Standard Contract of Purchase and Sale Clauses: Common Misunderstandings and Confusions – Part Two #567
CATEGORY: Legally Speaking
TAGS: Acceptance Irrevocable Contract of Purchase and Sale Date of Completion Offer Possession Representation and Warranties
In part two of this series, we will look at clauses regarding Time, Representations and Warranties, and Acceptance Irrevocable in the standard residential Contract of Purchase and Sale (CPS). As discussed in part one of this series, parties in a transaction and their representatives have come to expect the standardized form of CPS when contracting for residential real estate. However, some clauses in the CPS can be confusing for buyers, sellers, and REALTORS® alike.
There are several clauses in the CPS that relate to time:
- Section 4 Completion
- Section 5 Possession
- Section 11 Documents
- Section 12 Time
- Section 26 Offer
- Section 27 Acceptance
Arguably, terms in Sections 3 (Terms and Conditions), 13 (Buyer Financing), 14 (Clearing Title), 16 (Risk), and 23 (Disclosure of Buyer’s Recission Right) also relate to time. For this article, we will be focusing on Section 11 (Documents).
Section 11 (Documents) states, “All documents required to give effect to this contract will be delivered in registrable form where necessary and will be lodged for registration in the appropriate Land Title Office by 4 pm on the Completion Date”. On the face of it, this would seem to mean that closing must occur before 4 pm. However, the time for completion and delivery of funds has been a source of many court decisions. Most recently, in Sandhu v Uppal Farms & Greenhouses Ltd,1 the Judge concluded that the buyer’s failure not to register closing documents in the Land Title Office prior to 4 pm was only a ‘technical breach.’ The court found that as long as the buyer registered and made the sale proceeds available at some time on the completion date, the buyer was not in breach as the CPS did not require the buyer to pay the seller before the end of business hours on the completion date.2
There are often last-minute complications with documents, scheduling complications with lawyers, or other last-minute hiccups that arise. Despite the outcome in this case, REALTORS® should advise their clients to have met any pre-funding mortgage conditions and obligations for closing (such as delivering proceeds to their legal representative and signing closing documents) prior to the completion date to avoid any delays in closing and potential disputes.
Representations and Warranties
The starting point regarding the condition of the property in any real estate transaction is the principle of caveat emptor, also known as ‘buyer beware’. Essentially, this means the responsibility for determining and checking the quality and suitability of a property is that of the buyer. One way for buyers to protect themselves is to include and rely on representations and warranties from the seller.
Section 18 (Representations and Warranties) states that “there are no representations, warranties, guarantees, promises or agreements other than those set out in this Contract and representations contained in the Property Disclosure Statement if incorporated into and forming part of this contract, all of which will survive the completion of the sale.” This section is incorporated into the CPS to limit the claims for damages that the buyer can make against the seller. It also restricts the right to rescind based on misrepresentation, by limiting representations and warranties made outside of the CPS. For example, representations that may arise through verbal correspondence between the REALTOR® and buyer at an open house. However, this clause has not stopped judges in the past from considering representations and warranties provided outside of the CPS for determining if there is a valid claim for damages against a seller or a right of recission for a buyer to terminate a contract.
Since these cases are all fact-specific, REALTORS® should ensure they always include this clause in the CPS. However, even if the clause is included in the CPS, they should still be cautious regarding any verbal or written representations and warranties made to Buyers outside of the contract.
The second part of Section 18 “…all of which will survive the completion of the sale,” is included to defeat any claim from the seller that all the representation and warranties merge on closing. The common law doctrine of merger is the concept that all agreements between the buyer and seller merge at closing with the delivery of title to the buyer and the acceptance of such title by the buyer. If the doctrine of merger were to apply, a seller may have a defence against any claims from the buyer post-closing.
Section 22 (Acceptance Irrevocable) states the CPS is “executed and sealed by hand or by digital or electronic signature and seal, or otherwise, is hereby executed under seal…”, and therefore it has the same effect as if the CPS had been “physically sealed by wax, stamp, embossing, sticker or other manner.” The Section confirms that on this basis, the Seller’s acceptance is irrevocable.
So, what does all of this mean? Why are we referencing wax and seals? Why is the CPS signed under seal?
The reason the CPS is executed under seal is to avoid an argument that the contract is not legally binding due to a lack of consideration. However, despite the fact that the CPS was signed under seal, some court decisions had still found the then current version of the CPS was not legally enforceable because there was no consideration.3 However, since these decisions, Section 22 has been updated to confirm both parties’ intention to execute the CPS under seal. The intention of the parties is key in determining whether a contract has been executed under seal, and this intention must be conscious and deliberate.4 REALTORS® should be diligent when drafting the CPS to avoid subject conditions that are too vague or entirely subjective which can render a CPS unenforceable.
REALTORS® need to ensure they understand the standard terms of the CPS as it is important that they explain and review them with their clients. Additionally, REALTORS® need to stay up to date on recent case law to understand how the Courts interpret and apply the terms and clauses in the standard CPS.
For additional information on the CPS and standard clauses, the CPS Residential Toolkit offers annotated forms reviewing the terms, REALTORS® and consumer videos, guides on how to complete the form, FAQs, and links to PD opportunities to further gain knowledge on contracts. See it here.
|Sandhu v Uppal Farms & Greenhouses Ltd, 2022 BCSC 1373
|Sandhu v Uppal Farms & Greenhouses Ltd, 2022 BCSC 1373 at para 41-47.
|1021846 B.C. Ltd. v. Hare, and Pooni v. Storsley
|1021846 B.C. Ltd. v. Hare at para 74, and Pooni v. Storsley at para 21.
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