Back-Up Offers #89

Aug 01, 1986

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By Gerry Neely
B.A. LL.B.

A vendor's decision to take a back-up offer can be risky to the vendor's financial health, as will be apparent from your review of the following facts.

An agent brought to an owner on November 8, 1983, an offer to purchase the owner's property for 54,550,000.00, calling for a deposit of $50,000.00 and completion December 30th, 1983. The offer, which was subject to conditions to be met to the purchaser's satisfaction only and to be removed on or before November 25th, 1983, was accepted by the owner.

Another agent brought to the owner on November 8, 1983, an offer to purchase the property for $4,700,000.00. This offer was subject to a number of conditions, the most important of which turned out to be the following one:

"This offer is subject to the non-completion or collapse of the offer to purchase from X, on or before November 25, 1983, that has been accepted by the vendor."

The owner accepted the second offer, an offer that gave the owner only slightly more money than the first offer because the owner was liable for commission on the second offer, while on the first offer, the purchaser was to pay commission.

On November 25, the owner told the agent who had submitted the back-up offer that the conditions had been removed and that no changes had been made in the now unconditional contract. Three days later, however, the back-up purchaser found that the deposit had been increased by $25,000.00 and the date for completion had been extended to January 16, 1984.

These changes arose as a result of the following sequence of events that took place on November 25. The agent acting for the first purchaser took to the owner a signed removal of conditions. He then presented a second document that also stated that the conditions had been removed, but that the purchaser had agreed to increase the deposit monies upon the agreement of the owner to extend the completion date. Thirdly, he took with him another offer which, had the owner agreed to it, would have resulted in a reduction of the purchase price.

The owner told the agent that he had a back-up offer and refused to reduce the price, but did agree to the altered terms contained in the second document.

Upon the discovery of the amended terms, the back-up purchaser took the position that the first sale had collapsed and the back-up offer was now a binding contract. The owner proceeded with the sale to the first purchaser and the back-up purchaser then sued the owner for damages.

The owner's main defence was that the sequence of events meant that the conditions were removed to convert the conditional offer into a binding contract. This seemed to be a reasonable argument, given that once the contract became unconditional, the parties could re-negotiate the contract if they were able to agree upon the altered terms.

The judge rejected this, finding as a fact that the events of November 25th resulted in the re-negotiation of material terms of the contract that amounted to the cancellation or non-completion of the November 8th contract. The Judge further held that the existence of the back-up offer created a commitment preventing the owner from making a different deal with the first purchaser to the one contracted for in the November 8th conditional offer.

The judge accepted appraisal evidence that the building was valued at $4,850,000.00 on December 23, 1983, the date when the solicitor for the owner advised the back-up purchaser that the owner intended to proceed with the sale to the first purchaser. Damages of $150,000.00 were awarded to the back-up purchaser.

This case will probably be appealed and, if not, its effect will be limited by its narrow facts. It does suggest, however, that an owner, by accepting a back-up offer, prevents himself from altering any of the material terms of the first offer. This lack of flexibility may work to the owner's disadvantage. On the other hand, if the owner tries to provide for this flexibility by giving himself the right in the back-up offer to alter terms in the first offer, the back-up purchaser must be very keen to purchase if he is prepared to add to the uncertainty that is already the principal characteristic of a back-up offer.

  1. B.D. Management Ltd. v. Tajico Holdings Ltd.,S.C.B.C., 1986 B.C.D. Civil 2268-01.

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