A real estate purchase and sale is one of the most significant decisions and transactions undertaken by the average individual in their everyday life. Typically the financial implications of the transaction are significant and accordingly the decision-making process can be fraught with stress and anxiety.
In some situations, the result is a sudden desire on the part of either the purchaser or seller to not close the transaction for which they have already signed a binding agreement of purchase and sale.
We have received inquiry from parties who are the subject of binding agreements of purchase and sale seeking to explore their options to avoid closing the transaction in question. In the course of these conversations, we are generally asked about the effect if conditions contained in the agreement (i.e. home inspection) are not waived or satisfied, and the opportunity that may provide for the transaction to be avoided.
The short answer is that a party cannot utilize or rely upon the failure to satisfy a condition as justification to avoid the closing of a real estate transaction if the reliance is done in bad faith. In the Supreme Court of Canada case of Dynamic Transport v. OK Detailing, the court implied that each party is under an obligation to do all that is necessary on their part to secure performance of the contract.
Essentially a condition precedent to the closing of a real estate transaction can only be relied upon by a party acting in good faith. In cases involving conditions precedent, a party cannot take advantage of the condition unless is it acting in good faith and has made reasonable efforts to satisfy the condition. Focal Properties Limited. v. George Wimpy (Canada) Ltd. Marlo v. Savage.
Further, conditions such as a home inspection may not rise to the level of a condition precedent, and accordingly may not be relied upon even in good faith to avoid closing a transaction unless the outcome of the inspections reveals fundamental, significant, and unforeseen issues going to the heart of the deal.
Accordingly if you have entered into a binding agreement of purchase and sale that includes conditions that must be satisfied or waived by the closing, you are under an obligation to act in good faith to take reasonable steps to ensure that those conditions are satisfied. Any indication that a party is not acting in good faith resulting in a failure to satisfy or waive a condition could be grounds for a claim for breach of contract seeking full performance and closing of the transaction in question, or alternatively a claim for damages arising from the failure to close including forfeiture of deposits.
Posted by D. Jared Brown – Team Lead