Buying a property is a decisive step, financed in the vast majority of cases by a loan. To protect the non-professional buyer, the legislator has introduced an essential security mechanism: the condition precedent that the loan must be obtained. This provision links the validity of the sale to the granting of finance by a bank. Although it represents fundamental protection, its application is the source of a great deal of litigation, in which the buyer's good faith is systematically examined. Understanding the contours of this condition is therefore crucial to securing your project. Visit legal framework and protection of borrowers on home loans is complex and incorporates many special situations relating to mortgages which require precise analysis. A expert lawyer in mortgage law can be essential for navigating these subtleties.
The principle of the loan condition precedent
The suspensive condition of obtaining a loan is a legal measure that makes the final completion of a property sale conditional on the buyer being granted a loan. In practical terms, if the buyer does not obtain the necessary finance, the promise to sell or the preliminary sales agreement is cancelled without penalty. The aim of this mechanism is to ensure that buyers are not forced into a purchase they can no longer finance.
Legal basis (L. 313-41 Consumer Code)
The basis of this protection is article L. 313-41 of the French Consumer Code. This stipulates that when the deed of sale (promise, compromis) states that the price will be paid, even partially, using one or more loans, the deed is entered into subject to the condition precedent that the loan or loans are obtained. The law stipulates that this condition must be valid for at least one month from the date on which the deed is signed. If the loan is not obtained within the stipulated period, all sums paid in advance by the purchaser, such as the earnest money, must be returned immediately and in full.
Inability to waive in advance
The protective nature of this provision is reinforced by its status as a matter of public policy. This means that the buyer cannot waive it in advance, when signing the preliminary contract. Any clause that attempts to set aside this protection will be deemed unwritten. Case law is consistent on this point, considering that such a waiver would empty the law of its substance. The only possible waiver would be *a posteriori*, i.e. after the condition has failed (loan refused), if the buyer finds another source of finance and decides to go ahead with the sale anyway. However, this would be an informed decision and not an initial abandonment of the right.
Incorporating the condition into the contract: formalities and compulsory information
For the legal protection to apply, the preliminary contract must state that the property will be financed by a loan. The legislator has also made provision for the opposite case, where the purchaser declares that he or she will not be taking out a loan, subjecting this declaration to strict formalities to ensure that he or she has given informed consent.
Handwritten information: scope and penalties in the event of absence or inadequacy
If a purchaser declares that he or she wishes to pay for the property without taking out a loan, article L. 313-42 of the French Consumer Code imposes a specific formality for this declaration to be valid. The deed must include a handwritten statement by the buyer acknowledging that he has been informed that if he ultimately takes out a loan, he will no longer be able to benefit from the protection of the suspensive condition. The aim is to draw the buyer's attention to the loss of a major right.
The absence of this handwritten note, or an incomplete note that does not reflect the legal warning, carries a particularly effective penalty: if the purchaser nevertheless applies for a loan, the contract of sale will automatically be deemed to have been entered into subject to the suspensive condition. The penalty does not lie in the nullity of the deed, but in the reinstatement of the legal protection in favour of the purchaser. It should be noted that since the law of 23 March 2019, authentic deeds received by a notary are exempt from this handwritten mention, as the notary has a duty to fully inform the parties.
The consequences of a misleading declaration by the purchaser
The situation becomes more complicated when the buyer makes the required handwritten statement, but in fact intended to apply for a loan from the outset. If the seller can prove that the purchaser lied and that both parties knew that a loan would be required, the case law may reclassify the situation. The courts have already ruled that such a manoeuvre, if proven, amounts to fraud. In this case, the courts may consider that the sale was indeed concluded subject to the suspensive condition of obtaining a loan, thus restoring the protection of the buyer in bad faith, but above all the coherence of the legal system.
The borrower's duty of care: a duty of loyalty
The protection afforded to the borrower is not a discretionary right to withdraw from the sale. In return, they are bound by an obligation of loyalty and diligence. He must actively and in good faith take the necessary steps to obtain his financing. If he frustrates the condition by passivity or unfair action, he will be penalised.
Apply for a loan that complies with the characteristics of the main contract
The duty of care requires the purchaser to submit a loan application that complies with the specifications set out in the promise to sell. These generally include the amount of the loan, the repayment period and the maximum interest rate. The buyer may not, for example, apply for a loan for an amount greater than that stipulated, or at a rate deliberately lower than the maximum rate, in order to ensure that the bank refuses. The Court of Cassation has ruled that a buyer who requests a loan at a rate that does not correspond to the stipulations of the promise is considered to have prevented the fulfilment of the condition. It is up to the buyer to prove that he has taken the necessary steps to obtain a loan that complies with the terms of the promise.
Unlawful contractual clauses (deadline for application, prompt notification of refusal)
While the buyer must be diligent, the seller cannot impose excessive constraints that would undermine the protection mechanism. Case law has thus declared certain clauses inserted into preliminary contracts to be unlawful. For example, a clause requiring the buyer to submit his loan application within a very short period of time (e.g. 15 days) has been deemed to increase the requirements of the law and is therefore invalid. Similarly, a clause requiring the seller to be notified of a loan refusal within 48 hours, on pain of the condition being deemed fulfilled, is systematically rejected by the courts as contravening the spirit of the law.
Justified refusal of the offer
The buyer is not obliged to accept just any loan offer. They can refuse it for legitimate reasons without being considered to be acting in bad faith. A major and unforeseeable change in personal or professional circumstances, such as redundancy after the agreement has been signed, may justify refusal of even a compliant loan offer. Similarly, if the bank refuses the loan on the grounds of insufficient objective financial capacity, the condition is deemed to have been breached through no fault of the borrower. In such cases, the borrower is not responsible for the breach of the condition and is entitled to a refund of the deposit.
The condition deemed fulfilled: when is the loan considered to have been obtained?
To protect the seller against a buyer who changes his mind without a legitimate reason, case law has developed the theory of the "deemed fulfilled" condition. This mechanism, based on article 1304-3 of the Civil Code, sanctions bad faith on the part of the buyer.
The offer complies with the contractual stipulations
The tipping point is the buyer's receipt of a firm offer of a loan that complies with the characteristics set out in the preliminary sales agreement. The Court of Cassation has consistently held that the condition precedent is deemed to have been fulfilled as soon as the bank makes such an offer. In other words, once the buyer receives an offer that corresponds to what was planned (amount, term, interest rate), he can no longer invoke a loan refusal to cancel the sale. If the buyer refuses the offer without a legitimate reason, he or she is considered to be at fault.
An offer not followed by withdrawal
It is essential that the bank's offer is firm and definitive. If the credit institution issues an offer and then withdraws it on its own initiative before the buyer has had a chance to accept it, the condition cannot be deemed to have been fulfilled. In this case, the fault is not attributable to the purchaser, who is left without financing because of the bank. The burden of proving receipt of a firm offer that has not been withdrawn lies with the seller who wishes to retain the earnest money.
Distinction from a bank certificate or agreement in principle
It is vital not to confuse a formal loan offer with a simple agreement in principle or a feasibility certificate. These preliminary documents, often issued by a bank to reassure the seller, do not have the legal force of a binding offer. Case law is clear: only a regular loan offer, containing all the compulsory elements defined by the Consumer Code, can be considered to fulfil (or be deemed to fulfil) the condition. A simple letter from the bank certifying that it agrees in principle is insufficient.
Impact on earnest money or advance payments
The financial consequences are direct. If the condition is deemed to have been fulfilled due to the buyer's fault (refusal of a compliant offer, failure to take serious steps), the buyer loses the benefit of the protection. The seller is then entitled to keep the immobilisation indemnity or the deposit paid as damages. Conversely, if the condition fails through no fault of the buyer (e.g. the bank justifies its refusal to grant a loan), the preliminary contract becomes null and void and the deposit must be returned. This is one of the main issues in the case of consequences of not obtaining a property loan.
Managing the suspensive condition of obtaining a loan is therefore a balancing act between protecting the buyer and providing legal certainty for the seller. A misjudgement of the duty of care or a misunderstanding of the criteria set out in case law can lead to significant financial losses. To secure your purchase and defend your rights, the assistance of a expert lawyer in mortgage law is a wise precaution.
Sources
- Consumer Code, in particular articles L. 313-40 to L. 313-42
- Civil Code, in particular article 1304-3
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