchaser should take care to understand what happens if the special conditions are not met and the consequences of buying a property unconditionally. Obtaining advice from an experienced conveyancer or property lawyer before signing an unconditional contract can help you avoid costly mistakes. Some of the most common ‘subject to’ clauses include:
1. Subject to Finance
One of the most common conditions in a residential property contract is subject to finance approval. If the purchaser needs to obtain a home loan to fund the purchase price, this clause gives them a set period (often 7–28 days) to secure formal loan approval. If the lender refuses finance or the purchaser can’t satisfy the lender’s conditions, they can terminate the contract and recover their deposit without any penalties.
Subject to finance clauses can also include a minimum loan amount and a maximum interest rate, to enable purchasers to terminate the contract if they are approved for an unfavourable loan.
A properly drafted finance clause is critical. Poorly worded clauses can create disputes about whether “finance approval” has genuinely been declined. This is where experienced conveyancing advice can make a significant difference.
2. Subject to Building and Pest Inspections
Another frequent condition in property conveyancing is subject to satisfactory building and pest inspections. Purchasers often require time for qualified inspectors to assess the property’s structural integrity and check for termite or pest issues.
If significant problems are revealed, this clause typically allows the purchaser to negotiate repairs, adjust the price, or withdraw from the contract altogether.
These clauses should clearly define what is considered a “major defect” or “satisfactory” report, as ambiguity can lead to disagreement between buyers and sellers. A property lawyer can ensure the wording properly protects your interests.
3. Subject to the Sale of the Purchaser’s Property
Some purchasers must sell their existing home to fund their new purchase. A subject to sale clause makes the contract conditional on selling (or sometimes settling) their current property within an agreed timeframe.
If the sale doesn’t happen in time, the contract can be terminated, or settlement date postponed, safeguarding the purchaser’s position.
These clauses can be complex and may include “escape clauses” allowing the vendor to continue trying to sell the property. Clear legal advice is important to ensure you understand your risk exposure when buying and selling property at the same time.
4. Subject to Probate
A subject to probate clause is less common, but a very important clause for executors who are selling a property owned by a deceased person. When a property is part of a deceased estate, the contract can be conditional on the executor obtaining a grant of probate (or letters of administration if there is no will) by the settlement date.
Without a grant of probate or letters of administration, Land Services SA will not allow the sale to proceed to settlement. If probate is not obtained before settlement, the purchaser may terminate the contract and look for another property, if they choose to do so.
For executors dealing with estate property sales, early advice from a property and estates lawyer can help avoid settlement delays and protect against potential liability.
In summary
‘Subject to’ clauses are powerful tools in property contracts. They balance flexibility with protection, but they also require careful drafting and professional advice to ensure they work as intended. Every Contract of Sale is different, and the consequences of poorly drafted special conditions can be significant, particularly where deposits, settlement dates and finance approvals are concerned.
If you are buying or selling property and need advice about a ‘subject to’ clause, our experienced property law and conveyancing team can help. We provide clear, practical advice to ensure your Contract of Sale properly protects your position. Contact us today for tailored advice or complete our brief online enquiry form and one of our property and conveyancing lawyers will be in touch.