Wait, One More Thing – Amending Real Estate Contracts #565

Under BC law, contracts for the purchase and sale of real estate must be in writing to be enforceable. When contracts are in writing, there is generally greater certainty about what terms the parties agreed to. However, just because a contract of purchase and sale is made in writing, it does not mean the contract terms cannot be changed if all parties agree.

Amendments need to be in writing and signed by all parties to the transaction to be effective and clients may require legal advice with respect to amendments, particularly if they are complicated. 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 remain in force.

Timing of Amendments

There are two separate periods where amendments to a contract are generally made: before and after subjects are removed. The process of amending in both cases is the same. However, there are some practical differences between those two periods. Before subjects are removed, the party entitled to declare fulfilled or waive the subject is the one whose actions will determine whether or not the contract becomes firm. In other words, whether or not the parties become bound to complete the deal is in their hands. Parties must make reasonable efforts to remove subject clauses. Therefore, before subjects are removed, and in the absence of a backup offer, the party entitled to do so may have a fair amount of leverage to propose amendments.

Common Amendment Topics

One of the contract amendment issues that may arise pre-subject removal is an attempt by the buyer to obtain a price reduction due to items identified at a property inspection. If there is a subject-to-inspection clause and issues are raised about the quality or construction of the property at issue, then buyers are generally within their rights to try to negotiate a price reduction if they choose. However, they should do so cautiously so as to avoid any unintended consequences. The seller does not have to accept any price reduction, of course, but if they do not agree to negotiate, the seller risks a situation where the buyer does not declare fulfilled or waive subjects, collapsing the deal.

Another issue that can arise at any time is amending contract dates, such as closing or possession dates or the date on which a deposit is due. Before subjects are removed, the subject removal date may also be adjusted by agreement. The standard form Contract of Purchase and Sale includes a "time is of the essence" clause, which confirms that the dates used in the Contract of Purchase and Sale are precise and late performance is unacceptable, even if there is no prejudice. Where parties agree to change one or more of the dates in the contract, the amendment should confirm that time is still of the essence and that all other terms of the contract remain unchanged. Reiterating the time is of the essence concept helps avoid an argument later that the contract dates are no longer important or strictly enforceable despite the parties having agreed to change them in the past.

Included or excluded items are another area where the parties may want to change their bargain after the fact. It is best practice to discuss included or excluded items with both buyer and seller clients before an offer is made or accepted. However, if the parties agree to include or exclude an item later on, an amendment can be drawn up.

Risks to Enforceability

It is important to note that for an amendment to be enforceable, some value must be provided to and from each party. In other words, a party agreeing to a change at the other party's request and/or that is to the other party's benefit must be rewarded for that in some way to make the amendment enforceable. The value does not have to be significant; it can be a small sum of money or a change to another term of the contract that the party accepting the initial change finds beneficial, but some value must be provided. This is one of the specific reasons to refer clients to a lawyer to discuss any amendments to ensure this requirement, called "consideration,” is met.

An attempt to renegotiate a contract is unlikely to risk the enforceability of the original agreement, but it is possible that proposing an amendment will reopen the contract, which may allow either party to walk away from the deal. Because of these potentially serious consequences, you should advise your client to seek legal advice before proposing an amendment, particularly if the amendment proposes a substantial change. If a client claims they will not complete the contract on its current terms and will only complete if an amendment is made, you should immediately recommend they seek legal advice. If the other side of the transaction is advised of that strong position, they may claim the party threatening not to close has breached the contract in advance, which may also threaten the enforceability of the contract.

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