Selling Licensee's Duty to Disclose - No "Subject to Sale" Clause #94

Nov 01, 1986

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By Gerry Neely
B.A. LL.B.

It is the selling licensee who discovers what a prospective purchaser can or cannot afford, or what specific quality or use of the property is of particular interest to the purchaser. Since it is the duty of a licensee to disclose to the vendor all material facts known to the licensee, the selling licensee can protect not only the vendor but all licensees involved in the sale by understanding the importance of and by acting upon the information received from the prospective purchaser.

Two decisions made this year provide examples of the type of information known to the selling licensee that the Court stated should have led the licensee to insert conditions in the offer to purchase. The first case is one that has been discussed widely because of the heavy duty it places upon a licensee. In this case, a selling licensee had known the prospective purchasers for almost fifteen years. They were a couple who intended to marry and were looking for a house for themselves. Both of them would be contributing to the purchase. The woman was very strong-willed with definite ideas as to what she would or would not like. The licensee had shown the man some fifteen to twenty houses, and the woman had looked at some of these without being sufficiently interested to make an offer.

Then the selling licensee and the groom saw a house that both were convinced the groom's fiancee would like. They were so convinced of this that an unconditional all cash offer in the name of the groom was prepared by the licensee, presented and accepted.

Murphy's law fell into place when the fiancee looked at the property and described it as a pile of junk. The groom repudiated the transaction and the vendor suffered damages fixed by the Court at approximately $175,000.00.

According to the Judge, the licensee's liability for these damages arose when he failed to insert a clause in the offer that it was subject to inspection by the groom's fiancee. The need for this arose because the groom's fiancee effectively had a veto power with respect to any purchase, and in addition, was herself supplying a significant part of the purchase price.1

In the second case, in circumstances where the purchasers did not have enough money to purchase and therefore repudiated their contract to purchase, the vendor sued the defaulting purchasers as well as the listing agent and the listing salesperson. They in turn joined in the selling agency and the selling salesperson, claiming that if they were held to be liable in damages then the damages should be paid by the selling agency and the selling salesperson.

The vendors wanted an unconditional offer and the selling licensee advised the prospective purchasers of this when the purchasers said that the only way they could purchase the property was if their own home sold. The purchasers accepted the advice of the selling licensee that the market was strong and they would have no difficulty in selling their own home. When the purchasers were unable to sell their home, the vendor sold at a loss that the Court fixed at $25,000.00.

The action against the listing agent and the listing salesman was dismissed. The selling licensee was held, however, to have a duty to insert in the offer the condition that the purchase was subject to the sale of the purchasers' own home. The Court further stated that the selling licensee should not have encouraged the purchasers to make an offer without a subject to clause and that it was improper to draft and to present the unconditional offer for acceptance. The Judge then divided the liability for damages 50/50 between the purchasers who could have insisted upon the insertion of the clause but chose not to do so, and the selling licensee and selling agency.2

Column #28 provided another example of a circumstance where liability arose for a licensee who failed to insert a condition in the offer to purchase that would have prevented the purchaser from successfully refusing to complete.

  1. Cuttell v. Bentz, 70 B.C.L.R., p. 85.
  2. Lord v. Arts et al, S.C.B.C. 1986 B.C.D. Civil 3799-03.

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