September 10th - 2010

Clauses should clarify terms of agreement between buyer and seller

Get it in writing…and get it right. A good clause in an Agreement of Purchase and Sale (APS) exists to make sure that the requests of both parties are accurately reflected.

Get it in writing…and get it right. A good clause in an Agreement of Purchase and Sale (APS) exists to make sure that the requests of both parties are accurately reflected. An APS is not the place for clauses for the benefit of the salesperson or brokerage.

Good clause dos and don’ts
The July/August 2010 edition of the REALTOR® EDGE discussed clauses and the creation of clauses for the Agreement of Purchase and Sale. The article made the point that the OREA Standard Clauses were just examples and REALTORS® may have to create clauses to deal with specific situations– or modify one of the OREA Standard Clauses. Seek legal advice if there’s any doubt that a clause you want to insert in the agreement is not adequate for the situation.

Not all clauses/conditions are appropriate for the APS. The purpose of the agreement is to establish the terms of the agreement between buyer and seller and to create a binding agreement. As a general rule, clauses that are inserted solely for the benefit of the brokerage should not be included in the agreement.

Avoid clauses:

  • creating an obligation to pay commission and/or determining the amount of commission
  • declaring agency disclosure matters
  • authorizing the brokerage to advertise the sale and the sale price of the property
  • confirming one of the parties will not be including certain clauses in the offer (such a clause is for the benefit of the brokerage only and there is a specific OREA form for this purpose- Form 127)
  • attempting to eliminate the brokerage’s liability for providing the information necessary to arrange the transaction.

OREA was recently contacted by a member who has become increasingly dismayed and alarmed by many of the clauses that are now commonly included in agreements. When a clause is inserted in an offer, it becomes an essential part of the negotiations. If one of the parties objects to the clause, it can be removed and this can result in a counter-offer. This can be a problem, particularly in a multiple offer situation. It would be unfortunate if a clause inserted purely for the benefit of the brokerage makes the difference in whether or not a client’s offer is accepted.

The Real Estate Council of Ontario recognizes the importance of this issue. In a discipline decision concerning the conduct of the listing brokerage and salesperson (http://www.reco.on.ca/publicdocs/20040128_5940.pdf), RECO stated: “The Agreement of Purchase and Sale is not an appropriate document for commission changes or issues between the seller and listing brokerage.”

There is also a strong legal argument that such clauses have no force. The brokerage is not party to the agreement and it can be argued the buyer and seller are not receiving any consideration for agreeing to clauses that benefit the brokerage.

Deal with the deal
OREA does not assume the responsibility for creating all the necessary clauses for all situations and no doubt, it would be virtually impossible to do so. The OREA Real Estate College courses to qualify a candidate for registration provide information necessary to create a correct and appropriate clause. But there will always be unusual circumstances. Imagine a buyer who wants to verify that it will be possible to move a grand piano into the home at a cost that is not prohibitive. You will not find a clause/condition in the OREA Standard Clauses to deal with that situation.

The basic rule is: if it does not clarify the terms of the agreement between buyer and seller, the clause should probably not be included in the agreement. Even the condition to verify the piano can be moved into the property is a valid concern for the buyer and may be appropriate for the offer, but a clause authorizing the brokerage to advertise the sale – not likely!

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246