The Duty to Review Contract Terms #467

Jan 01, 2014

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By Jennifer Clee
B.A., LL.B.

BC courts have accepted that the Limited Dual Agency Agreement (LDAA) limits certain general obligations that a licensee has to their clients. However, licensees must remember that while their duty of loyalty and disclosure are modified by the LDAA, they still owe a duty of "full and fair disclosure of all material circumstances and of everything known to him respecting the subject matter of the contract which would be likely to influence the conduct of the principal."1 Other general duties of a licensee remain intact when acting in a limited dual agent capacity.

In Pepper's Produce, the plaintiff company (the buyer) agreed to buy a grocery business operated by the seller. Licensees acting as limited dual agents represented both the buyer and seller. The seller's lease with the landlord provided that the lease for the grocery premises could not be assigned without the landlord's written consent. The buyer's offer was subject to certain conditions, including the landlord approving the purchaser to assume the existing lease by a certain date.

There was a conflict in the evidence as to whether the buyer was to assume the existing lease or enter into a new lease. The evidence at trial was that, at a meeting held prior to subject removal between the principals of the buyer and seller and the landlord, the landlord either agreed verbally on the terms of a new lease, or was agreeable to entering into a new lease. However, the terms were not finalized and the landlord did not testify.

The buyer subsequently removed all subject conditions without entering into either a new lease or obtaining the landlord's written consent to assign the existing lease. When the completion date arrived without either a new lease or the landlord's written consent to the assignment, the buyer refused to complete.

Both the buyer and seller claimed the buyer's $15,000 deposit. Ultimately, the seller settled with the buyer, returning the buyer's deposit plus $10,000. The buyer also claimed against the licensees for $31,000, allegedly for buying and storing equipment to be used in the business.

The main issue considered by the court was whether the licensee had a duty to advise the buyer against removing the lease subject when no new lease or written consent to assume the existing lease was in place. The court considered the general duties owed by a licensee and acknowledged that the LDAA limited, to some extent, the normal obligations owed by a licensee.

However, the court stated that it found "nothing that excludes the basic duty to fully discuss the terms and effect of a contract, and to at least point out terms that are clearly not in a party's best interest."2 The court held that a reasonable licensee would be expected to recommend against removing the lease subject condition until a new lease or proper assignment was in place.

The court also found that the licensee should have known that if the lease was to be for a term of more than three years, only a written agreement would make the agreement binding in light of Section 59 of the Law and Equity Act3 and should have advised the buyer that a verbal agreement with the landlord was insufficient.

Despite finding the licensee to have breached their contractual and agency duties to the buyer, the buyer's complaint was dismissed, as it was unable to prove damages caused by the licensee's conduct.

The decision is an important reminder for licensees to:

i) fully discuss, and ensure that clients understand, the terms and effects of the documents they sign; and
ii) ensure that all agreements between parties are reduced to writing.

  1. Pepper's Produce Ltd. v. Medallion Realty Ltd., 2013 BCSC 2314.
  2. Pepper's Produce Ltd. v. Medallion Realty Ltd., p. 6.
  3. R.S.B.C. 1996, c. 253.

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