October 12th - 2012

Form frenzy: Waivers mistakenly used over fulfillments

In the heat of real estate deals, changes to documents often happen quickly in a flurry of pen strokes.

Forms flying everywhereIn the heat of real estate deals, changes to documents often happen quickly in a flurry of pen strokes. And because REALTORS® must often move at a frantic pace to meet deadlines, there may be times when you use a form that is not the most appropriate for the situation.

Confusion around two particular forms sometimes occurs, says lawyer Lou Radomsky, an OREA instructor and counsel to the OREA standard forms committee. Waivers, which are commonly used by REALTORS®, are sometimes used when a notice of fulfillment of condition is more appropriate, he says.

“Each form has its place, and it’s important in real estate to use precisely the right form for each circumstance,” Radomsky says. “Your role is to help your clients navigate through a pile of paper that looks like a haystack to them.”

Choosing the most appropriate document ensures that your written records are clear, which gives better protection to you and your business if a problem or question occurs in the future.

Buyers often include one or more conditions in their offer. The party proposing the condition must usually confirm in writing whether or not the condition has been met to their satisfaction, and therefore whether the transaction can go forward.

In many cases after a condition is met, REALTORS® remove it with a waiver. However, Radomsky notes that this is not always the correct way to proceed. Sometimes the notice of fulfillment is the better choice.

“If you had asked me 25 years ago about a notice of fulfillment, I wouldn’t have had a clue what it was -- even though it’s a form that’s been around for much longer,” says Radomsky. “The fulfillment is not used as often as it should be, although more education on this is starting to correct the problem.”

Piles of formsA waiver is an intentional relinquishment of some right or interest, a renunciation, abandonment or surrender of some claim, according to the Real Estate Encyclopedia (Canadian Edition). It is most commonly used to remove (waive) conditions in an agreement or contract through another written document. On the other hand, a notice of fulfillment is a document confirming that the conditions have been met (fulfilled).

After a condition such as home inspection or financing has been met to the client’s satisfaction, the document to be signed in that case by the buyer is a notice of fulfillment. This paper is then delivered to the seller, acknowledging that the buyer’s condition has been met and the purchase is now unconditional.

For instance, if buyers ask for a satisfactory home inspection as a condition of the agreement of purchase and sale (APS) and the inspector notes several issues, the buyers must then decide whether to proceed. If they feel the issues are minor and they still want the house, they may want to sign a waiver, which removes or sets aside the condition of a home inspection. However, if the home inspection reveals no issues of concern, they may want to sign a notice of fulfillment, which indicates that the condition has been met. A waiver removes the condition from the agreement of purchase and sale, but it does not state that the condition was actually met.

“Although the two approaches may accomplish the same result, if there’s a misunderstanding or legal conflict later on, you as a REALTOR® might regret not using the proper form,” he notes. “A notice of fulfillment confirms in writing that the client performed the action, and makes it crystal clear that this condition has now been met completely. Removing the condition with a waiver does the opposite: it says he didn’t get exactly what he wanted but decided to proceed anyway. This may leave a question down the road. If an issue arises in six months, a fulfillment provides more solid evidence that a condition was met than a waiver would.”

Waivers are commonly used by REALTORS® and are often seen as the “go-to” form. Removing a condition by waiver is a quick, easy solution in the midst of deadlines, but the notice of fulfillment is sometimes the better choice.

Another example is a financing condition. “Let’s say the buyers make an offer conditional on being able to get a mortgage, and then they get the one they were after,” says Radomsky. “In that case, most REALTORS® would use a waiver, but the fulfillment is technically the correct form.”

A waiver cannot be used in several scenarios. Some conditions must be fulfilled and cannot be waived. For example, when a buyer assumes an existing mortgage and requires approval from the bank, you shouldn’t use a waiver. After the lender approves the buyer, a notice of fulfillment must be used. And if a landowner has a large property that he wants to sever into multiple smaller pieces and applies to the municipality for severance, a waiver cannot be used before the severance is approved. In these examples, it’s a mistake to include a waiver clause with the condition when drafting an APS.

Use the best form for the situation and explain all documents to your clients. “Pumping out forms and saying ‘sign here’ and ‘now sign here’ is not the way to go,” Radomsky says. “Even though it takes more time, it’s vital to discuss the significance of each form.”

When a client wishes to complete a transaction despite the fact that a condition has not been fully met, a waiver should be used. Alternatively, when a condition has been completely met, a notice of fulfillment should be used. OREA recommends using OREA Standard Form 123 – Waiver in the former situation and Standard Form 124 - Notice of Fulfillment of Condition in the latter.

To see a discussion among REALTORS® on this topic, visit the OREA LinkedIn group. (You must have or sign up for a LinkedIn account to access this.) For more information, see the OREApedia topic of Offers/-APS-Conditions.

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