Jan 01, 2003

Contract of Purchase and Sale - more ways to avoid being sued #355

Jan 01, 2003

Contract of Purchase and Sale - more ways to avoid being sued #355

By Gerry Neely
B.A. LL.B.

If a seller and licensee fail to consider paragraph 9 of the Contract of Purchase and Sale - that is, they do not list the encumbrances to remain on title - they risk a lost sale and a lost commission, respectively.

The theme of this column stems from a licensee's questions about whether the delivery of the title search to a buyer, and the buyer's actual knowledge of the encumbrances on title, are sufficient to prevent the buyer from repudiating a Contract of Purchase and Sale.

The obligation imposed upon a seller by paragraph 9 has been discussed in several columns, the most recent being Legally Speaking 340. The very strong conclusions in both the British Columbia Supreme Court and the British Columbia Court of Appeal mean that the seller has a positive duty to clear the title of all non-permitted encumbrances. A seller's inability to do so would be a breach of contract, regardless of the buyer's knowledge. This applies particularly to financial charges such as mortgages. This type of encumbrance was the factual basis for the Norfolk v. Aikens 1 decision which has been applied in most of the decisions reviewed in previous columns.

However, the licensee's question of the effect of the buyer's actual knowledge does raise a point that has not been made in any of the cases discussed in the columns dealing with paragraph 9. Should a buyer, who has actual knowledge of, and agrees to the encumbrances that will remain, be able to use the seller's breach to repudiate the contract?

None of the reasons for judgment refer to the buyer's actual knowledge, either because there was no evidence of it or, if there was, it was not considered to be relevant. It might be relevant where the encumbrances in question are non-financial, such as private easements, rights-of-way or restrictive covenants.

One argument against the buyer is the evolving duty of good faith to complete a contract referred to in Legally Speaking 349. The decisions in columns 245 and 267 concerning private rights-of-way provide another argument because they were not based upon the Norfolk case. Instead, the analysis was based upon whether they would seriously interfere with the buyers' enjoyment of the properties, or would be too minor to do so. This is a complicated matter which includes how the rights of the parties would be dealt with if both parties were essentially in default at the time of closing.

Although it would be an interesting issue for lawyers, it is not one that licensees want to experience. It is easily avoided if each licensee does a title search, or makes the contract subject to a conveyancer's approval, and ensures that the parties agree upon the encumbrances that are to stay on title after closing.

On another matter, and as a result of several calls, it is important to remember to bind a conveyancer to pay commission to an agent. Notice of the assignment of commission from the seller to the listing agent, which is contained in the listing contract, must be received by the conveyancer.

For greater detail on the Contract of Purchase and Sale see columns 155, 160, 188, 198, 245, 267, 317, 340.

 1. Norfolk v. Aikens, 41 B.C.L.R. (2nd) 1990, 145.

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