Contract of Purchase and Sale - Clause 18 #344
CATEGORY: Legally Speaking
TAGS: Commission Contract of Purchase and Sale Deposits Developer Property Disclosure Statement
By Gerry Neely
I understand it is the standard practice of a licensee to explain the significance of the Contract of Purchase and Sale terms to the parties to it, before it is signed. This is particularly desirable for Clause 18, in which the parties agree there are no representations, warranties, etc. other than those set out in the contract. In the case of representations, the parties agree to those representations contained in the Property Disclosure Statement, if it is incorporated in the contract.
Since Clause 18, with some exceptions, relieves the party making an unwritten representation from liability, the parties to a contract must focus on having representations important to them written into the contract. Ngai Man Lam, a buyer of two adjacent, retail, strata lot units in a building under construction, discovered this when she repudiated her purchase and sued to recover her $60,000 deposit.
Her offer was made after her examination of a draft strata plan containing few construction details. The developer agreed, at her request, to remove the wall separating the two units. Lam signed a contract which gave the developer the right to run utility lines, pipes and duct work, where necessary, in the consolidated units. The contract gave her an allowance if the work done reduced the finished floor area.
A duct which measured 8 feet by 3 feet was left where the wall would have been, in the middle of the area where she had planned to install a large service counter, preventing her from doing so. Lam claimed the developer knew the duct would be required for a bakery and ought to have known it would materially reduce her use of the two units as one.
The judge was satisfied that, in reaching his decision, the only factor considered by the developer was whether the wall was load-bearing; he had not intended to mislead the buyer. The developer was entitled to rely upon the protection of Clause 18 because the buyer had the opportunity to insist that a representation of such importance to her be added to the contract. 1
Lam had referred to a BC case, Bektor v. Williams, where the use of an earlier equivalent Clause 18 was not accepted. It involved an owner who innocently advertised a lot for sale as being suitable for a residential building site, completely unaware that a city bylaw prohibited any construction on a lot as small as hers. Although the representation was not in the contract, the owner was liable for damages because the representation "was of such substance as to go to the purchaser's basic purpose in entering into the contract", and the clause in question had not been drawn to the purchaser's attention.2
The distinction between the two cases is that Bektor was unable to build the house he bought the lot for, while Lam was able to operate a retail business in the two strata lots. That leaves the question, raised by Bektor, of whether Clause 18 should be specifically drawn to the attention of both parties. The Lam case judge ignored this issue in deciding that Clause 18 relief was available to the developer.
In an Alberta case, the Reasons for Judgement referred approvingly to evidence that a similar clause in a standard real estate contract had been drawn to the attention of the parties.3 In a BC case discussed in Legally Speaking 268, a judge held a listing agent had represented that major repairs to a house had been made professionally and in conformity with applicable codes and standards. Before completion, the buyer discovered the work had been done without a permit, and repudiated the contract and sued for the return of the commission. The seller attempted to rely upon Clause 9 (now Clause 18) of the Contract of Purchase and Sale. The judge decided the misrepresentations were intended to induce the buyer to enter into the contract. There was no evidence that Clause 9 had been drawn to the attention of the buyer, with the result that the buyer succeeded in his action.4
As you can see from the different conclusions on the effect of a representation made outside the terms of the contract, the protection available from Clause 18 may be lost if its purpose is not drawn to the attention of the parties.
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