The Millennium Bug - Will It Y2K-O Us? #299

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

Between those whose Y2K predictions are of nuclear bombs accidentally detonating, others who say Y2K is nothing but hype by the media and the Y2K specialist consultants who benefit from compliance work, there are a number of conservative computer system analysts who believe that North America will face disruptions in 2000 from minor system failures. Therefore, it is prudent to anticipate how system failures might affect real estate transactions, and prepare for the consequences of minor disturbances that may delay closing.

It is possible that multiple transactions, where buyers depend upon receiving the proceeds of sale of the buyers’ residences, may collapse because of one Y2K problem in one of the transfers. It is possible that despite its best efforts, the Land Title Office may not be able to process applications for registrations because of a Y2K problem which is external to its operation. It is possible that even if Land Title Office applications are processed, Y2K problems may result in a delay in receipt of mortgage monies or payment out of law firms’ trust accounts of the amounts due to sellers.

While we cannot predict all of the problems, our objectives should be to minimize litigation, hold contracts together and be prepared for questions as to whether the seller or the buyer will bear the cost of remedying a Y2K problem.

When I first started to research material for this column I had thought naively that the most obvious way to avoid a Y2K problem would be to close transactions before January 1, 2000 (a Saturday), and after the first week in January when the minor failures that may occur will have been remedied. However, that date is only one of three dates that may be critical, the other two being September 9, 1999 (9/9/99 may signal the computer to shut down) and February 28, 2000 (a leap year coinciding with the century year).

In addition, a Y2K consultant to the Federal Government has given his opinion that 25 per cent of the likely Y2K computer failures will occur in the last half of this year, that only 8 per cent of the problems will surface immediately following next New Year’s Eve and a further 55 per cent throughout the year 2000.

While this is only one man’s opinion, the uncertainty suggests that we should add to the Contract of Purchase and Sale a clause containing at least the following elements.

Firstly, an agreement that if closing cannot be completed solely because of a Y2K problem which prevents either party from fulfilling its obligations, then an extension of the time for completion, possession and adjustment or a combination of these three would be agreed upon.

Secondly, if the party with the Y2K problem is unable to resolve it, at that party’s cost, within the period of the extension, the other party would have the right to terminate the contract, the deposit would be returned and neither party would have any liability to the other. The commission, would it or would it not, be payable?

We should anticipate whether some of the included items described in paragraph 7 of the Contract of Purchase and Sale may have a Y2K problem. According to the most recent information the usual kitchen appliances are not likely to be affected by Y2K, while alarm systems and "wired" houses may.

Paragraph 7 contains the seller’s warranty that the included items will be in substantially the same condition on possession date as when viewed by the buyer. They may look the same on January 2^nd but if they are not in working order it will be difficult to say that they were in substantially the same condition. Should this warranty be modified to exclude a Y2K problem, therefore shifting the cost of remedying it to the buyer?

Should there be a comment added to the Property Disclosure Statement that, while the seller is unaware of a Y2K problem, the seller has made no attempt to determine whether a problem exists. If a contract is entered into in 1999 with closing and possession in January 2000, should the seller accept responsibility for remedying the cost of a Y2K problem which becomes known to the seller after January 1^st but before the date of closing?

This column raises more questions than answers, which I intended it to do. I understand that of the number of Y2K books published one is Y2K It’s Too Late and another Panic Now. Don’t buy them. I hope I am right in saying it is not too late and it is too early to panic.

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