Mental Health and Mental Capacity in Real Estate Contracts #560

Mental health is always a topic worth discussing because, as conversations about mental health are becoming more and more open, we realize that it touches all of our personal and professional lives in some way. However, mental health issues are still very personal and private and generally up to individuals to discuss (or not) on their terms. This may create issues where there are questions about a person’s capacity to enter a contract, such as a listing contract or a contract of purchase and sale of real estate, making it a particularly relevant issue for real estate professionals to consider.

The general principle is that in order to enter into an enforceable contract, a person must have the mental capacity to do so. The goal of this rule is to ensure that a person is capable of understanding the contract terms and appreciating that they are committing to certain legally binding obligations. This is one of the reasons that people under the age of 19 are not able to enter into enforceable contracts, except in rare, specific circumstances; this protects minors from committing to contract terms they may not be able to grasp fully. However, the courts will presume that an adult has capacity unless specific evidence proves the contrary.

There is also an important distinction in law between someone with mental health issues and someone who truly lacks the required mental capacity to enter into a contract. The Supreme Court for British Columbia has recently cautioned against blurring “the concepts of mental health disability, mental illness, and lack of capacity” (Binng v Gill, 2022 BCSC 1479 at paras. 144 ff.). Proving a lack of mental capacity is an extremely high bar, since the courts are very hesitant to interfere in parties’ existing contracts, given the economic and other turmoil that the resulting uncertainty would create. It also furthers the important public policy interest in protecting disability rights, which are guaranteed under the Canadian Charter of Rights and Freedoms, the BC Human Rights Code, and the Canadian Human Rights Act, by recognizing the critical difference between someone who has a disability and someone who is truly incapable, a difference that for many years was not recognized, resulting in great harm and discrimination to many disabled persons.

These distinctions are not always easy to determine, and questions about mental capacity can create a minefield of legal, privacy, and human rights issues. However, though difficult, they may need to be answered to properly protect a person’s interest in purchasing or selling property. Some indicators of mental capacity issues are:

• confusion about existing circumstances (date, reason for the meeting or discussion, identity of the parties),
• significant confusion about fundamental elements of the transaction, and
• repeated questions in a short period of time about key terms.

Capacity can also come and go. In other words, someone not legally capable of entering into a contract one day may be capable of doing so the next. It is a very fact-specific and sensitive analysis that may need to be repeated if contracts are being entered into at different times, for example, when making several offers or counteroffers.

In the context of a loan dispute, there is a helpful discussion about the factors in a lack of capacity analysis in the BC Civil Resolution Tribunal decision of iFinance Canada Inc. v B.M., 2021 BCCRT 164 at paras. 20-36.

REALTORS^® owe a duty of care, and this includes ensuring that their clients have the mental capacity to enter into a contract. If a REALTOR^® has concerns about a client's capacity to enter into a contract, particularly if there are indications of memory impairment, dementia, or other mental disabilities, they should take steps to address those concerns. In such cases, a REALTOR^® should be especially vigilant and take extra precautions to ensure their client is fully aware of the contract terms and the legal obligations they are committing to.

If you have any concern about a client’s capacity to enter into a contract, or some concern about the capacity of the parties on the other side of a transaction, you should be taking steps to alert your clients to that concern. If the issue is your client’s capacity and you are not sure your client can instruct you any longer, you should talk to your managing broker and seek legal advice. Whether or not someone is capable of entering into a contract is a legal determination and is best made by a lawyer, often with the assistance of health care professionals.

To subscribe to receive BCREA publications such as this one, or to update your email address or current subscriptions, click here.

Without limiting the Terms of Use applicable to your use of BCREA's website and the information contained thereon, the information contained in BCREA’s Legally Speaking publications is prepared by external third-party contributors and provided for general informational purposes only. The information in BCREA’s Legally Speaking publications should not be considered legal advice, and BCREA does not intend for it to amount to advice on which you should rely. You should not, in any circumstances, rely on the legal information without first consulting with your lawyer about its accuracy and applicability. BCREA makes no representation about and has no responsibility to you or any other person for the accuracy, reliability or timeliness of the information supplied by any external third-party contributors.