Tips for Using Clauses and Amending Contracts of Purchase and Sale #541
CATEGORY: Legally Speaking
TAGS: Amending Contracts Contract of Purchase and Sale Subject Conditions Time is of the Essence Clause
Standard form contracts of purchase and sale are very useful in real estate transactions. They are familiar, well-tested, and cover off all the basics and much more. However, real estate is complicated and the one-size-fits-all approach may not fit every situation. In cases where a standardized contract of purchase and sale does not entirely address the specific needs of the transaction adding terms and conditions – or clauses – can allow parties to conduct due diligence. That said, doing so should be done with care, since improperly drafted clauses can result in unhappy clients, unenforceable contracts and possible disciplinary action.
While changes to contracts may sometimes be required, a good place to start is by using clauses and terms. Regardless, when amending the contract of purchase and sale or crafting a clause, it’s all about the details. A properly crafted term is concise and results in clarity around what is required for a term to be fulfilled and by whom. Below are some guidelines to consider.
Amendments to Contracts
While it may seem simple enough to change contract terms, there are some important guidelines and principles for REALTORS® to keep in mind when drafting a contract or in making amendment.
- Ensure Consistency of Terms Ensure Consistency of Terms
Firstly, no matter what change is being made, contracts need to be clear. Realtors should review the entire contract to make sure that there are no contradictions between the standard term or term that have been added deals. When a contract deals with the same subject matter differently in different places, this creates confusion and leaves room for later disputes. Talk to your managing broker or a lawyer if you have any questions or concerns because improperly worded clauses can result in a discipline complaint or legal action against the real estate licensee.
- Use Subject Clauses
The second guideline worth mentioning has to do with subject clauses, also called “conditions precedent”, “conditions”, or “subject conditions” (the terms are interchangeable in this context). These are the most commonly included changes or additions to the standard form contract of purchase and sale, since they will be unique to each transaction. Subject clauses require clear dates by which they must be fulfilled or waived. Lack of clarity on the subject deadline makes it uncertain whether that subject will be enforceable, and in some cases whether the contract itself is binding.
- Identify the benefitting party or parties
Subject clauses involves including the following phrase after each subject condition: “This condition is for the sole benefit of the [Buyer/Seller]”. The party named in that phrase – typically the benefitting party – is the party who needs to waive or declare fulfilled the condition before the parties are bound to complete the contract.. Just because a subject term does not specify for whose benefit it is included, that does not mean that the contract can never become binding. However, it means that it is less clear who has the power to determine whether the subject can be waived, leaving room for disputes. It is better to be clear about who benefits from the condition.
Post-contract amendments are a distinct category of contract changes because at this point the parties already have an unconditional contract in place. However, that does not mean the terms of that contract cannot be changed if all parties agree.
It’s important to remember, however, that if a contract is being amended after it has been executed, this would result in re-opening the contract, and Realtors should recommend that the parties seek legal advice before doing so.
Until an amendment is finalized and agreed to by both parties, the existing, unamended terms of the contract will remain enforceable. If the amendment is never agreed to then the original terms of the contract of purchase and sale will continue to govern.
Two specific post-contract changes to consider are altering transaction dates and significant amendments. Here are some tips for how to deal with those scenarios.
- Amendment to Transaction Dates
Where amendments are made to applicable dates in the contract, the parties should reiterate in the amendment that time is still of the essence (time is of the essence is one of the standard form contract clauses that makes clear that the parties intend to strictly enforce the dates agreed to). Reiterating this concept helps avoid an argument that timelines under the contract are no longer strictly enforceable since the parties have already agreed to change them, suggesting they are no longer as important.
- Significant Amendments
As noted above, amendments are not effective until they are agreed and signed off on by all parties. However, there may be circumstances where the amendments a client is proposing are significant. In those cases, there is sometimes an argument that the party proposing the amendment is signaling that they will not complete the contract on its prior terms, and that may attract legal consequences for breach of contract, or “advance repudiation” in legal terms. Those cases are rare and are avoided if the Realtor presenting the amendment makes clear that their client intends to complete the contract originally negotiated even if the parties do not reach an agreement on the amendment. This can be confirmed in the amendment itself or in a covering email.
They say the only constant is change, but making sure you help your clients make changes in their real estate transactions responsibly will ensure their interests are served well. As always, it is important to talk to your managing broker and considering seeking legal advice when dealing with complex issues.
For more guidance clauses from the BC Financial Services Authority on using clauses, click here.
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