Vacant Possession #495
CATEGORY: Legally Speaking
TAGS: Breach of Contract Contract of Purchase and Sale Documentation Records Rental Residential Tenancy Vacant Possession
Vacant possession means no one else is exercising possession rights in the property. Section 5 in the standard form Contract of Purchase and Sale (CPS) promises a buyer vacant possession, unless a REALTOR® otherwise records the presence of a tenant.
Every year, the Real Estate Council of British Columbia (the Council) disciplines REALTORS® for failing to properly record residential tenancy matters in contracts, or to follow up to ensure that tenancy concerns are addressed. The recent British Columbia Supreme Court decision in Aulakh v. Nahal shows how the same errors can expose a REALTOR® to civil liability.1
In Aulakh, the listing REALTOR® knew the residential property included two separate, occupied rental units. Although she apparently asked for copies of the respective tenancy agreements, the sellers did not provide them and the REALTOR® evidently did not pursue the matter.
Acting as a limited dual agent, the REALTOR® used the CPS to write the deal. The purchase price was $2,025,000 with a $100,000 deposit and completion and possession on the same day. At the time, the REALTOR® thought the buyer planned to keep the existing tenants, but she left Section 5 unaltered, making no mention of the tenancies and requiring the seller to deliver vacant possession. The REALTOR® testified to the effect that both sides planned to deal directly with each other concerning the tenants, but never documented this arrangement.
While the sellers also thought the buyer would keep the tenants, the buyer expected vacant possession. During the transaction, the sellers took no steps to end the tenancies and the REALTOR® never inquired about the status of tenancy matters.
On the possession date, the buyer refused to complete upon discovering that the tenants were still residing in the property. In the ensuing litigation, each side accused the other of breaching the contract.
The court found the sellers liable for breach of contract for failing to deliver vacant possession. The sellers claimed it was the REALTOR®'s fault for not properly addressing the tenancies in the contract. The court apportioned liability for the deal's collapse at 75 per cent to the sellers and 25 per cent to the REALTOR®. While the buyer was entitled to the return of his $100,000 deposit, he failed to prove damages. Since the buyer couldn't prove damages, the REALTOR® and her brokerage effectively dodged what might have been a very expensive judgment.
The REALTOR® was negligent for failing to record in the contract her understanding that the buyer would keep the tenants, and failing to confirm that expectation. She was also negligent for failing to record in the CPS that the parties would deal directly with each other regarding the tenants, and failing to follow up before closing to ensure they had.
When listing a property with a residential tenant, the Council expects a REALTOR® to obtain a copy of the tenancy agreement. When preparing an offer, use the Council's Confirmation of Tenancy Details Clause:
The Seller warrants that (tenant's name) is a (type of tenancy); the monthly rent is $ (amount) including (utilities included); payable on (day of the month rent is due) a security deposit of $ (amount) was taken on (date) and the last rental increase was (date).
Alternatively, the REALTOR® may attach a copy of the tenancy agreement to the CPS. The law requires a written tenancy agreement; if a seller only has a verbal agreement with the tenant, the tenancy details clause is especially important.
Regardless of the tenancy choices made by the seller and buyer, the listing REALTOR® must make sure that the CPS, and especially Section 5 (POSSESSION), records the tenancy situation accurately, using standard clauses when appropriate. Whatever the parties' tenancy arrangements, the listing REALTOR® should follow up to verify that all tenancy issues are resolved before completion.
|1.||Aulakh v. Nahal, 2017 BCSC 1000|
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