When Disaster Strikes #490

By Jennifer Clee 
B.A., LL.B.

What happens when a property is damaged by fire before completion? Must the buyer complete or can the buyer walk? What if the buyer wants to complete with a price adjustment? A buyer's options will depend upon a myriad of factors including the law, facts, contract terms and the parties' conduct.

In Gill v. Zhang,¹ three days before completion, the buyers learned that the property they had contracted to buy had been damaged by fire and could not be repaired before completion. Despite the damage, the buyers still wanted to complete, but with a price adjustment.

The parties' version of the events following discovery of the fire conflicted. The buyers maintained they remained willing to continue with the contract, subject to receiving information from the sellers about the fire and their insurance and negotiating a price adjustment. The sellers did not produce the requested information and refused to discuss any accommodations that would allow the contract to complete, maintaining that the buyers' lawyer had told the sellers the sale would complete with no price change. The sellers advised the buyers to complete or alternatively, consider the contract terminated. The sale did not complete and the buyers sued the sellers for specific performance with abatement of the price.

The Court considered the following issues:

1) Whether the sellers breached their obligation to deliver the property in the same condition as when viewed by the buyer (clause 8 of the Contract of Purchase and Sale);

2) Whether the buyers breached their obligation to complete on the completion date (clause 12, which relates to time being of the essence); and

3) Whether specific performance with an abatement of price was an appropriate remedy.

The Court found that the sellers breached the contract by their inability to deliver the property in accordance with clause 8 and by their failure to act reasonably to address the consequences of the fire.

With respect to the second issue, the Court cited the buyers' options given the sellers' breach: either to affirm the contract (in which case the contract remained in force with all its original terms) or to accept the sellers' repudiation (in which case both parties were relieved of their contractual obligations). The Court acknowledged, as a general principle, the buyers' right to a reasonable opportunity to assess their position and the damage before electing to affirm or to accept the sellers' breach.

It was evident, from the correspondence between the buyers' lawyer and sellers' notary, that the buyers had not accepted the sellers' repudiation, but rather wished to continue with and to affirm the contract subject to receiving more information and to negotiating a price adjustment.

The issue then was whether the buyers had affirmed the contract, rendering the buyers in breach of clause 12 when they did not complete. This issue turned on credibility, given the conflict in the parties' evidence. The Court did not accept the sellers' evidence, finding the buyers had not affirmed the contract, but rather had indicated their intention to affirm with a price adjustment. Consequently, the Court found the buyers had not breached their obligations under the contract and the sellers could not require payment of the balance of the purchase price in circumstances where they were unable to convey what they were required to under the contract.  

The Court granted the buyers' application for an order for specific performance with an abatement of the purchase price after the Court accepted the property was sufficiently unique to the buyers.

As Gill illustrates, when a property has suffered damage before completion, a party's conduct can significantly impact their legal rights. Accordingly, if a licensee learns, prior to completion, that a property has been damaged by fire, flood or by some other event, the licensee should immediately advise their client to seek legal advice.

1.

Gill v. Zhang, 2016 BCSC 1464 (CanLII) .

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