Apr 01, 1985

Agreements for Sale #68


By Gerry Neely
B.A. LL.B.

A recent amendment to the Law and Equity Act may mean that the time-honoured method of selling property by way of an agreement for sale (right to purchase) may cease. Although its use has declined over the past few decades, largely because most sales require mortgage financing, its use has been continued because it fits certain circumstances. Those circumstances generally are where the vendor is receiving a low down payment and wants the benefit of the shorter "redemption" period allowed in actions for specific performance or rescission of an agreement for sale.

That "redemption" period was three months rather than the customary six months under a mortgage. Based upon the ultimate results of cancellation of an agreement for sale, there has been no logical reason why there should be a difference in the redemption periods - precedent, however, has preserved the difference until now.

The amendment proposes that default under an agreement for sale will have the same results as default under a mortgage. Specifically, the redemption period will be lengthened to six months.

The decision to provide the same remedies for default under an agreement for sale or a mortgage was hastened by a case which disclosed that an agreement for sale contained a booby trap for both the purchaser and the mortgagee of the purchaser's equity in the property.

The case involved an agreement for sale of land containing a clause that, if default occurred, the vendor had the right to give thirty days' notice to the purchaser to remedy the default. If the purchaser failed to do that within the thirty day period, the agreement was then stated to be void. The purchaser was in default of some monthly payments which, if paid, would have brought the agreement for sale into good standing. When that was not done, the vendor filed a petition seeking an order for the cancellation of the agreement for sale. The purchaser did not defend even though it appeared that a sale of the property might produce a surplus after payment of the amount owing under the agreement for sale, taxes and expenses. The reason for this failure lay in the mortgaging of the purchaser's equity to United Dominions Investments Limited, which did appear for the purpose of arguing that the agreement should not be cancelled.

It was argued on United Dominions' behalf that the Court had the power to grant time for redemption or to grant relief under the Law and Equity Act from the default that had occurred. The Court concluded that it had no power but to cancel the agreement because it specifically provided for cancellation when default continued after the thirty day notice period had expired.

The mortgagee then tried to have the Court order that the monies received by the vendor should be refunded to the purchaser. The Court has this equitable power under the Law and Equity Act. However, the judge held that United Dominions had no status to make that request, only the purchaser. In addition, the default had continued for sixteen months in respect of revenue producing commercial property. The judge decided that there was no equitable reason why it should require the vendor to repay the monies it had received from the purchaser.

The amendment does not cover all agreements for sale. If the purchase price is to be paid within less than six months from the time the contract was entered into, and if the purchaser is not entitled to possession of the land that is the subject matter of the contract, then the vendor can still seek a three month redemption period.

  1. Oxford Development Group Ltd. v. Tahsis Estates Ltd. et al, 58 B.C.L.R. p. 47.
  2. Bill 42,Second Session 33rd Parliament, Section 5.

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