Back-Up Offers: There’s a Clause for That #519
Roughly twice a year my heart stops when a claim comes to my attention. Why? Because a licensee reports that the seller has sold the property twice!
Naturally, the seller is upset. They only have one property to sell and two buyers demanding it.
In these instances, the seller typically accepts an offer for the property with subject conditions and then accepts a second offer for the property, also with conditions. The two buyers remove conditions and then the trouble begins, when both buyers claim to have a binding contract.
The seller alleges that the licensee did not ensure the second offer was accepted with appropriate terms, indicating it was a back-up offer and subject to the collapse of the first offer.
The Real Estate Council of BC's Professional Standards Manual specifically addresses offers made after a previous offer has been accepted--known as "back-up offers". When dealing with a back-up offer, a licensee should always include a back-up offer clause. The suggested clause is:
"Back-up Contract Clause
Subject to the seller ceasing to be obligated in any way under the previously accepted Contract of Purchase and Sale on the subject property on or before (date).
This condition is for the sole benefit of the seller."
Council recommends the licensee acting for the seller advise the seller to get legal advice if there are any attempts to renegotiate the first offer, as that may activate the back-up offer and create a risk that the property is sold to two buyers simultaneously. The licensee should also suggest the second buyer obtain legal advice under the same circumstances.1
Singh v. Sidhu
Back-up offers were the subject of a recent case of Singh v. Sidhu.2
In this case, the licensee acted on behalf of the sellers. He entered into a listing agreement, provided advice to the sellers on a list price, marketed the property, and finally, obtained an offer (the "Singh offer"). The Singh offer was countered by the sellers and ultimately accepted with several subject conditions. Conditions were removed and the date for completion approached. Prior to completion, the sellers contacted the licensee and told him that their family circumstances had changed, and they did not want to complete the transaction. The licensee was asked to convey that information to the buyers who had no agency.
Then the unthinkable happened--the licensee was told for the first time that the sellers had already accepted an offer for the property from a Mr. Sran (the "Sran offer")! When both buyers asserted they had a binding contract, the parties headed off to court.
The sellers argued that the licensee was repeatedly told that any offers he obtained were to be back-up offers. The court found that the listing contract made no reference to back-up offers, the Singh offer made no mention of back-up offers, and the licensee was first told of the Sran offer two months after the sellers had removed conditions on the Singh offer. In doing so, the court added that it would have expected an amendment to the standard listing agreement if the licensee was told to only obtain back-up offers, as well as perhaps an amendment as to his right to commission on any offers that the sellers achieved through other means.
In the Singh decision, the court dismissed all claims against the licensee. The court awarded the property to the Singhs and ordered the sellers to pay damages to Sran for failing to deliver the property.
The court preferred the evidence of the licensee over that of the sellers, whose evidence was contrived, inconsistent and not supported by the documents. The licensee was found to have performed his duties properly, in conformity with the expectations of the parties and in line with his contractual obligations and ethics. Although this case was a clear win for the licensee, it's a reminder that when you know you are dealing with a back-up offer, you should always include a back-up offer clause.
|1.||Professional Standards Manual at Part III, Trading Services, Acting for Sellers (h)(xi).|
|2.||Singh v. Sidhu, 2019 BCSC 1551.|
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