A financing condition allows the buyer of a property to dissolve the purchase without penalty if the mortgage financing is not obtained within an agreed period. It is not a statutory right but a contractual condition, and it is the most litigated clause in Dutch conveyancing.
Statutory basis
The clause operates as a condition subsequent under Book 6 of the Civil Code and takes its wording from the model purchase deed. That model requires the buyer to invoke the condition in writing before the deadline and to substantiate it with documentation from lenders. Failure to comply with the formal requirements means the dissolution is ineffective and the ten per cent penalty clause becomes enforceable.
How it works in practice
The period is usually four to six weeks from signature, which is short given current mortgage processing times. The buyer must apply seriously, invoke the condition in writing before the deadline and attach the refusals. Extending the period requires the seller’s agreement in writing; a verbal assurance from an estate agent does not bind the seller. Sellers in a competitive market often ask buyers to waive the condition, which shifts the entire financing risk to the buyer.
Where it goes wrong
Three failures recur. Invoking the condition one day late is fatal, however good the reason. A bare statement that financing was not obtained, without documentation, is regularly rejected by the courts as insufficiently substantiated. And a buyer who applies only after the deadline has passed, or who applies for a mortgage that plainly exceeds his capacity, may be found not to have made a proper effort. In all three cases the seller can claim the penalty or performance.
Related terms
Purchase agreement for real estate, statutory cooling-off period and transfer of title.
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