Aug 01, 2002

Fire Damage Before Closing - Rights and Responsibilities of Buyer and Seller; Easement With or Without Motor Vehicles - No Parking on Easement Area #350


By Gerry Neely

When a fire destroyed or damaged a house before the completion date for its sale, at common law the buyer had to complete the purchase and pay the contract price, unless the contract otherwise provided. For this reason, the Contract of Purchase and Sale includes Clause 16 which allocates risk to the building between the parties. A case involving a fire that damaged a rental property in Whistler prior to the closing date discussed what the seller and buyer should do to preserve their respective rights against each other.

The judge summarized their remedies to say the buyer's rights were to have a conveyance of the property with a reasonable decrease in the price. The seller had the right to an extension of closing to permit negotiations to proceed. These mutual obligations meant each had to act in good faith to set a new closing date that would allow them to arrive at a reduced price. Either party's failure to meet these new obligations might result in a finding that the party had repudiated the contract, leading to a loss of rights.

The buyer suggested a two week extension for closing, but the seller would only agree to one week. The buyer proposed a substantial reduction in the price and wanted a registrable agreement for sale during the construction period to prevent the seller from encumbering the property. The seller unsuccessfully countered with an offer to complete at the contract price and rebuild, but refused to provide compensation if the building was not restored by the date the buyer had set. The seller then offered to complete and assign the cash proceeds of insurance to the buyer. This offer was unacceptable to the buyer because the cash proceeds were substantially less than the cost of repairs.

In the litigation that followed, the buyer sued for specific performance of the Contract of Purchase and Sale. The seller resisted this and sued for forfeiture of the deposit. Neither party succeeded, the judge holding that each party had failed to act reasonably and in good faith. The buyer's failure was to insist upon having the agreement for sale, a term not included in the contract. The seller's failure to agree upon a reasonable extension of time for negotiations and to give any reduction in price was a breach of her obligation to negotiate in good faith.1

Clause 16 has remained substantially unchanged for decades in both the Contract of Purchase and Sale and its predecessor, the Interim Agreement. While it could be altered to avoid litigation such as the foregoing, what would be the appropriate wording of the change? Commercial leases and commercial property sales provide some guidance.

For example, if the damage exceeds a set percentage of the sale price, either party may terminate the contract. Anything less requires an abatement of the price. In commercial leases, the question of whether the landlord or the tenant can terminate the lease is tied to how long it will take to restore the damaged premises. Having said this, the rarity of incidents of this kind, and the concern that an alteration of a standard form contract may create more problems than it solved, are good arguments against change. However, some thought may be given to altering this clause in addendums for the sale of unique or more valuable properties.

* * *

Another example of how the wording of a standard clause could be altered easily to prevent litigation is found in an easement for a common driveway shared by owners of adjoining properties subdivided from a single lot. The access clause contained the usual wording giving the owners and their servants and agents the right "to pass and repass over the said property with or without motor vehicles."

One owner allowed guests to park on the easement and put in portable curbs to assist his guests in parking. Neither was placed so as to obstruct the passage of other vehicles. The other owner objected to these acts.

The British Columbia Court of Appeal held that the wording of the easement did not allow parking or curbing, but that temporary stopping by fuel trucks or service vehicles did not amount to parking (one assumes that the latter part of this decision would apply to allow the dropping off and picking up of guests.)2

 1.Buckwheat Enterprises Inc. v. Shiu, 48 R.P.R. (3rd), p. 73.
 2.Banville v. White, 100 B.C.L.R. (3rd), p. 88.

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