Mortgage condition precedent
A clause in the preliminary contract making the sale conditional on obtaining financing: if the loan is refused on the agreed terms, the buyer recovers their deposit without penalty. It protects the purchaser and sets a deadline and a maximum financing amount. Its precise wording is decisive if a dispute arises.
Key points
- Clause in the preliminary contract cancelling the sale without penalty if the loan is refused.
- Must specify the amount, maximum term and maximum rate of the loan sought.
- The deadline for obtaining the loan is set in the contract, usually 45 to 60 days.
- Its precise wording is decisive: a vague clause may unduly bind the buyer.
Frequently asked questions
What happens if the condition precedent deadline expires before the loan is obtained?
If no extension has been agreed, the condition precedent is deemed to have failed and the seller may retain the deposit, generally 10% of the price. It is therefore critical that the broker monitors deadlines and requests a friendly extension as soon as processing looks lengthy. Proactive communication avoids disputes.
How should a condition precedent be drafted to truly protect the buyer?
The clause must explicitly state the amount borrowed, maximum term, maximum rate and type of guarantee. If these parameters are too broad, the bank can meet them with an unfavourable rate or term, and the buyer cannot invoke refusal. The broker must review the clause before the preliminary contract is signed and flag any miscalibration.
What is the difference between a condition precedent and a resolutive clause?
A condition precedent prevents the sale from forming if the loan is not obtained: the contract does not take effect. A resolutive clause dissolves a contract already formed if a subsequent obligation is not met. In property practice, it is almost always the condition precedent that is used for financing.
In practice
A preliminary contract is drafted for a €300,000 purchase with a condition precedent worded as follows: 'loan of a maximum €270,000 over 20 years at a maximum nominal annual rate of 4.50%'. If the bank only offers a rate of 4.80%, the condition is deemed to have failed and the buyer recovers their deposit.
Official sources
- Sale agreement and loan condition precedent · Service-Public.gouv.fr
- Obtaining a mortgage loan · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr