February 21st - 2014

Legal Beat: Prove you took reasonable steps to fulfill terms

A typical OREA conditional clause may include the following words: “Unless the buyer gives notice in writing delivered to the seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule

Mervin Burgard Q.C.

A typical OREA conditional clause may include the following words: “Unless the buyer gives notice in writing delivered to the seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than ____ p.m. on the _____ day of ___________, 20___, that this condition is fulfilled, this offer shall become null and void and the deposit shall be returned to the buyer in full without deduction.”

When making an offer, buyers often include a condition to obtain financing, a home inspection or whatever else they require. They later say that the condition was not met and demand the return of the deposit from the brokerage’s trust account.

The sellers often do not agree.  The buyers then counter by saying, “the clause says the deposit SHALL be returned ...”! This topic comes up frequently in OREA’s Legal Forum. I refer readers to the RECO Registrar’s Bulletin – Failed Agreements of Purchase and Sale: Return of Deposit on its website and also the extensive OREApedia article on the Real Estate Trust Account – Deposits and the Terminated Transaction.  

In a recent B.C. case, the parties were to have the lands subdivided but did not do so because there was a water problem that needed to be resolved.  The sellers made very little effort to abide by their contractual obligations and were therefore liable for breach of contract.

Kepke v DeGagne 2011 BCSC 285

MERV’S  COMMENTS

Mervin Burgard Q.C.The judge ruled that “The common intention to transfer a parcel of land in the knowledge that a subdivision is required in order to effect such transfer must be taken to include agreement that the vendor will make a proper application for subdivision and use his best efforts to obtain such subdivision. (Emphasis added.) The vendor is under a duty to act in good faith and to take all reasonable steps to complete the sale.  If the vendor fails to comply, he or she will be in breach of contract and liable for damages.  Smith J. stated that what constitutes ‘all reasonable efforts’ and whether the vendor has made them will depend on all the circumstances surrounding the proposed subdivision and the approval process.”

In other cases, the same comments have been applied to both sellers and buyers satisfying their conditions. Prove that you took reasonable steps to honestly fulfill the terms of your agreement. REALTORS® should not release the deposit unless the parties sign a Mutual Release form or obtain a court order terminating the transaction or everyone agreeing and directing that payment be made into court or to one of the parties or their lawyers. 

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