Tenancies, Subject to Existing #101

Mar 01, 1987

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By Gerry Neely
B.A. LL.B.

Lower interest rates have helped fuel a sharp increase in demand for properties in Victoria and the Lower Mainland, and I trust, throughout the Province. The increased demand has led to fewer listings and that will result in increased prices if demand continues. No one now anticipates that this increased demand will lead to the dramatic rise in value of real estate that occurred in two or three months in the fall of 1980, to be followed only a few months later by a devastating drop.

The drop led a number of desperate vendors or purchasers to repudiate their deals, resulting in lawsuits in which licensees were joined, to their financial dismay. The lesson from this that your Boards would like you to recall, is the necessity of keeping on top of prices and trends. In addition, it may be equally as important to retain the file in which you have placed your notes and other evidence as to how you arrived at value, to refresh your memory if you are called upon to give evidence 18 months to two years after the sale took place. The consequences of not keeping on top of prices are discussed in Legally Speaking columns numbered 74 and 75. As you will see from number 75, it is not enough merely to establish value at the beginning of the listing. It is important to be able to advise your principal during the listing whether or not the price should be revised upward.

* * *

Most Boards' contracts of purchase provide in the printed form that the purchaser offers to purchase the property free of all encumbrances except for easements, rights of way, etc. and except for existing tenancies. In another part of the form, it is agreed that the purchaser is to have possession at a certain time and on a certain date, subject to existing tenancies.

Most lawyers would assume that the tenancies referred to were those in existence at the time the offer to purchase was made and accepted. Occasionally someone would argue that the tenancy referred to was the tenancy in place at the date the purchaser was entitled to possession, rather than the date the offer was made.

A Judge of the Supreme Court of British Columbia has given a decision dealing with this specific point. The facts in the case were that a purchaser made an offer which was accepted, to purchase property free and clear of all encumbrances except those specified, one of which was "an existing tenancy". Further along the printed form provided that the purchaser was to have possession of the property subject to existing tenancies at 12:00 noon January 31, 1981.

The offer was made December 18, 1980 and the vendors promptly leased the property to a tenant who went into possession on December 31, 1980. Happy New Year. The purchaser didn't think so when he discovered not only that the tenant was in possession but that the tenant would oppose any attempt to evict him.

When the purchaser took legal advice and was advised of the cost and time involved in trying to evict the tenant, and when he found that the vendors were not prepared to accept responsibility the purchaser repudiated and demanded the return of his deposit. Not only did the vendors decline to accept this, but they sued for specific performance and damages of almost $90,000.00.

The Judge had no difficulty in giving judgment for the purchaser and awarding damages against the vendors. He stated that they could not create a tenancy which prevented performance of the sale. They created the circumstances which led to its collapse and were unilaterally in breach of the conditions of the sale.

The proposed BCREA standard form of contract was amended to clarify this.

  1. Bhayna v. Lam,S.C.B.C. No.C820893, Vancouver Registry.

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