Norfolk v. Aikens #155

By Gerry Neely
B.A. LL.B

This decision of the British Columbia Court of Appeal led to the distribution among the boards of a two-clause addendum to the Standard Contract of Purchase and Sale. This was done because the reasons for judgment highlighted the distinction between the conveyancing practice through which almost 100% of all real estate sales are completed, and the obligations which are imposed upon vendors and purchasers who sign the standard contract.

The decision has been analyzed in several articles written for distribution to the members of the boards. The comments received from licensees by the British Columbia Real Estate Association indicate that there is still some uncertainty as to the reason why this case led to the conclusion that amendments to the standard contract were desirable. Hence, the reason for this column.

The standard contract requires the purchaser to pay all of the sale proceeds to the vendor, and the vendor to deliver to the purchaser a title free of financial encumbrances, all on or before the completion date. However, the majority of real estate transactions involve a purchaser who cannot pay the full sale proceeds until the application for the transfer of title has been filed and mortgage monies have been advanced, and a vendor with a mortgage to be discharged who cannot discharge it until the sale proceeds have been received.

In these circumstances, both the vendor and the purchaser might be forced to obtain interim financing to enable, firstly the vendor to obtain the discharge of his mortgage, and, secondly, the purchaser the cash he has to provide the vendor to become entitled to receive a registrable transfer of title to the purchaser.

The only reason these steps are not required is because of the exchange of undertakings given between lawyers or notaries acting on behalf of the parties, i.e. "If you give the executed transfer documents to me as solicitor for the purchaser, then I promise to pay the net proceeds to you on behalf of your client the vendor, upon your promise to discharge your client's mortgage.

There are no words in the standard contract which authorize this long standing conveyancing practice. Therefore, this practice is only effective where there are willing vendors and purchasers.

A vendor who doesn't want to complete can demand that the purchaser tender all cash on the closing date in exchange for the transfer of title, knowing, in all probability, that the purchaser cannot obtain the mortgage monies until title has been transferred to the purchaser. An unwilling purchaser, on the other hand, can insist that the vendor clear the title of financial charges without first having in hand the purchaser's monies. The inability of either party to meet these demands relieves the other party from completing.

The potential risk for licensees is that if the sale collapses, the disappointed party may attempt to recover his loss from the licensee who prepared the contract, on the basis that the licensee failed to create a binding contract. Since it is difficult to assess this risk, a joint committee of the Canadian Bar Association and the British Columbia Real Estate Association prepared the two-clause addendum intended to be signed at the time the standard contract is signed.

The first clause allows the vendor to defer the registration of the discharge of a mortgage until the vendor has received the sale proceeds. The second clause enables the purchaser to defer payment of the full amount due to the vendor until the mortgage proceeds are received by the purchaser's conveyancer.

These clauses are to be reviewed this fall as part of the annual examination of the standard contract. At that time a different approach to dealing with Norfolk v. Aikens may result. The clauses have not had universal approval amongst boards and lawyers. Some boards have adopted the clauses as drafted without modification; at least one board has modified the clauses to reflect local conveyancing practice but recommended their use, and one board has rejected their use. Legal opinion differs as to the significance of the Norfolk v. Aikens decision. Lawyers are concerned that the addendum may force them to accept an undertaking from a lawyer or notary public whose undertaking they would otherwise have refused to accept.

While I share the latter concern, it is my opinion that the clauses are useful because they meet the specific problem discussed in Norfolk v. Aikens of the vendor who needs to clear financial charges and the purchaser who needs mortgage monies to complete.¹

1.

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

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