Clause 9, Contract of Purchase and Sale – Seller Unable to Deliver Clear Title, Contract Unenforceable #340

By Gerry Neely
B.A. LL.B.

Clause 9 of the Contract of Purchase and Sale continues to be a trap for the unwary licensee (or lawyer), because it is the type of "boilerplate" clause that the eye and mind skip over. It requires the seller to deliver a clear title - except for enumerated, permitted encumbrances, one of which is a "restrictive covenant in favour of utilities and public authorities."

A seller lost a sale and a licensee a commission, when a buyer refused to complete a purchase because the seller was unable, upon the closing date of May 2, 2001, to remove two restrictive covenants. One covenant had expired in 1961, while the other was so ancient that it was unclear from the faded, barely decipherable document filed in the Land Title Office whether it expired in 1936.

On April 30, 2001, the buyer's lawyer gave notice to the seller's lawyer that the buyer would only complete if the restrictive covenants were removed on the completion date. The seller responded that the covenants were not material and did not affect the title. The BC Supreme Court Reasons for Judgement do not discuss whether the seller's lawyer decided it was too late to apply to have them removed because they had expired.

The seller sued for specific performance of the contract. He argued the covenants were of no practical effect, and that the seller was ready, willing and able to give clear title to a buyer who used Clause 9 as a pretext to conceal a change of mind. As true as this may have been, it was irrelevant in the face of the Norfolk v. Atkins (1989) decision that a buyer only has a " truly clear title " when encumbrances such as these are discharged.

The seller's action was dismissed and the buyer recovered his deposit of $25,000. Aggrieved sellers in similar circumstances may decide to sue licensees for damages for negligence, with a good chance of success. This is the sixth Legally Speaking column on this issue and, in each of the cases discussed, a seller who failed to remove an unenumerated encumbrance lost his action for specific performance.¹

The onus is on the seller's agent to examine the title of the seller's property, and advise the seller of the encumbrances that may need to be removed to provide clear title and make the contract enforceable. If an encumbrance such as a right-of-way or restrictive covenant cannot be discharged, that information should be given to other agents or prospective buyers so they can be written into the contract as additional permitted encumbrances, if the buyer accepts them.

I understand these acts, supported by the Licensee Practice Manual, are the practice of most licensees now. They put the resolution of the clear title issue at the beginning of the negotiations, and remove an opportunity for a buyer to safely repudiate a purchase prior to the closing date. This establishes a standard of practice against which a judge will measure a licensee's conduct to decide whether a licensee is negligent. ²

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