Purchaser's Home Subject to Sale Before a Certain Date #198
CATEGORY: Legally Speaking
TAGS: Contract of Purchase and Sale Real Estate Council of BC
By Gerry Neely
A common condition in an offer is that it is subject to the sale of the purchaser's home on or before a certain date. In these circumstances it is the duty of the purchaser to use his best efforts to sell his home. Is there an additional obligation to accept the price which an appraiser says is the fair market value of his home?
This question was debated in an Ontario case concerning a contract that contained the following clause: "This contract may be terminated by the purchaser if the purchaser is unable to obtain a contract for the sale of the purchaser's home at ... on or before July 19, 1990, and so notifies the vendor on or before that date."
Real estate prices started to fall shortly after the contract was signed and, although with extensions the purchaser had almost two months to find a buyer, no offers were received. On July 18th, notice to terminate was given. On July 19th, a friend of the vendor made an offer of $170,000 to the purchaser's asking price of $179,000. This was rejected because the net amount the purchaser would have received was insufficient to complete the purchase of the vendor's home.
When the dispute over the deposit was litigated, the vendor's appraiser gave evidence that the price offered was in excess of the fair market value of the purchaser's home. Evidence on behalf of the purchaser was that his asking price was reasonable and the judge was satisfied that he had acted reasonably in his attempt to find a buyer.
While the vendor said the purchaser's duty was to accept the offer, the judge replied that he could not ignore the purchaser's realistic assessment of his budget and the amount he needed to complete his purchase. The purchaser had met the test of reasonableness and was not duty bound to accept the last minute offer.
A vendor might avoid this result by adding a clause that required the purchaser to accept a cash offer in excess of a certain amount. This would force the purchaser at the beginning of the negotiations with the vendor, rather than at the end, to decide what is their "bottom line". It would also give the vendor the right to sue for the deposit or for specific performance if the purchaser was unable to complete.
This is a risky clause for a purchaser to use because an inadvertent omission to give notice to terminate in time means that the contract continues to be binding upon the purchaser even if his home hasn't sold.1
One of the 1992 reports of the chairman of the Real Estate Council of British Columbia, reported the suspension of a licensee for failing to advise a purchaser that there was an easement registered against property which a purchaser had offered to purchase, as a result of which the vendor was unable to successfully enforce the contract against a defaulting purchaser. This decision by Council is a reminder of the desirability of searching the title of any property which is the subject of an offer made through a licensee.
Clause One of the Contract of Purchase and Sale lists the charges which a vendor is not required to clear from title. These include "restrictive covenants and rights of way in favour of utilities and public authorities." (see Column #160 for a discussion of rights of way.)
Many titles are subject to restrictive covenants not in favour of utilities and public authorities, including lots charged with the restrictions contained in a statutory building scheme created when a subdivision plan was registered.
Unless a licensee adds to the contract a clause stating that the title will continue to be subject to restrictive covenants contained in the building scheme or other encumbrance (preferably with reference to the Land Title Office encumbrance numbers) a reluctant purchaser may successfully be able to avoid completion by pointing to the vendor's inability to clear title.
|1.||Barge v. Boyd, 2017 BCSC 226.|
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