24 Dec Finance Clause

Finance Clause

You’ve got to have finance clauses in there that allow you enough time to organise your finance. Finance at the moment is taking a lot longer than it normally does. So you at least want 21 days, preferably 28 if you can get it for finance. If they won’t sign a 21 day finance clause, then what I suggest you do is, you see if you can work in the words “working days”. I might do a 14 working day finance clause as opposed to a 21 day finance clause. It works out to about the same. You squeeze in a few weekends if you sign the contract on a Friday and it juggles you into the next couple of weeks. You end up with about the same kind of time.

The finance clause does need to be to your satisfaction so you can pull out of the contract if you need to. If you don’t need to go and get finance, the seller can come to you and say, “Okay, well prove to me that you can’t get finance. Show me your refusal notice. Who have you spoken to?” So, you need some mechanism in there to allow you to pull out on finance.

You might get a finance approval subject to valuation. Revaluation may not happen until after the contract goes unconditional, so you’ve got to make a judgment, “Well, I’ll go unconditional subject to a satisfactory valuation on the property.” You’ve got a partial condition there, that you’ve still got to be able to fulfil. If the seller is happy that the property is worth what he’s selling it to you for, he/she shouldn’t have a problem with that.

Options

As we touched on previously, in New South Wales, you can’t have a conditional contract. You’ve got to do all of that stuff on the hit and hope that the seller won’t sell it to somebody else in the meantime. In New South Wales, options are more prevalent than anywhere else around Australia.

Options are generally used in the rest of Australia to buy commercial property, to buy property that can be approved for development , to get a D.A. on, a rezoning, a building approval to build a block of units or something like that. So, you have an option on it while you go off, and you get all of your approvals, and do your due diligence to make sure that you can do whatever to the property.

In New South Wales, an option is used more freely, even on normal residential properties because it stops the seller from gazumping you. It stops the seller from selling it to somebody else in the meantime because, you have the absolute right to exercise that option and to buy that property under those conditions.

An option or a buyer’s option, in a very simple way, is the right to buy, but not an obligation to buy. You obtain that right, but you don’t have to exercise it, and you’re not forced to buy the property. It becomes another tool to manage your transaction. Some people actually create value in the options, by doing development or building approvals etc., and sell the options off to the next guy to work up the land. They leave something in it for the next guy, but take a slab of profit out at the time.

A call option is the buyer’s option. A put option is the seller’s option to force you to buy it, and a put or call option works both ways.

The common ones are the put and the call options. The call options are often used where people also don’t want to reveal who the ultimate buyer of the site may be. I know some of the major supermarkets use the call options to put their foot on properties because they don’t want it to be known that it is Woolworths or Coles buying that block. So, they use those options and they use companies that actually go and buy for them, so the identity of the real buyer is hidden. They do this by nominating a position in there. So, it’s ABC Pty Ltd or a nominee. Then at the end of the day when they exercise their right to buy it, that’s when Coles may turn up on the paperwork.

If I put an option on a property and I go and get a D.A on the property, or I get some plans done up to improve the property, or rezone it, whatever, You’ve increased the value of the property. If I then sell that option to another party, then that option has a contract attached to it. It’s got a nominee clause in there, so that second party can just come in and have their name put in on the contract option.