Property sale agreement: failure to fulfil the loan condition precedent due to fault results in the loss of the deposit
A property purchase subject to the securing of financing
In a judgment of 29 May 2026, the Court of Appeal of Saint-Denis, Réunion, confirmed that a purchaser who fails to demonstrate that they have taken the steps required under the preliminary sale agreement to secure financing may lose the benefit of the loan condition precedent and be ordered to pay the penalty clause.
The case concerned a preliminary sale agreement signed on 10 November 2020 between SCI La Prédecelle Bruis and Messrs [S] relating to a property complex located in Saint-Joseph for a price of €328,000. The sale was concluded subject to the condition precedent of obtaining a bank loan. A deposit of €14,475 had been lodged with the notary.
The preliminary agreement stipulated that the purchasers must provide proof, by 31 January 2021 at the latest, of an agreement in principle from a lending institution or a loan offer. Failing this, the agreement would lapse. However, the deposit was to be refunded only if the purchasers demonstrated that they had taken all necessary steps to secure the financing.
The breakdown of the property project
The cancellation of the sale by the SCI
During the execution of the preliminary agreement, the purchasers made numerous contacts with various financial intermediaries, notably CAFPI, Meilleurtaux, Koytcha Conseil and Crédit Agricole. They were considering several legal arrangements involving various operating and management companies.
Despite these efforts, no agreement in principle nor any loan offer in accordance with the contractual terms was produced within the stipulated timeframes.
Noting the failure to fulfil the condition precedent and the expiry of the contractual deadlines, the SCI notified the buyers on 6 May 2021 of its decision to terminate the sale and claimed the right to the reservation fee.
The purchasers’ legal action
Believing they had taken the necessary steps, the purchasers brought proceedings against the SCI seeking:
- the return of the reservation fee of €14,475;
- reimbursement of costs incurred;
- compensation for loss of opportunity to invest;
- various additional sums in respect of interest and legal costs.
The civil court dismissed their claim in its entirety and ordered them to pay the SCI the sum of €16,400 corresponding to the penalty clause provided for in the preliminary agreement. They then lodged an appeal.
The legal issue
The court had to determine whether the purchasers could benefit from the protection attached to the condition precedent of obtaining a loan, even though no offer of financing had been obtained within the contractual time limits.
More specifically, the question was whether the steps taken were sufficient to establish that the failure of the condition precedent was not attributable to the purchasers.
The court’s analysis
Steps deemed insufficient
The court noted that the purchasers had indeed made several approaches to estate agents and banks before and after signing the preliminary agreement.
However, the judges observed that the applications for financing were not submitted in the purchasers’ own names, even though they were the sole beneficiaries of the preliminary agreement.
The documents produced actually concerned various structures envisaged for the future operation of the property:
- SAS Tourism Invest;
- SAS Lotus Développement;
- companies still under consideration;
- arrangements involving SCI, SARL or SAS.
The court found that no loan offer, nor even any confirmation of a loan application, had been drawn up in the purchasers’ own names in accordance with the terms of the preliminary agreement.
Failure attributable to the beneficiaries
The judges also emphasised that the substitution clause provided for in the preliminary agreement did not exempt the purchasers from clearly informing the seller and the notary of the use of a substitute company.
However, this information had never been formalised.
Furthermore, the bank agreement finally obtained on 17 May 2021 was dated after the expiry of the contractual deadlines and was itself conditional upon a capital contribution of €118,000.
In the court’s view, these factors demonstrate that the condition precedent failed due to the purchasers’ own actions.
Pursuant to Article 1304-3 of the Civil Code, the condition must therefore be deemed to have been fulfilled, which deprives the beneficiaries of the protection normally attached to the loan condition precedent.
Retention of the reservation fee
The court ruled that the reservation fee of €14,475 remains definitively retained by the SCI.
It noted that the preliminary agreement expressly provided that, where the failure of the condition precedent is attributable to the beneficiary, the latter loses their right to the return of the deposit held by the notary.
The purchasers’ claim for restitution is therefore dismissed.
Application of the penalty clause
The preliminary agreement also contained a penalty clause setting the damages payable at a flat rate of 5% of the sale price where the beneficiary fails to fulfil the obligations incumbent upon them.
The court considers that this clause is fully applicable since the purchasers caused the sale to fail through their own failure to fulfil the condition precedent.
The amount of the penalty thus amounts to €16,400, from which the reservation fee already paid is deducted.
Scope of the judgment
This decision illustrates the rigour with which the courts assess the obligations of a purchaser benefiting from a loan condition precedent. Merely demonstrating that steps have been taken with the bank is not sufficient. These steps must also comply with the terms of the preliminary agreement and be carried out in the name of the beneficiaries designated in the deed.
The judgment also reiterates that a purchaser who causes the suspensive condition to fail, whether through negligence or by arranging financing that does not comply with the contractual commitments, risks not only forfeiting their deposit but also being liable for the full payment of the penalty clause provided for in the preliminary sale agreement.
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