August 10th - 2010

Expand your knowledge of clauses and conditions

Real estate transactions are loaded with issues that require carefully worded clauses and conditions to keep the deal on track. OREA Standard Clauses are used by members on a daily basis.

Real estate transactions are loaded with issues that require carefully worded clauses and conditions to keep the deal on track. OREA Standard Clauses are used by members on a daily basis.

Although there are many clauses, there really are no “standard” clauses. Often situations are unique and require the clauses and conditions to be modified. It is ultimately the responsibility of each member to ensure that the clauses in their agreements are adequate for the situation and, if there is any doubt, legal advice should be sought. REALTORS® have a fiduciary duty to draft the offer so the interests of their clients are protected.

REALTORS® need to ensure that the appropriate conditions are included in the offer, that they are clearly and properly drafted, and that clients are aware of their obligations and the consequences of their actions during the conditional period. REALTORS® must ensure appropriate notices are given to either remove conditions when they have been met or waive them if they have not (if they can be waived), or otherwise deal with them.

Clarity is critical when it comes to drafting clauses and conditions. The courts may be called upon to interpret the exact wording that was used by the REALTOR® and intended by the parties.

For example, wording for the given time period for a clause or condition is a common problem area that can easily be solved with clearer language. Using the term “banking days” or “business days” in this era of 24/7 access may cause unintended results. The Ontario Court of Appeal has held that these terms are “clearly vague and uncertain.” The two parties to the agreement of purchase and sale may have completely different interpretations of a “banking day” or a “business day” so you’ll need to make sure that the agreement accurately reflects both parties’ mutual understanding.

OREA recognizes the possibility of disputes over terminology such as “banking days” or “business days” and has replaced such wording with “unless the buyer gives notice in writing… not later than 5:00 p.m. on the 22nd day of July, 2010 (or any other specific date and time.)

Not only is it important for REALTORS® to use caution and professionalism when inserting or removing conditions, but also when not including conditions in the offer/counter offer/APS. REALTORS® have been held liable for not recommending conditions be included in certain circumstances. For example, in the 2004 decision in Wood v Hungerford, the judge found that the REALTOR®, as the buyers’ agent, did not meet her fiduciary obligations and standard of reasonable care and competence since she failed to:

  • make any inquiry about defects in the home
  • notice the readily observable floor slope
  • advise her clients of the existence and potential significance of this defect in the house
  • recommend a building inspection and the inclusion of an inspection condition in the offer
  • advise the buyers that the sellers had preferred their offer over a full price offer in part because there was no inspection condition.

If a buyer elects to forgo any conditions and make a firm offer on a property, a REALTOR® would be wise to document the advice given to the client. This can be done by including an appropriate condition in an offer, having a buyer stroke it out and initial it prior to the signing offer. Alternatively, a buyer could sign an acknowledgement that the REALTOR® had suggested including a condition in an offer but the buyer had declined the protection. Either way, a REALTOR® should clearly demonstrate that every attempt was made to protect the interests of the buyer client. OREA Standard Form 127 – Acknowledgement re: Condition(s) in Offer allows a buyer to take responsibility for their actions when they are removing a condition that has not been fulfilled or when they are making an offer without a condition.

Looking for a clause?
The best place to start searching for an appropriate clause is the OREA Standard Forms Booklet - Guidelines for Residential & Commercial Clauses (available online in the Members Only section of the OREA website – www.orea.com). The samples in the booklet can be used as a starting point to help draft the appropriate conditions and related clauses to suit the particular circumstances of the transaction.

The more you know about clauses and conditions, the better you will be prepared to avoid costly mistakes. Other resources are available for members who want to learn more about standard forms and clauses. The OREApedia topics Offers/APS– Conditions and Offers/APS – Representations, Misrepresentations and Warranties are excellent resources. In addition, many questions and answers on clauses are dealt with in the Legal Forum section of the OREA website under Topic – Offers, Subtopic – Conditions & Other Clauses. Visit www.orea.com to view the OREApedia topics and Legal Forum.

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Ontario Real Estate Association

Jean-Adrien Delicano

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JeanAdrienD@orea.com

416-445-9910 ext. 246