Satisfactory Financing #248

Jan 01, 1996

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By Gerry Neely
B.A., LL.B.

A seller tried to save a deal based upon a Contract of Purchase and Sale that was subject to the purchaser obtaining satisfactory financing, by offering to take back a mortgage when the purchaser was unable to obtain financing satisfactory to him. The purchaser refused this offer and successfully sued for the return of the deposit.

He was able to satisfy the judge that he had met the tests that his decision to decline conventional financing was reasonable, having regard to his circumstances,

The trial judge had said that the purchaser was not obliged to accept the seller's offer of financing, because that was a different deal from the one the purchaser had agreed upon. The Court of Appeal accepted this reasoning which is surprising.

There are a number of advantages for a purchaser who is offered a take-back mortgage, over the financing to be obtained from a conventional lender. Brokerage fees are not a factor and other costs, including legal costs, are generally less. Perhaps as important, the hoops a borrower has to jump through to obtain funds from a financial institution are avoided.

It is apparent from the reasons for judgment that there was a dispute as to when the take-back offer was made and upon what terms. The result might have been different if the offer of take-back financing was made in a timely manner and the terms of the mortgage were no more onerous than those required by a commercial lender. It would be difficult for a purchaser who rejected this offer to argue that he acted in good faith in attempting to secure satisfactory financing.1

***

One of the few cases where the question of whether a purchaser used his best efforts to obtain satisfactory financing was tested in an Alberta case, where under a conditional contract for the purchase of a home at $110,000, a $10,000 deposit was paid down and the purchaser was to obtain satisfactory financing for the remaining $100,000.

A bank refused to make the loan when the purchaser's explanation as to the source of the deposit monies was suspect. In an unsuccessful action by the purchaser for the return of the deposit, the judge said that the purchaser's failure to give concrete information in support of the

source of the funding was a failure to use his best efforts.2

***

The strata tide owners of a building used for commercial purposes decided to build an addition to it, and while this would change theconfiguration of the floors, it would continue to accommodate theexisting corporate tenants, and add some residential space. In order to achieve these results under the Condominium Act and the Land Title Act, the owners said that all they were required to do was to prove by special resolution the 'deemed' destruction of the building leading to the cancellation of the strata lots and the issue of a new title registered in the name of the strata corporation; to be followed by the transfer of the assets of the strata corporation to the owners in whose names title would be registered; and ending with the deposit of a new strata plan with strata lots conforming to the changed building configuration in the same owners.

The owners were attempting to avoid obtaining the approval of the municipality which is required upon, 'the conversion into strata lots of a previously occupied building.' While the main purpose of this section is to allow the municipality to preserve existing rental accommodation, its overall impact is to give the municipality the power to review the creation of a new strata plan of occupied buildings.

The owner's argument was that there was no conversion into strata lots because the process of converting from one strata plan to another was done in one single transaction, since all documents were filed in the Land Title Office simultaneously.

This argument was rejected because while the strata corporation remained in existence throughout this process, the strata plan and therefore the strata lots were extinguished. New strata lots were created upon registration of the second strata plan and therefore there had been a conversion for which municipal approval was required.

What this case points out is that we need an amendment to Section 57 of the Condominium Act, to allow for the amendment of a strata plan where additional residential space is being created and not potentially removed, so that the deemed destruction of the building with this complicated and expensive procedure is avoided.3

  1. Flack v. SuArland, 46 R.P.R., p. 1.
  2. 32 Alta. L.L.R., (3d) 189.
  3. Rockwhile Holdings Limited et al v. Linda OfShea, Registrar of the Land Title Office, New Westminster, Reasons for judgment, January 16, 1995.

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