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LAW 455 – Real Estate Transactions TOC \o "1-3" TRANSACTIONS PAGEREF _Toc500188098 \h 2Parties Involved in Real Estate Transactions PAGEREF _Toc500188099 \h 2Listing Agreements PAGEREF _Toc500188100 \h 2Types of Listing Agreements PAGEREF _Toc500188101 \h 23 Fundamental Elements of Real Estate Agreements PAGEREF _Toc500188102 \h 3The “Heart” of the Land Title Act: ss. 20 and 23 PAGEREF _Toc500188103 \h 3Types of Title PAGEREF _Toc500188104 \h 4Reserves (Federal Crown) and Aboriginal Claimed Lands PAGEREF _Toc500188105 \h 4MARKETING THE PROPERTY PAGEREF _Toc500188106 \h 5Regulatory Framework PAGEREF _Toc500188107 \h 5Mechanisms for discipline under RESA: the Real Estate Council PAGEREF _Toc500188108 \h 5Principal-Agent Relationship PAGEREF _Toc500188109 \h 5Definition of an Agent PAGEREF _Toc500188110 \h 5THE CONTRACT OF PURCHASE AND SALE PAGEREF _Toc500188111 \h 7Standard Form Contract PAGEREF _Toc500188112 \h 7Written/Non-Written Agreements PAGEREF _Toc500188113 \h 9Types of Agreements PAGEREF _Toc500188114 \h 9Implied Terms of a Contract PAGEREF _Toc500188115 \h 10Deposit PAGEREF _Toc500188116 \h 11Conditions Precedent PAGEREF _Toc500188117 \h 13Environmental Issues PAGEREF _Toc500188118 \h 15Indemnities & Releases PAGEREF _Toc500188119 \h 15Structure of Parties PAGEREF _Toc500188120 \h 16Interim Period PAGEREF _Toc500188121 \h 16Warranties/Representations PAGEREF _Toc500188122 \h 16FINANCING THE PURCHASE PAGEREF _Toc500188123 \h 17Mortgages PAGEREF _Toc500188124 \h 17Overview of a Mortgage PAGEREF _Toc500188125 \h 17Nature of a Mortgage PAGEREF _Toc500188126 \h 17Elements of a Mortgage PAGEREF _Toc500188127 \h 18Power of Sale – Foreclosure PAGEREF _Toc500188128 \h 20Statutory Protections PAGEREF _Toc500188129 \h 20Enforcement of Mortgages PAGEREF _Toc500188130 \h 22Defaults in the Process PAGEREF _Toc500188131 \h 24Title Defaults PAGEREF _Toc500188132 \h 24Vendor’s Obligations PAGEREF _Toc500188133 \h 24Damage to Property - Risk PAGEREF _Toc500188134 \h 24Patent & Latent Defects PAGEREF _Toc500188135 \h 25Misrepresentation PAGEREF _Toc500188136 \h 25Time of the Essence (TOE) PAGEREF _Toc500188137 \h 25COLLAPSING TRANSACTION PAGEREF _Toc500188138 \h 26Tender PAGEREF _Toc500188139 \h 26Remedies PAGEREF _Toc500188140 \h 28COMPLETION/CLOSING PAGEREF _Toc500188141 \h 30Undertakings PAGEREF _Toc500188142 \h 30Procedure for Purchase & Sale PAGEREF _Toc500188143 \h 31POST-COMPLETION PAGEREF _Toc500188144 \h 31The Doctrine of Merger (DOM) PAGEREF _Toc500188145 \h 31Implied Covenants PAGEREF _Toc500188146 \h 32Warranty of Fitness (Habitability) PAGEREF _Toc500188147 \h 32Title Covenants PAGEREF _Toc500188148 \h 32TRANSACTIONSParties Involved in Real Estate TransactionsAGENTSAn agent is someone authorized by a principal to act on the principal’s behalf. The legal consequence of this agency relationship is that the actions of the agent are legally binding on the principal. E.g. if A authorizes X to be their agent and X goes out and sells A’s house, A is bound by the sale. Serve as business liaisons. They compile relevant information so they can inform investors of why a certain purchase is a good investment. (i.e. the proponents and cons of buying a particular property)Generally paid through commission on the sale of the property (payment mechanism outlined in the listing agreement/agency agreement between agent and vendor or agent and purchaser)VENDOR AND PURCHASERMust understand the motivation of these parties for the transaction – is it a residential purpose, investment, specific industrial use?LAWYER (not notaries – prof hates notaries)Can give advice on listing/agency agreement, purchase agreementsNotaries may also be involved in simple conveyance transactions where no legal issues are in disputeListing AgreementsListing agreements have three primary functions (5-1(4)):Sets out authority of the agent to represent the owner in the transactionOutlines how long the term of the listing agreement will lastHOWEVER, clauses can dictate that even if after the term of agreement expires, if an agent introduces a particular buyer to the vendor and the buyer ultimately buys the property, even after the expiration of the agreement, the vendor may owe commission to the agentSet out how much the broker will get paid – commission Sets out terms (i.e. triggers) under which the broker will be paid (when/how they will be paid)i.e. “on the completion of sale,” “if agent brings a purchaser who is willing to purchase but vendor refuses to enter into K, agent must be paid”Must be in writingUnder Real Estate Council Rule 5-1(3), the service agreement must: be signed by the client; be signed by an authorized signatory of the brokerage; and clearly state all the agreement’s terms and conditions.The name of the client and the licensee name of the brokerageA description of the property: the address of the real estate in relation to which services will be provided under the Listing Agreement (PID, legal description).The term: how long the Listing Agreement will last, e.g. typically 6 months. (the date it is effective, and when the agreement expires)A general description of services to be provided: rights, powers, responsibilities of the agentTypes of Listing Agreements(1) EXCLUSIVE LISTING AGREEMENTArises between a vendor and a broker in which that particular broker is the only agent that will represent the vendor.No one else has the authority to represent the vendor regarding that particular saleUNLESS broker is authorized to delegate some authority to another party in terms of that sale (most exclusive listing agreements will have a clause like this)Privity between vendor and listing agent is CLEAR – the relationship is governed clearly(2) MULTIPLE SERVICE AGREEMENTAllows the vendor’s broker to share commissions with other brokersWhen there are multiple brokers working on a single sale, it blurs the relation between the sub-agent and the vendor (privity issue). The multiple service agreement is designed to mitigate this issue.Residential sales generally use the multiple listing serviceGives agent authority to list the property on a service that aggregates all agents in the MLS systemEveryone that is a part of the MLS is a sub-agent for everyone else’s listings, can provide offers and is then entitled to a part of the commissionThe one who is the effective cause of the sale gets the commission(3) OPEN/GENERAL LISTING AGREEMENTVendor can hire as many agents as he/she desires to sell the property, but only the agent who is the cause of sale receives commission An open agreement is entered into by each agent and with the vendor(4) EXCLUSIVE RIGHT TO SELLNo matter who sells the property/buys the property during the term of that agreement, the agent gets the commission3 Fundamental Elements of Real Estate AgreementsDescription of the Property: PID, legal descriptionPrice: Certainty about the exact price or a formula to determine the priceParties: Description of buyer/sellerThe “Heart” of the Land Title Act: ss. 20 and 23S. 20 of the LTA provides that a document or instrument will not affect title unless that document or instrument is registered. An unregistered contract will still bind the two parties who made it, e.g. an agreement about an easement is enforceable as between the two parties to the agreement, even if the agreement is not registered. However, an unregistered instrument will generally not affect third parties, e.g. if the property affected by the easement is sold without the easement being registered, the easement is no longer enforceable (reason: privity). Above does not apply to leases of less than 3 years in which the tenant is actually occupying the property (those leases are still effective even if not registered, so if you bought a place that had a less than 3-year lease, you can’t kick them out)S. 23 of the LTA provides that title is indefeasible. Registered title is “conclusive evidence at law and in equity, as against the Crown and all other persons” of the title that you are claiming (s. 23(2)). However, under s. 23(2), indefeasible title is subject to a number of exceptions, which include: Exceptions to Crown Grant: s. 50 of Land Act provides that there are certain things the Crown won’t give away, e.g. gold, oil, minerals, gravel etc. S. 23(2)(a) of Land Title Act provides that a registered owner holds indefeasible title subject to these exceptions to the Crown grant.Property taxes: taxes are a lien on the land that arises at the beginning of each year. However, taxes are not an enforceable lien until you fail to pay your taxes on time. (s. 23(2)(b))Basically, if you don’t pay your taxes for 2 years, you may lose your fee simpleCity can take title via tax saleSome leases: whether or not a lease is registered, if that lease is for a term not exceeding 3 years and if the tenant is in “actual occupation”, a registered owner holds indefeasible title subject to that lease. (s. 23(2)(d))Highways and public rights of way: (s. 23(2)(e)) Expropriation: indefeasible title is subject to the right of a public agency (e.g. the City, BC Hydro, Telus, BC Transit) to take/expropriate your interest for public use in exchange for compensation under other acts, like BC’s Expropriation Act. (s. 23(2)(f)) – only the province has the inherit right to expropriateLiens: different statutes can allow liens to arise, e.g. the Workers Compensation Act creates a lien on all the assets of an employer who does not pay their assessment; the Strata Property Act gives a strata the right to place a special lien on your property if you fail to pay monthly strata fees. s. 23(2)(c)Wrong description of boundaries or parcels: indefeasible title is held subject to the right of a person to show that all or a portion of the land is improperly included in title due to an error in the description of the boundaries or parcels. (s. 23(2)(h))Fraud: if you obtained title by fraud, you do not hold indefeasible title. (s. 23(2)(i))*Important: s. 23 indefeasible title applies not only to land, but the ownership of charges (e.g. registered mortgages), as well. A lender with a registered mortgage will hold title to that mortgage indefeasibly, subject to the exceptions set out in s. 23. The lender’s priority with respect to other interest holders will be governed by s. 28 of the Land Title Act, which provides that priority is based on the time and date of registration. If a lender holds an unregistered (equitable) mortgage, s. 20 of the Land Title Act suggests that that unregistered mortgage will not affect title vis-à-vis the world. Yeulet stands for the proposition that an unregistered equitable mortgage may take priority over registered judgments, depending on when the unregistered equitable mortgage arose. Other relevant sections of the LTAS. 23(3): repeals title by adverse possession (no squatting ownership)S. 26: registered charges have the same indefeasibility as title ownership, but registration does not guarantee enforceability of the chargeS. 27: that registration of a document is notice to the world of the instrument that you are registering. In other words, registration of a charge gives notice of that charge to every person dealing with title. S. 29: an unregistered document, regardless of whether you knew about it, has no effect on you unless you are involved in some fraud. Fraud is a very high standard to meet (hard to prove). S. 33: an equitable mortgage cannot be registered. The LTA does not recognize a split in legal and equitable ownership > title registration system assumes that there is a single owner who owns both. But second (equitable) mortgages are registerable as charges.Types of TitleLegal Title: Legal right to the land – registered ownershipBeneficial Title: Beneficial title is the right to the benefits of the lands – all the rents, profits etc. and the obligation to the burdens (taxes etc). The BC land title system does not recognize a difference between legal and beneficial title and assumes it is all one. It is possible in the common law to split legal title to one owner and beneficial title to another owner. The legal owner holds the legal interest (registered title) in trust for the beneficial owner. There must be some type of agreement to record the terms on which the legal owner holds the lands. This agreement is generally not registered in the land title office but can be to show a trust relationship.The nominee agreement (‘off title agreement’) is a sample bare trust agreement. Registered owner holds for beneficial owner and does with the land whatever the beneficial owner tells the legal owner to do.Not registered – s. 20 of the LTA says that this may still be enforceable between the partiesThis relationship is used to avoid property transfer tax because you can transfer the ownership of a company that is the legal owner by transferring the shareholding and not have to register any transfer in the land title office.Reserves (Federal Crown) and Aboriginal Claimed LandsAll reserves established under the Indian Act are federal lands.Federal crown owns the land and gives first nations rights to occupy.Crown gives certificates of occupation or leases to first nation people or first nation companiesRights are registered in the Indian Lands registry maintained by the federal crown.First nations can sublease to any other parties and mortgage those interests and all are recorded in the Indian Lands registryThe federal government gives a Certificate of Occupancy to a First Nation individual or group, which is then registered in the Indian Lands RegistryCan be sub-leased, but not sold – can be registered in the Indian Lands Registry (only a filing cabinet, does not act like the Land Title system)Some band have entered into a first nation land management regime which allows them to create their own system to manage reserve lands.Example – West Bank FN in Kelowna operates their own land title registry system under the Indian lands registry framework, creates bylaws and land use controls.Claimed Lands – s. 35 of the Constitution Act preserved unextinguished FN rights. Any land rights that existed and where not given up by treaty at that time are enshrined.Tsilhqot’in Nation: Evolution of litigation that started with Sparrow in the 1990’s stating certain usage rights were maintained and why they could be limitedDelgamuuk’w confirmed title is a communal right, but can be limited for a compelling and substantial objective and with consultation In Tsilhqot’in, if there is a clear title claim, the band holds the exclusive right to decide how the land is used subject only to the restriction that the use must be consistent with the nature of the interest and enjoyment of the land by future generationsPrior to establishment of title, Crown must consult with FN before alienating lands (sell, transfer, lease, licence)After establishing title, any incursion to title must have a compelling and substantive objective and be consistent with the Crown’s fiduciary duty to the FN and idea of use by future generationsConsultation must be effective or the Crown’s disposition of lands can be undoneApplication to an Exam Fact Pattern:The crown has a duty to consult before giving away land that may be effected by a land claim.Would you get representations, a condition that would allow you to investigate, a condition that allows the vendor to solve the title issue?? How would those steps work in a contract by either making the contract more difficult to enforce or put obligations on the parties??How would you use those tools to protect from a land claim issue but still keep the contract enforceable?You can use representations from the seller, which if they are wrong, could give rise to damages or rescission depending on how the reps are interpreted. You could insert a condition for the purchaser to be satisfied with the vendor’s steps to consult have been effective.?You could have a condition for the vendor that it has completed consultation.?What are the consequences of such conditions – do they make the contract less enforceable?MARKETING THE PROPERTYRegulatory FrameworkMechanisms for discipline under RESA: the Real Estate CouncilS. 4(1): that an unlicensed person cannot bring a claim for remuneration in relation to real estate services, subject to the exception in s. 4(2) for a person who is licensed or otherwise authorized to provide real estate services and “act in a capacity equivalent to that of a brokerage under this Act” in another jurisdiction. S. 73: creates the Real Estate Council of BC, whose function is to: (a) administer the Act and its regulations, rules and bylaws; (b) maintain and advance the knowledge, skill and competency of licensees under the Act; and, (c) uphold and protect the public interest in relation to the conduct and integrity of licensees. S. 35(1): a licensee can commit professional misconduct by contravening the Act, breaching a restriction or condition of their licence, doing “anything that constitutes wrongful taking or deceptive dealing”, or “demonstrates incompetence in performing any activity for which a licence is required”. Further, s. 35(2) provides that a licensee commits “conduct unbecoming of a licensee” if they engage in conduct that is: (a) contrary to the best interests of the public, (b) undermines public confidence in the real estate industry, or (c) brings the real estate industry into disrepute. S. 36: a person can file a written complaint to the Real Estate Council if they believe that a licensee may have committed professional misconduct or conduct unbecoming of a licensee. S. 37: the Real Estate Council can conduct investigations and hearings (either on its own initiative or in response to a complaint) to determine whether a licensee has committed professional misconduct or conduct unbecoming of a licensee. Real Estate Council hearings are subject to the principles of fairness. The outcome of a Council investigation or hearing can be a reprimand, a fine, a requirement for further education, a suspension of a licence, or the termination of a licence (all the orders that the Council’s discipline committee can make are set out in s. 43 of RESA). S. 112: sets up a special compensation fund for the purpose of providing reimbursements under Part 5 of RESA for people defrauded by agents (e.g. where money held in trust has gone missing). Principal-Agent RelationshipDefinition of an AgentAn agent is someone authorized by a principal to act on the principal’s behalf. The legal consequence of this agency relationship is that the actions of the agent are legally binding on the principal. E.g. if A authorizes X to be their agent and X goes out and sells A’s house, A is bound by the sale. An agent has two types of authority:Express authority: authority that is expressly given by the principal to the agent in a contract, e.g. a Listing Agreement. Implied authority: authority that is implicitly given by the principal to the agent, through words or conduct (“the reasonable person lens”)Agent will have implied authority to delegate obligations to sub-agent if (Carmichael: the vendor’s agent had the implied authority to delegate his obligations to a sub-agent b/c parties knew from beginning sub-delegation might occur):It’s within the practice of the business to do soWhere the principal knows from that outset of the relationship that the agent they have hired may delegate authority to a sub-agentBy the actual conduct of the partiesWhere the nature of the authority given to the agent required delegationIn the case of an emergency; Where the action that the sub-agent took was administrative in nature only. Dual Agency:Rule 5-10 of the Real Estate Council Rules provides that an agent must disclose whether they (or a related licensee) expect to provide real estate services to any other party in relation to the same transaction (possible conflict of interest!). But if both parties agree in writing, the same agent can act for both parties. The dual agent is supposed to be impartial to both the vendor and the purchaser, and must fully disclose all information related to the transaction. Dual Agency will likely be eliminated in January, 2018.Duties owed to vendorDuties owed to purchaserListing Agent (vendor’s agent)Owes the vendor express contractual duties provided for in the Listing Agreement.Owes the vendor implied contractual duties of skill and diligence. Owes a duty of care to the vendor (where the standard of care is that of a reasonable and prudent agent); (Price v Malais: failure to investigate title before making title as a clear breach of the duty of care)Includes care in drafting documents for their clients (Moharib: Agent drafted a shitty offer that was ambiguous when it wasn’t meant to be, this was breach of DOC)These duties are construed strictly against the agent (Re Crackle: Helped principal sell home and then purchasing home from purchaser for higher price was breach of duty to principal (duty could carry after transaction completed))Owes a fiduciary duty to the vendor, to act in the vendor’s best interests at all times and not let any actual conflicts of interest arise; 3-Step Test (International Corona):Fiduciary has scope for the exercise of discretion or power (ability to act)Fiduciary can unilaterally exercise that power discretion to affect beneficiary’s legal or practical interests (i.e. they can hurt the beneficiary)Beneficiary is particularly vulnerable/at the mercy of the person holding the fiduciary powerOwes statutory duties to the vendor; RESA and Real Estate Council Rules. Rule 5-3: agent cannot sign K on behalf of vendor w/o written authorization. Rule 5-3.1: if there is an offer from a prospective purchaser, the agent must promptly communicate this offer to the vendor. purchaser. Rule 5-4: agent must also promptly communicate signed acceptance of an offer. Rule 5-5: agent must not induce any party in a transaction to break an agreement for purpose of entering into agreement w/ another party. Rule 5-9: agent must disclose promptly any direct or indirect interest they have in a real estate transaction; Manning Family Trust. Incl. acquiring an interest in the land later (Re Crackle)Rule 5-10: agent must disclose promptly whether they or a related licensee expects to provide services to any other party in relation to same transaction.Rule 5-13: if the vendor urges the agent to hide a material latent defect, the agent has a statutory duty to withdraw themselves as the vendor’s agent. Owes the purchaser (and all other prospective purchasers) the statutory duty to disclose all material latent defects; Rule 5-13. Owes the purchaser the statutory duty to promptly deliver signed acceptance of an offer from the vendor to the purchaser; Rule 5-4. Owes the purchaser the statutory duty not to make an inducement representation unless it is in writing; Rule 5-6. Owes the purchaser the statutory duty to disclose promptly any direct or indirect interest they have in a real estate transaction; Rule 5-9 and Manning Family Trust. Owes the purchaser the statutory duty to disclose promptly whether they or a related licensee expects to provide services to any other party in relation to same transaction; Rule 5-10. Owes the purchaser the duty of care not to negligently misrepresent informationBango v Holt: Where an agent is found to have negligently or fraudulently misrepresented information, their principal/the vendor will also be liable for this dishonesty b/c of agent-principal relationship; Smith v Yeasting. Selling Agent (purchaser’s agent)*The sub-agent in an MLS agreementMay owe the vendor a fiduciary duty; Knoch Estate (rare cases) – tried to establish a fiduciary duty from the purchaser’s agent to the vendorNo privity of contract between a sub-agent and the vendor as a result of MLS agreement; Winners v Goddard Smith. Owes the purchaser an express contractual duty if there is a Purchaser’s Agreement. Duties to Third Parties:Material Latent Defects (Rule 5-13 of the Real Estate Council Rules): that an agent “must disclose to all other parties to the trade, promptly but in any case, before any agreement for the acquisition or disposition of the real property is entered into, and material latent defect in the real estate” that is known to the agent. “Material latent defect”: a material defect “that cannot be discerned through a reasonable inspection of the property”. If a client/vendor instructs their agent to withhold disclosure/keep a material latent defect hidden, the agent must refuse to provide any further services to the client.Negligent Misrepresentation: A false representation made negligently.The current leading authority on negligent misrepresentation is the SCC decision in Queen v Cognos. The elements of the tort of negligent misrepresentation are: There is a special relationship between the representor and the representee; The representation in question is untrue, inaccurate, or misleading;The representor acted negligently in providing the said negligent representation;The representee relied in a reasonable manner on the negligent representation;The reliance must have been detrimental to the representee such that damages resulted. THE CONTRACT OF PURCHASE AND SALEStandard Form ContractStandard Form Contract of Purchase and Sale dissectedParties: Seller & BuyerParties must be described in sufficient detail to identity them. Seller/vendor:Can be anyone with an interest in the land. If multiple parties, all must be included.If owned by two people and only one is named in the contract, that one person is selling their interest (e.g. 50% as tenants in common).If owner of property is a company, the exact company name listed on title must be named as the seller. Buyer/purchaser: Using “name and/or nominee” (nominee = someone to be named later) may not be certain enough if there are problems later on. Assignment a better option. See “parties” section, by 3Ps.Property: Legal Description, Civic Add.Legal description is the most certain way to describe a property. A 9 digit PID (Parcel Identifier) is the best way to describe property to avoid vagueness. The next best way is with a civic address, but this can be less accurate. Riskiest/most uncertain: a descriptive address (e.g. third house from the corner). 1. Purchase priceCertainty of price is required. In commercial transactions, purchase price often adjusted to account for variety of factors (e.g. rents from a mall complex). In residential context, rely on customary adjustments. 2. DepositPaid as partial payment of purchase price, as a guarantee of performance, and as a means to access remedies. A deposit is to be paid on the terms set out in the contract. Standard form contract does not set out what happens to deposit if something goes wrong (so agent may end up paying into court, under s. 33 RESA). 3. Terms & ConditionsList the conditions that will hold the contract in suspension until they are fulfilled. “Each condition, if so indicated, is for the sole benefit of the party indicated…” > this assigns the right of who can waive the effectiveness of a condition. 4. CompletionThese dates may be different.Keep in mind who bears the risk of things happening to the property between the dates. 5. Possession6. AdjustmentsAdjustments to the purchase price, to factor in things like property taxes, rent, etc.7. Included ItemsThe only things that go with the land are fixtures (test: a fixture is “attached” to the property; something is a chattel if it is not attached/can be removed w/ minimal damage to the property). If you are unsure whether something is a fixture or not, write it in to ensure that the thing will pass with the property. 8. ViewedProperty will be in the same condition on the Possession Date as on the date it was viewed.*This is a covenant and representation. If this is struck out and replaced with “as is”, no representation is made about the condition of the property. 9. TitleThe state of the title being purchased. Should be broad enough to include things that are registered on title and things that are unregistered but may affect title (e.g. less than 3 year + occupancy lease exception to indefeasible title set out in s. 24 of the Land Title Act). In a commercial context, lawyers will search to determine if there are statutory liens on title. If there is a discrepancy b/w title agreed to and actual title, the purchaser has remedies:Purchaser can walk away from the deal [not what they contracted for];Purchaser can close and sue the vendor for the remaining encumbrance; or, Purchaser can demand specific performance [refusing to close until encumbrance is dealt w/ by vendor].Standard form: “Free and clear of all encumbrances except subsisting conditions, provisos, restrictions, exceptions and reservations, including royalties, contained in the original grant or contained in any other grant or disposition from the Crown, registered or pending restrictive covenants and rights-of-way in favour of utilities and public authorities, existing tenancies set out in Clause 5, if any, and except as otherwise set out herein.”10. TenderStandard form: “Tender or payment of monies by the Buyer to the Seller will be by certified cheque, bank draft, cash or Lawyer’s/Notary’s trust cheque.”11. DocumentsStandard form: “All documents required to give effect to this Contract will be delivered in registrable form where necessary and will be lodged for registration in the appropriate Land Title Office by 4:00 pm on the Completion Date.”12. Time“Time is of the essence” specifies that the contract must be met perfectly in terms of deadlines. If both sides miss a time, the contract/obligations continue and one party has to “reset” the time. If the buyer misses a deadline, the seller has the option to terminate the contract and the amount paid by the buyer will be “absolutely forfeited to the Seller”. Standard form: “Time will be of the essence hereof, and unless the balance of the cash payment is paid and such formal agreement to pay the balance as may be necessary is entered into on or before the Completion Date, the Seller may, at the Seller’s option, terminate this Contract, and, in such event, the amount paid by the Buyer will be absolutely forfeited to the Seller in accordance with the Real Estate Act, on account of damages, without prejudice to the Seller’s other remedies.”13. Buyer FinancingAllows for the use of undertakings to close the deal where the buyer is relying on financing. If a contract does not authorize the use of undertakings to close, lawyers are not authorized to give undertakings, as per Norfolk v Aikens. 14. Clearing Title15. CostsThe buyer bears the cost of conveyance. Courts interpret this to mean that the buyer is responsible for preparing the conveyancing documents (Shaw v Greenland).Standard form: “The Buyer will bear all costs of the conveyance and, if applicable, any costs related to arranging a mortgage and the Seller will bear all costs of clearing title.”16. RiskThe buyer is the beneficial owner and the seller is deemed a trustee with a positive duty to maintain the property. If something happens to the property before closing, the seller is responsible for repair, etc. 17. PluralStandard form: “In this Contract, any reference to a party includes that party’s heirs, executors, administrators, successors and assigns; singular includes plural and masculine includes feminine.”18. Representations & WarrantiesLimits representations and warranties about the property only to those that are written. Creates the survival of these representations and warranties after purchase. Standard form: “There are no representations, warranties, guarantees, promises or agreements other than those set out in this Contract and the representations contained in the Property Disclosure Statement if incorporated into and forming part of this Contract, all of which will survive the completion of the sale.”19. Agency DisclosureIf an agent has a relationship to either the buyer or the seller, must be set out here. If the buyer and seller agree to dual agency, they must indicate this here and must also sign a Limited Dual Agency Agreement. 21. Acceptance Irrevocable (Buyer & Seller)Standard form: “The Seller and the Buyer specifically confirm that this Contract of Purchase and Sale is executed under seal. It is agreed and understood, that the Seller’s acceptance is irrevocable until after the date specified for the Buyer to either:A.fulfill or waive the terms and conditions herein contained; and/orB.exercise any option(s) herein contained.”22. This is a legal documentStandard form: “THIS IS A LEGAL DOCUMENT. READ THIS ENTIRE DOCUMENT AND INFORMATION PAGE BEFORE YOU SIGN.”23. OfferStandard form: “This offer, or counter-offer, will be open for acceptance until o’clock ____ m. on , yr. and upon acceptance of the offer, or counter-offer, by accepting in writing and notifying the other party of such acceptance, there will be a binding Contract of Purchase and Sale on the terms and conditions set forth.”24. AcceptanceStandard form: “The Seller (a) hereby accepts the above offer and agrees to complete the sale upon the terms and conditions set out above, (b) agrees to pay a commission as per the Listing Contract, and (c) authorizes and instructs the Buyer and anyone acting on behalf of the Buyer or Seller to pay the commission out of the cash proceeds of sale and forward copies of the Seller’s Statement of Adjustments to the Cooperating/Listing Agent, as requested, forthwith after completion.”25. Closing ProcedureClosing date, list of documents, closing processesAddendumWritten/Non-Written AgreementsContract for sale of land not enforceable unless one of following 3 scenarios met (s. 59(3) Law and Equity Act):You have a written contract that’s signed (s. 59(3)(a))Email can be means through which written contract is formed (Nicholas Prestige)No written contract, but you’ve partially performed contract’s obligations (Doctrine of Partial Performance) (s. 59(3)(b))59(4) – An act by the party to be charged includes the payment or acceptance of a deposit or part payment of the purchase priceE.g. no written contract, but P says they’ll pay $1 million for property and gives V $500,000; if P refuses to go ahead with transactionm V can rely on s. 59(3)(b) to bring claim against PIn Nicol v Wengel, court applied s. 59(3)(b) and found P’s payment of deposit and V’s agent’s acceptance of deposit was sufficient evidence that there was an enforceable contract between P and V.No written contract, but you’ve relied on other party’s promises to your detriment (Doctrine of Reliance) s. 59(3)(c)No written contract between V and P, but they agree to sale, so P goes out and signs a big mortgage agreement, and pays fees. If V refuses to go ahead with contract, then purchaser can rely on s. 59(3)(c) to have their agreement enforced (inequitable not to)*Nicholas Prestige Homes v Neal (UK): Email can be used to make a binding agreementHowever, consider the Parole Evidence Rule = oral evidence related to a written contract is generally inadmissible – in other words, courts will only look to the “four corners” of the contract/will only look at what is in writing. Exceptions to the parole evidence rule at common law: If a party can show that the oral evidence is not inconsistent with the written agreement, that oral evidence may be admissible; orIf the oral evidence supplements the written agreement, that oral evidence may be admissibleTypes of AgreementsAlthough not in common use, an agreement for sale is a contract for the sale of an interest in land under which the buyer agrees to pay the purchase price, over a period of time and, on full payment, the seller is obliged to convey title to the buyer. Buyer gets title and the sale is subject to the conditions. Agreements for sale may still be advantageous where the seller has an existing mortgage at an interest rate which is lower than current market rate. In that case, the interest rate on the agreement for sale would be at least either the current interest rate or a higher rate than the seller has on the current mortgage. The clause for an agreement for sale with an underlying mortgage would be the appropriate clause to use. The term of the agreement for sale should be concurrent with and not exceed the term of the first mortgage.Enforcing LOI as an agreement for saleIf you don’t have one and you want to have one, you can argue a letter of intent was actually an agreement for sale (LOI = sets out intentions of parties, usually explicitly states it’s not legally binding)Requirements for a letter of intent to be legally enforceable are the three Ps: Price, Parties, and Property. Ask: would a reasonable person think the promisor’s conduct illustrates an intent to be legally bound? (objective test) (387903 v Canada Post)Options/Rights of First Refusal:An option grants a right to do something on the happening of some event (e.g. the passage of time, a specific event). Places no enforceable obligation on the option-holder to purchase a property, but binds the vendor not to sell the property to another party without first giving the option-holder the opportunity to say “yes” or “no”. For an option to be complete and enforceable, it must have all the elements of a contract – above all else, consideration. A Right of First Refusal (RFR)?in a real-estate contract is typically a mechanism that gives to a specific party the right to be the first allowed to purchase a particular property if it’s offered for sale. The holder has the right to refuse to buy the property.An option to purchase and RFR can be registered under the title:Option does not prohibit a transfer, but if a transfer is done, it can still be subject to the option.The RFR prohibits transfers. Elements of the Contract:If you’re missing one of the 3Ps, then you don’t have a contract.Does the contract adequately describe the property?Is the description too ambiguous? Court refused to go beyond 4 corners of the contract or use extrinsic evidence to complete the contract when unclear what property was being transferred (Zilka)“4 acres more or less” = description of property being transferred, court used extrinsic evidence (parties conduct during negotiations) to identify property and said description was sufficiently certain (Dynamic Transport)Dynamic distinguished Zilka by stating that even by reviewing extrinsic evidence in that case, you couldn’t clarify the parties’ intentions.Does the contract adequately describe the parties?Every party who has interest in property has to be named in the contract (legal and beneficial interest holders)“NAME or nominee” = generally is sufficiently certain – might create ambiguity“NAME and nominee” = some accept b/c sufficiently certain some reject b/c only know who half the purchaser isCan get around the and/or nominee rule by including an assignment to add another party to the contract later on.If vendor is a person but the property is registered under shell company, this is title default (Caplan)Does the contract adequately describe the price?Must state either a single figure or a method (formula that is clear and descriptive)E.g. Balance of $23,500 by A/S at 8?% interest P/I over 10 yrs with a pay up clause after 5 years = unclear (Arnold v Nemetz)Can courts do something to give effect to parties’ intentions to make something unambiguous?Courts will try their best to decipher intent of parties, but cannot go as far to write a new contract for the parties (can give effect to written words of parties but cannot go elsewhere) (Arnold v Nemetz) To give effect to parties’ intentions, courts can imply terms into the contract by looking within 4 corners of agreement (First City Investments)Court went even further in Canada Post by asserting courts can imply terms from 4 corners of the contract AND by looking at parties’ conduct and outside documentsDynamic Transport is another example of this principle in actionImplied Terms of a ContractForm ANeed to use this form if you want to register the property in the LTOThere are a bunch of implied covenants set out under Form A (s. 185, 186 Land Title Act) – if you want to change any of them, you need to say so in the PSAFree of all encumbrances (property and buildings)Assumption of transfer fee simpleCan only transfer what you’re the registered owner ofWarranty of Fitness (Cardwell v Perthen)Implied covenant in BC if you’re buying a house that’s uncompleted, there is an implied warranty that:House will be reasonably fit for habitationWork, including work done before execution, will be performed in a good and workmanlike mannerVendor will provide good and proper materials for that purposeWarranty DOES NOT apply to:Work already completed before the execution of the contract of purchase and sale AND visible upon inspectionUsed homes that have been previously occupied, even those which have undergone extensive renovations by the vendor Whether house is completed is a question factAssignmentAssignment is the assignment of rights – not responsibilities – you are not released from your obligations to buy, and if the person you assign to does not want to buy, you still have to buy (i.e. you have to pay for house but house is going to be put in some other person’s name)Absent a provision in an interim agreement of sale against assignment, a purchaser is at liberty to assign their contractual rights as an equitable interest in land, but purchaser cannot without the consent of the vendor to transfer their liabilities (411076 BC Ltd v McCullagh)Amendments to Assignment Rules in BC: The amendments provide that a licensee preparing a proposed contract for the purchase and sale of real estate (an “offer”) must include the following terms (the “Standard Assignment Terms”) unless otherwise instructed in writing by the person to whom they are providing trading services:This contract must not be assigned without the written consent of the seller; andThe seller is entitled to any profit resulting from an assignment of the contract by the buyer or any subsequent assignee.The amendments further provide that licensees must take certain steps if they are involved in a potential real estate transaction where an offer to be presented to the seller does not include the Standard Assignment Terms.Duty of Honesty and Good Faith (Bhasin v Hrynew)Parties must generally perform contractual duties honestly and reasonably and not capriciously or arbitrarily – parties must not lie to each other or knowingly mislead each other about matters directly linked to performance of the contractNOT equal to duty of loyalty or duty of disclosureDepositDeposits serve three principal functions:Partial payment of the purchase price (Lozcal Holdings). Proof of the purchaser’s sincerity (real and serious) and “a guarantee that the purchaser means business” (Lozcal Holdings, quoting Soper v Arnold). A sum of money to which the parties have immediate access for damages (a genuine pre-estimate of damages). A deposit will commonly be paid by the purchaser to the vendor’s agent. The vendor’s agent will hold the money in trust for the vendor until the transaction completes. The Contract of Purchase and Sale will specify:The amount of the depositWho it is payable toWho will hold it (in residential context, agents will typically hold the deposit in trust pursuant to RESA s. 28(2); in commercial context, lawyers will typically hold the deposit pursuant to the contract), and how it will be held (e.g. in an interest-bearing account). A well-drafted Contract of Purchase and Sale will also specify what will happen to the deposit in the case of a breach by either of the parties to the agreement. Section 28(2) places a statutory duty on agents to hold deposit money in trust until either: (a) the parties agree in writing to release it, or (b) circumstances established by the regulations apply. Three circumstances when an agent can touch deposit money:If the transaction completes, the agent is entitled to their commission. Section 31(1) of RESA permits the agent to deduct their commission from the deposit money held in trust. Further, Rule 5-15 of the Real Estate Council Rules provides that a licensee’s remuneration can be paid out of a trust account on the date when the documents effecting transfer are submitted to the Land Title Office for registration. If the transaction falls apart and the parties consent to return the deposit to the purchaser or forfeit the deposit to the vendor. If there are adverse claimants to the deposit money, s. 33 of RESA provides that an agent can pay the deposit money into the BC Supreme Court (to let the court eventually decide). Possible Triggers for Remuneration:Closing/completion of the transaction (the most common and safe trigger), When the contract for purchase and sale is entered intoWhen the agent is the “effective cause” of the sale (sometimes used as a trigger in MLS agreements, but very ambiguous!). Even if a Listing Agreement contains broad, unclear remuneration terms (remuneration when agent introduces a party who is “willing and able” to purchase, no PSA required), remuneration may be triggered if a court finds that the remuneration requirements have been met (Block Bros v Victoria).In Collette, where one agent showed property to prospective buyer, didn’t buy then, but few weeks later, another agent shows same property to the buyer, this time the buyer buys, court determined both agents were equal causes of sale so had to split commissionIn absence of remuneration clause, courts will look at the active cause of the sale (Collette)Instances Where Right to Remuneration Will Be Denied:Where the agent is unlicensed, in contravention of s. 4(1) of RESA);When the trigger events set out in a Listing Agreement are not met; Where there is no privity of contract between the vendor and the agent (though courts may be willing to order that reasonable compensation be paid to an agent where vendor has made representations to that effect, as per Banfield v Hoffer); or, When the agent is negligent, as per Academy Aluminium Products (agent negligently wrote a lower than actual monthly mortgage payment). Rule 5-14 of the Real Estate Council Rules provides that an agent must not enter into an agreement for payment of remuneration based on the difference between the listing price and the actual price. In other words, you cannot enter into an agreement where you get paid extra for securing more money. Deposit must be a genuine pre-estimate of damages (Lozcal Holdings):One of the purposes of a deposit is to serve as a sum of money to which the parties (generally only the vendor) have immediate access to for damages. For a purchaser’s deposit to be forfeited to a vendor, the deposit must be a “genuine pre-estimate of damages” that the vendor will suffer if the purchaser breaches the agreement. If a deposit is not a genuine pre-estimate of damages, it will be construed as a penalty – an extravagant, unconscionable amount that it would unfair for the vendor to receive (Stockloser v Johnson). However, in residential transactions, nobody tries to pre-estimate damages > default deposit is 10%. Disputes about DepositsIf a purchaser breaches one of its obligations under an agreement, the purchaser has repudiated the contract. Repudiation gives the vendor two options: Accept the repudiation, terminate the contract, and take the deposit (purchaser’s deposit forfeited to the vendor). The vendor could then sue for damages up to point of termination.Where contract contains a forfeiture clause: Courts may apply the equitable remedy of restitution to relieve a party in default of a forfeiture clause (a) if the forfeiture clause is penal in nature, in the sense that the sum forfeited is out of proportion to the damage suffered, and (b) if allowing the other party to retain the forfeited money would be unjust and unconscionable in the circumstances (Stockloser v Johnson).If no forfeiture clause, look to terms of contract relating to monies paidIf the money is identified as a deposit, in light of no express forfeiture clause, will be treated like one (Hirst v Moore, Stockcloser)Courts are very concerned with the intent of parties, if true intent to create liquidated damages on breach, then probably is a deposit (Lozcal Holdings) General rule is that in the absence of a contractual term to the contrary, if the contract fails by default of P, deposit, being a guarantee of performance, becomes property of the V, even if they resell the land at an increased price (Winley)If money paid by the purchaser was not intended as a deposit to guarantee performance of the contract, courts WILL NOT IMPLY A FORFEITURE CLAUSE and a purchaser in default will be entitled to the return of their money (Hirst v Moore)Where contract uses the term “liquidated damages”: The purchaser can try to argue that the vendor is not allowed to claim damages that exceed the amount of the forfeited deposit. But mere use of the words “liquidated damages” (or “penalty” or “deposit”) in an agreement is not conclusive (Lozcal). If the amount appears to be a genuine estimate of probable damages and it appears that the parties intended to limit the depositor’s liability in the event of a breach to a fixed sum, a court may enforce the liquidated damages clause. In Hughes v Lukuvka, the Court found that it was the intention of the parties to have the deposit forfeited to the vendor as liquated damages (the amount was not a penalty). The general rule is that a deposit will be forfeited to the vendor upon repudiation by the purchaser, but this general rule can be overridden by the plain wording of the contract. If the plain wording of the contract states that the purchaser’s deposit will be forfeited to the vendor in the event that the vendor elects to terminate following repudiation by the purchaser, and the vendor does not terminate (specific performance = enforcing the contract), the purchaser may be entitled to the return of their deposit, as per Winley Investments. Continue to enforce the contract and not take the deposit, keeping open the possibility of suing for specific performance or damages down the road. Note: if a vendor wishes to enforce the contract, the vendor must not take the deposit because doing so would be inconsistent with keeping the contract alive. Failure to Pay a Deposit:Reserve Prop v 2174689 Ontario Ltd: To determine whether a failure to pay a deposit permits a party to terminate the Agreement depends on if there was an express term allowing such action OR if there was a fundamental breach, which is determined by the following 5 factors:The ratio of the party’s obligation not performed to the obligation as a whole (deposit to purchase price ratio)The seriousness of the breach to the innocent partyThe likelihood of repetition of such breachThe seriousness of the consequences of the breachThe relationship of the part of the obligation performed to the whole obligationConditions PrecedentSUBJECTIVE CONDITIONSMIXED SUBJECTIVE/OBJECTIVE CONDITIONSOBJECTIVE CONDITIONS/TRUE CONDITIONS PRECEDENTWhat is it? Conditions the fulfillment of which depends on the subjective state of mind of the parties. In other words, conditions that involve no limit to discretion. Purchase and sale agreements with a subjective condition that has yet to be fulfilled or waived will be found to be unenforceable since the court has no “reasonableness” standard to determine its fulfillment.Conditions the fulfillment of which depends on the subjective state of mind of the parties, subject to a reasonableness standard. In other words, conditions that involve discretion limited by reasonableness.Purchase and sale agreements with a mixed condition that has yet to be fulfilled or waived will be found to be enforceable because there is a “reasonableness” standard by which a court can determine whether a condition has been fulfilledConditions the fulfillment of which depends in whole or in part on the act or will of a third party (someone other than the purchaser or vendor). In other words, conditions that involve no discretion. Purchase and sale agreements with an objective true condition precedent that has yet to be fulfilled or waived will be found to be unenforceable since the court cannot find that the objective true condition precedent has been fulfilled or waived if it has not actually occurredExamples“…in the purchaser’s sole discretion…” “subject to the purchaser being satisfied with the physical inspection with full discretion”“subject to the purchaser’s detailed inspection of the building… by the purchaser’s architect and/or engineer…, results of such inspection to be to the sole satisfaction of the purchaser” (Kitsilano Enterprises)“subject to the purchaser’s review of all leases, contracts, plans and surveys and the state of title to the lands… to be to the sole satisfaction of the Purchaser” (Kitsilano Enterprises)“subject to environmental due diligence with full discretion”“subject to financing at the discretion of the purchaser” “subject to the purchaser arranging financing for the acquisition of the property upon terms and conditions satisfactory to the Purchaser”(Kitsilano Enterprises; but note similarity to Griffin where court held “satisfactory financing” was mixed)“subject to title due diligence with full discretion”“subject to the purchaser being satisfied with physical inspection acting reasonably”“subject to environmental due diligence, limited by reasonableness”“subject to reasonable title due diligence”“subject to financing at a reasonable rate” “subject to the purchaser being able to arrange satisfactory financing” (Griffin, see below) “subject to: …the purchaser shall have approved… an engineering, soils, and traffic reports…” (Tau Holdings; see below)“subject to the plaintiff purchaser selling another property in Port Moody” (Wiebe; see below) *Unless the Contract of Purchase and Sale makes it really clear that a condition is purely subjective, courts will be inclined to interpret that condition as a mixed subjective/objective condition. This reflects courts’ desire to preserve agreements if they can > they will try to read in a reasonableness limitation if possible.“subject to approval by board of directors” (third party board controls the outcome) (Canada Post)“subject to obtaining rezoning of property” (third party city controls the outcome) (Zilka, Dynamic Transport)“subject to financing by XBank at a specific rate” (third party XBank controls the outcomes)*In Dynamic Transport, the SCC implied a true condition precedent that the contract be subject to subdivision (even though the Contract of Purchase and Sale was silent!) > the SCC further implied an obligation that the vendor use its bests efforts to obtain such subdivision (since the vendor was the only one who could apply for the subdivision). Effect & Case LawThe Contract of Purchase and Sale is unenforceable (you have an option at best). The formation of a valid contract requires a meeting of the minds/contractual intent > no such intent where one of the parties retains full discretion. The Court in Wiebe suggested that a condition precedent is too vague and the contract unenforceable if the condition depends on the “whim, fancy, like, or dislike” of one of the parties.However, an exchange of valuable, non-refundable consideration converts a Contract of Purchase and Sale with a subjective condition precedent into an OPTION – a binding agreement whereby one party is bound to sell to the other party if that other party chooses to exercise its option to buy. A well-drafted agreement that contains a purely subjective condition will include consideration to avoid one party being able to walk away from the agreement.Even in the absence of valuable, non-refundable consideration, a court may construe a document that contains purely subjective conditions as an UNACCEPTED OFFER (Kitsilano Enterprises). A court may find that the vendor committed itself to sell (making an offer to the purchaser); if the purchaser waived or fulfilled a condition before the vendor withdrew its offer, there would be an enforceable, binding Contract of Purchase and Sale. Exception: where an agreement expressly provides that once accepted, it cannot continue as an offer, the principle that an interim agreement w/ a purely subjective condition precedent is merely an unaccepted offer cannot apply. The words “to the sole satisfaction of the purchaser” create a purely subjective condition precedent (Kitsilano Enterprises). In Kitsilano, the contract contained several conditions that gave the purchaser full discretion and the right to waive them at any time. The Court held that the conditions “fall within the fourth category set out by Griffin which categorizes the transaction as “satisfactory to the particular purchaser with all his quirks and prejudices, but acting honestly”. It is my view that this turns the agreement into an offer and there is no mutuality of intention to support a binding agreement.” *A purchaser will push for full discretion conditions, whereas a vendor will push for mixed subjective/objective conditions. Suspend the obligations of the parties until the condition has been waived or satisfied. The Contract of Purchase is enforceable because the court can use the reasonableness standard to determine whether condition has been fulfilled. Adding the words “for the sole benefit of the purchaser” to a condition does not make the condition purely subjective (Griffin). Condition precedent in Griffin was: “subject to the purchaser being able to arrange satisfactory financing”. The contract also stated that this condition was for the “sole benefit of the purchaser”. Purchaser did not get financing he considered satisfactory, so failed to close and then argued K unenforceable b/c condition was purely subjective. Vendor argued K enforceable b/c condition was mixed. BCCA held that words for the “sole benefit of the purchaser” did not make this condition a purely subjective one… the condition was mixed, and required that the purchaser obtain financing “satisfactory to a reasonable person with all the subject but reasonable standards of the particular purchaser”. Since the purchaser had failed to obtain reasonably satisfactory financing, he breached the contract. The words “the purchaser shall have approved” creates a mixed subjective/objective condition, not a purely subjective condition (Tau Holdings). In Tau Holdings, the BCCA held that a condition precedent that said the purchaser needed to approve engineering, soils and traffic reports was not purely subjectively – the condition obliged the purchaser “to consider… the reports and not to reject them arbitrarily but only on reasonable specified grounds”. *A purchaser will push for full discretion conditions, whereas a vendor will push for mixed subjective/objective conditions.“Subject to the purchaser selling another property” is a mixed subjective/objective condition. The Court in Wiebe found that it was not too difficult to determine whether the purchaser had used his best efforts to sell his home. The obligation to close is unenforceable (held in suspension) until the true condition precedent has been met. Zilka: “The obligations under the contract, on both sides, depend upon a future uncertain event, the happening of which depends entirely on the will of a third party – the village council. This is a true condition precedent – an external condition upon which the existence of the obligation depends. Until the event occurs there is no right to performance on either side. The parties have not promised that it will occur. In the absence of such a promise, there can be no breach of contract until the event does occur.” Kitsilano Enterprises: if a condition is a true condition precedent, “the agreement cannot be turned into a binding agreement until the conditions are removed and remains an offer until then”. However, courts may imply an obligation on one or both parties to use their best efforts to bring about the fulfillment of a true condition precedent (Dynamic Transport). In Dynamic Transport, the SCC implied an obligation on the vendor to apply for subdivision (court able to determine what constitutes “best efforts” to apply for subdivision b/c the application procedure was set out in the Planning Act). If a party fails to fulfill an implied obligation, that party is in breach of the of the contract (the other party can claim specific performance to get the party in breach to use its best efforts, or damages). As long as there is evidence that the parties intended to make a contract, merely including a true condition precedent will not affect the existence of the agreement. In CL as a general rule, true condition precedents cannot be waived by either party, even if the condition was solely for the benefit of one of the parties (Zilka)Exception: the K itself/condition precedent itself has to expressly allow the party to waive the conditionCan the condition be waived? A purely subjective condition precedent can be waived by a party, if that condition benefits that party. The effect of waiving a purely subjective condition precedent is that the unaccepted offer becomes an accepted offer, and the Contract of Purchase and Sale becomes enforceable. A condition cannot be waived by a party if the condition is not their benefit. Is Zhilka the authority for this?A mixed subjective/objective condition precedent can be waived by a party, if that condition benefits that party. The effect of waiving a mixed subjective/objective condition precedent is nil – the contract remains enforceable. A condition cannot be waived by a party if the condition is not their benefit (Law and Equity Act s. 54).A true condition precedent cannot be waived by either party, even if the condition is for the sole benefit of one of the parties (Zilka). Exceptions to this general rule: the K expressly provides that the true condition precedent can be waived, or s. 54 of the Law and Equity Act is satisfied (see below). If the condition is not waived, what happens if it is not satisfied? If a purely subjective condition is not fulfilled by the party responsible for fulfilling it (and not waived), the effect is nil. In the absence of valuable consideration (giving rise to an option), there will be no binding agreement. If a mixed condition is not fulfilled by the party responsible for fulfilling it (and not waived), that party will be in breach of the contract. Saying that a condition has been satisfied is not sufficient (Dallas). In Dallas, a lease agreement contained two conditions in favour of the shopping centre developer: that they would obtain financing, and that they would verify hard construction costs. The developer satisfied the second condition, but did not actually obtain financing (awaiting final approval), though they told Buy-Low foods that they had. The Court held that the lease was null and void.If a purely objective condition is not fulfilled, there will be no enforceable contract. However, if courts imply an obligation on a party to use its best efforts to bring about the fulfillment of a true condition precedent (as in Dynamic Transport), and the party fails to apply its best efforts, that party will be in breach of the contract.Section 54 of Law and Equity Act (outcome of Zilka) provides that a condition precedent can be waived, even if the K is silent, if the following 3 conditions are met:The condition precedent benefits only the party who wants to waive it;The contract is capable of being performed without fulfilling the condition precedent [in Zilka, s. 54 would have been inapplicable b/c the portion of the property could not have sold without a subdivision]; and,Waiver is done either before the time stipulated for fulfillment of the condition, or if no time is stipulated, in a timely manner. Environmental IssuesA purchaser will want to get clear representations and warranties from a vendor regarding the environmental state of a property, especially regarding contamination (and also seek indemnities and releases from the vendor!). The Environmental Management Act is the main governing statute that creates liability for the clean up of contamination on the registered owners of the property. There are two regimes under the Act:Clean up order: under the Environmental Management Act, if the Province determines that a site has been contaminated, the Province has the power to order the current registered owner, every prior registered owner, and every party that had control of the property (including tenants, mortgaging banks, property managers) to undertake clean up of this contamination.Indemnity regime: under the Environmental Management Act, third parties brings claims against each other for losses suffered as a result of contamination. Examples:If you purchase property, you can sue an earlier owner for damages that you suffer as a result of contamination. If your neighbour dumped gasoline on their property, and over time this gasoline migrated to my land, you can bring an action against your neighbour for clean up of your land. Indemnities & ReleasesA purchaser will want to seek indemnity and releases from the vendor, and the vendor will want to seek releases from the purchaser. Examples: “If a representation turns out to be untrue, and I (the purchaser) suffer damage, you (the vendor) promise to compensate me for my loss.”“Irrespective of the Environmental Management Act, you (the vendor) will pay me if I discover contamination in the future that you caused.” “You (the vendor) agree not to sue me (the purchaser) for things in the future.” “You (the purchaser) agree not to sue me (the vendor) for things in the future.”Structure of PartiesJoint Ventures:Owner of property doesn’t have sophistication to develop that property. A developer comes along and says let’s enter into a joint venture, allowing original owner to participate in the development of the land. Joint venture agreement is created, the owner is going to vend in the property and the developer is going to do all heavy lifting (finance, market, sell property). Because of that, the developer gets 50/50 split on profit.Potential traps for owner:Development entity takes care of construction, management, and marketing and sales, but they charge fees for all those services to the joint venture entity. Basically, developer is going to make more money than the owner.This happens a lot with aboriginal landPartnerships:2 or more partners pool resources to purchase and develop property. Act through GP to limit liability and have a general partnership agreement to detail relationshipLess common than joint venturesBeneficial Ownership:Split where there is a trustee owner who controls property for the benefit of a beneficiary ownerInterim PeriodWhat is it: time after a Contract of Purchase and Sale has been signed and before closingGenerally, the deposit is paid during this time. If there are conditions holding the contract in suspension, there may be two deposits. Relationship between Parties:Moment the contract is signed and becomes enforceable, the beneficial interest in the property passes from the vendor to the purchaser and the vendor takes on the role of a trustee for the purchaser (Lysaght v Edwards)If V disappears during interim, and P continues to fulfill obligations under contract (i.e. pays full purchase price), legal title can be passed to the P because V was holding it in trust for them (Rich v Krause)Once beneficial interest in property has passed to P, V’s creditors cannot claim interest in property (Martin)The vendor retains the legal interest in the property until closing, but has an obligation to give the land to the purchaser in the condition contracted for (Lysaght v Edwards)Allocation of Risk: risk for property remains with V (in standard form contract) until completion dateReflects trustee relationship between V and P – if anything happens to property before closing, V is responsible for the damageREVIEW section on patent vs latent defects under Title Defaults if issue regarding damage occurs during interim periodWarranties/RepresentationsThe purpose of representations and warranties in a contract is to apportion risk about the subject matter of the contract.RepresentationsWarrantiesWhat is it? A representation is something that speaks about a past or present status. Everything that has happened to the property, up until the present moment.The law does not imply representations. A vendor will want to represent as little as possible (allocating most of risk to the purchaser). The purchaser will want the vendor to say as much as possible (allocating most of the risk to the vendor). A warranty is a statement that speaks about something that will or could happen in the future.The law may sometimes imply warranties. E.g. the law will imply the warranty that a property is for habitation if that property has been recently constructed. Examples“The vendor represents to the purchaser…”“…that there is no current litigation against the property.”“…that the vendor is a corporation, duly incorporated in BC.”“…. that the vendor is not blocked in selling the property.”“…that the vendor has all permits necessary to operate the property.”“…that there are no liens that will affect title.” “…that there is no bankruptcy or insolvency of the vendor pending.”“…that the vendor is the owner, and the only owner, of the property.” [necessary for certainty of parties! purchaser will want to know that the vendor is the legal and beneficial owner of the property]Other representations:Physical state of the property (in good repair, no structural problems, machinery working, no asbestos, no contamination).Status of tenants (re: their leases, rents, businesses).Electronic connection of property (tenants can do mail orders from property; tenants not connected to unsavoury internet sites, e.g. porn, gambling). Aboriginal claims.*Purchasers can also make representations about themselves, e.g. their financial state. “The vendor warrants to the purchaser that there is no lien or debt that could become a lien that would affect title to the property.” “The vendor warrants to the purchaser that there is no claim that exists that could become litigation against the property.”*Purchasers can also make warranties about themselves, e.g. their ability to close. What happens if false or breached?If a representation is made, but turns out to be wrong/false (= a misrepresentation), the innocent party’s remedy is damages (looking backward) for negligent and innocent misrepresentations and rescission for fraudulent misrepresentations.0759594 BC Ltd: depending on the language of a representation, the party making it can be liable for information that it did not even know.If a warranty is made, but then breached, the innocent party can sue for damages (looking forward).In contrast, a covenant is a pledge or promise that a party will either do something or has done something. E.g. “The vendor covenants to, on the day of closing, ensure that all the representations and warranties will be true.” A breach of a covenant in an agreement is grounds for terminating that agreement. FINANCING THE PURCHASEMortgagesOverview of a MortgageBorrower’s ObligationsA borrower has the following obligations under a mortgage:Pay the principle amount owing, usually on a monthly basis as part principle/part interest. At the end of a term (typically 5 years), there will be a balance remaining that the borrower can either refinance or pay off. Keep the property in a reasonable state of repair.Pay real property taxes (residential context). If a lender feels that you are not reliable, they may pay the property taxes out of your mortgage proceeds. If property taxes are not paid, the government can put a lien on the property and sell the property to recover the money owing (lenders are very concerned with this!).Insure the property. Consequences of DefaultIf a borrower defaults, a lender can do the following:The lender can sue the borrower in debt. The lender can start foreclosure proceedings to seize the property. Right of RedemptionA borrower has a right of redemption. If a borrower defaults, this means that the borrower has a right to stop the property from being seized by the lender once foreclosure proceedings have commenced. In BC, the right of redemption is NOT overridden by the lender’s “power of sale” – to exercise power of sale, lender has to go to the court, which will then tell parties how long a redemption period is given to borrower (South West Marine Estates)Typically, it is a 6-month window in which to refinance or sell the property to the lenderIf a lender accepts the property, the borrower is released from their debt Note: the lender is under no obligation to take the property from the borrower, especially when the market is down – if this is the case, the borrower has a personal obligation to come up with the shortfallNature of a MortgageMortgages have a dual nature:A mortgage is a contractual/personal covenant to pay; and, A mortgage is security for the borrower’s debt. The dual nature of mortgages is important because of Land Title Act, s. 231, which says that a mortgage is a charge against title (not a transfer of title). Dual nature of mortgage allows for renewal of mortgages without needing to create a totally “new” mortgage upon renewal (say at the 5-year mark), which might adversely affect the original mortgagee’s priority vis-à-vis other creditors unless the mortgagee obtains postponement agreements. Elements of a MortgageComparing & Contrasting Legal and Equitable Mortgages Legal MortgagesA legal mortgage is a conveyance of land as security for the payment of a debt or discharge of some other obligation with the security redeemable upon the repayment of the debt. Two aspects – the personal covenant of the borrower and a conveyance of land. Land Title Act s. 231 – a legal mortgage is registerable as a charge on the land (it does not pass legal title from the borrower to the lender). For registered interests, priority is governed by the date and time of registration (unless the parties express contrary intention, or in the event of fraud), as per s. 28 of the Land Title Act.However, Carlisle asserts that a mortgage is a contract that is sufficient to transfer a transfer of title subject to the borrower’s right of redemption S 239 – Floating charges must not be registered, unless included in a registered mortgageFloating charge = a contractual agreement that does not attach to any specific piece of property, unless a default or a specific crystallization moment occursA legal mortgage has a very specific two-part form, provided for in s. 225 of the Land Title Act: (1) The Form B, a two-page form that sets out all the basic, essential elements of the mortgage: names of the lender and borrower, principal amount, interest rate, due dates.(2) The contractual terms of the mortgage; there are three types:Prescribed terms (s. 227): set of standard mortgage terms prescribed by the government (typically used by a private lender)Filed standard mortgage terms (permitted by s. 228): Major financial institutions will have their own prescribed terms of mortgages and will have these registered (registration number), which will be applied to the mortgage at handFile those standard terms with LTO and can then refer to them by serial numberDon’t have to re-file every time, just make sure form B refers to standard contract with the numberIf you use standard terms, must provide a copy to the borrower – otherwise, prescribed terms will govern (s 229)Consumer protection measure = if not delivered, assumed proscribed terms set in s. 227You can modify the standard terms, but must note modifications in part 1 (form B) (s 226), Cannot modify this document itself – which makes sense, as it is being referenced, potentially, by a number of agreementsRegistrar may DEMAND filing of this type of mortgage terms (s 230)Express terms: used in more specialized transactions where more detail is required. These are specific terms to the transaction that will be attached to the form B.Four types of legal mortgages: (1) Conventional mortgages – conventional residential mortgage(2) High ratio mortgages – secures up to 95% of the property’s value; guaranteed by Canada Housing and Mortgage Corp(3) Collateral mortgages – used to secure some other obligation (i.e. promissory note or other debt obligation the borrower provides to lender as debt instrument for further security)(4) Vendor takeback mortgages – mortgages granted by vendor to purchaser to finance a portion of the purchase price (finance flows from vendor to purchaser, vendor files mortgage against property for amount still owing for the property) (Norfolk v Aikens)Equitable MortgagesAn equitable mortgage is a contract that creates, in equity, a charge on the property but DOES NOT pass legal estate. An equitable mortgage does not pass legal title. S. 33 of the Land Title Act provides that an equitable mortgage is not registerable. This reflects the fact that our Torrens System does not recognize a split in title (legal title + beneficial title)Our Torrens System presumes that the registered owner of a piece of property is both the legal owner and the beneficial owner In terms of priority, an unregistered equitable mortgage may have priority over all judgments registered on title, provided that equitable mortgage was created before the judgments were registered, as per Yeulet v Matthews. S. 20 of the Land Title Act provides that unregistered interests are enforceable between parties, but unregistered interests do not have priority over registered interests. For registered interests, like a second (equitable) mortgage registered as a charge, priority is governed by date and time of registration (unless the parties express contrary intention, or in the event of fraud), as per s. 28 of the Land Title Act. Creating an Equitable Mortgage:Mortgage of equitable or future interestSecond lender’s security is their ability to redeem the property against the first lender in the event of a default (i.e. the second lender holds the right of redemption as its security). Can be given by the beneficiary of the property in trust. *Registerable as a charge!Instrument not sufficient to convey a legal interest: (a failed legal mortgage) In an agreement that cannot be registered in the LTO, but by which you promise to execute the equitable mortgage. Is an enforceable mortgage, but the lender is an unsecured creditor (secured creditors have priority over unsecured creditors). Deposit of duplicate certificate of title (DCT): Duplicate title = physical instrument (paper represents your legal interest in land) that you can get from the LTO (s. 176 LTA) Taking certificate out of the LTO “locks” title s. 195(1)Land cannot be transferred to anyone (duplicate required in order for transfer to take place [s 189]Land cannot be mortgaged (duplicate required to register a charge of this nature [s 195]Giving duplicate certificate of title to a lender in exchange for financing gives the lender control over your title (i.e. they don’t have to give the certificate back until they are paid out). But the lender is an unsecured creditor (secured creditors have priority over unsecured creditors). NO PRESUMPTION in BC that deposit of DCT ALONE shows intention to create equitable mortgage (have to do something in addition to giving the lender your DCT to explicitly demonstrate your intent to create an equitable mortgage – ambiguous agreement w/DCT NOT ENOUGH) (Mesa) Note: in Alberta, court held that there is a firm presumption that depositing a DCT with a lender creates an equitable mortgage. This presumption requires specific evidence to the contrary to disprove (North West Trust Co.) Alberta also allows registration of equitable charges.A promissory note and DCT was enough to establish equitable mortgage between lender and borrower, BUT not enough to give lender an interest in borrower’s tenant in common’s interest in the property without authorization from this person (Andrews)Three Common Elements of Mortgages (unexpressed terms of the mortgage)EQUITY OF REDEMPTIONRight of the borrower to prevent foreclosure proceedings and redeem their property by payment of the full debtArises when mortgage agreement is entered into BUT only becomes exercisable when contractual rights have expired (the borrower defaults) MUST be exercised by the borrower within a certain time period (~6 months)It CANNOT be contracted out ofException = quick claim deed – an instrument of transfer given by a borrower who doesn’t have any other options; courts are okay that a quick claim deed will not include a right of redemptionOperates in conjunction w/lender’s power of sale (is judicially supervised) (South West Marine Estates)MUST be free of conditions that would prevent redemption (related to above point)Any conditions “clogging” the equity of redemption will be voided by the court – every mortgage MUST be redeemable at some point (Knightsbridge)TEST: is the postponement was extravagant and oppressive? (Knightsbridge)In Knightsbridge, mortgage was irredeemable for 40 years – WAS NOT deemed extravagant or oppressive b/c mortgage was commercially viable, made by parties with equal bargaining power, and the sum involved was very largeCOLLATERAL ADVANTAGECANNOT take “collateral advantage” (party uses stronger bargaining position to get terms disproportionally advantageous to them) in mortgage UNLESS:That collateral idea is not unfair or unconscionableThat the collateral advantage is not a clog on redemption (doesn’t prevent redemption)That it is not inconsistent with the right of redemptionCLOG ON EQUITY/RESTRAINT ON TRADEAny stipulation or penalty that clogs the equity of redemption, or is repugnant to it, is void. Implied CovenantsLand Transfer Form Act Part 3S 9: If mortgage contains words listed in Column 1 of schedule 6, and references the numbers, the mortgage to be construed as if it contains words in column 2 of schedule 6 – forms in this part of the act only apply if the mortgage expressly states it is made pursuant to the actSchedule 6 outlines additional covenants that can be included in mortgageS 10: Mortgage includes all buildings, reversions and estateIncludes all natural aspects of propertyAll profits yielded from propertyAll aspects of original crown grantS 11: Taxation of bills – consider skill and labour not length of document when determining charge for preparationS 12: Mortgage is binding as between parties even if it doesn’t satisfy terms in actProperty Law Act ss. 20-24S. 21: When a vendor transfers land subject to a mortgage, the new owner is bound by that mortgage (the vendor’s personal covenant does not bind the new owner b/c they were not a party to the original agreement). Allows a lender to take direct action against the purchaser/new owner for repayment of the mortgage. S. 22: Implied covenant on the part of the new owner that they will make payments on the mortgage and indemnify the old owner for payment of the principalS. 23: The old owner ceases to be liable on the personal covenant of the mortgage three months after the mortgage term ends, unless the lender gives notice to the old owner to pay. S. 24: If a lender approves the new owner of land subject to a mortgage, then the old owner is released from their personal covenant under the mortgage. Ss. 23 and 24 only apply to residential properties (public policy helping consumers) Power of Sale – ForeclosureIn all mortgages, there is an implied covenant that, if the borrower defaults, the lender can foreclose and has the power of sale to dispose of the property. The practical result of foreclosure is that the lender gets clear title (free from the claims or interests of the borrowers and any subsequent charge holders). In the context of two mortgages on title, the second mortgagee can ask for foreclosure, but courts will go to the first mortgagee first, who will also be paid out firstHowever, this right of sale and foreclosure is tempered by the borrower’s right of redemption as per South West Marine Estates (right to redemption is judicially supervised in BC, unless borrower consents to waiving this right). In residential transactions where a home is at risk, almost a lock unless really extenuating circumstances that borrower will get 6-month redemption period (courts try and give as much time as possible)In commercial transactions if there is poor equity in property (mortgage is more than current value of property or close to current value), courts reduce redemption period to a short period (seen 1 day, typically 1-2 weeks) Statutory ProtectionsPROVINCIALNOTE: Provincial legislation is not directly applicable to banks, which are incorporated federally under the Bank Act. However, banks will do their best to comply with provincial statutes (except if there are major differences). Credit unions (incorporated under provincial statute) and private lenders must comply with provincial legislation. Mortgage Brokers Act, Part IIPurpose: consumer protection legislation – sets out disclosure requirements ensuring borrowers, investors and lenders receive adequate info about mortgage transaction from mortgage brokersBroker must provide written info about mortgage transaction that is not misleading (includes disclosure of various fees) s. 17.1Broker has to disclose any direct/indirect interest they might acquire in transaction s. 17.3-4Business Practices and Consumer Protection Act, Part 5Purpose: protects consumers from unconscionable practices in situations where credit is advanced (includes mortgages), and mainly prevents non-disclosure of hidden costs/feesDisclosure Requirements:Creditor has to give borrower clearly worded, easy to understand written disclosure statement related to mortgage 2 business days before borrower’s obligations take effect (ss. 66(3), 67)Can be waived by the borrower (s. 66(4))Separate disclosures for multiple borrowers (s. 68)Information in a disclosure statement may be based on assumptions or estimates, if: (s. 69)(1) disclosure depends on information that is not ascertainable by the creditor at the time of disclosure, and (2) the estimates or assumptions are reasonable and clearly identified as estimates/assumptions. Presumption for more favorable provision if inconsistency between credit agreement and disclosure statement (s. 70)Prohibition of Unconscionable Acts:Prohibits unconscionable acts by creditors/lenders against borrowers (s. 8)Undue pressure s. 8(3)(a)Situations where creditor takes advantage of borrower (i.e. physical or mental infirmity, ignorance, literacy, age, inability to understand the character, nature or language of the transaction) s. 8(3)(b)No reasonable probability of full payment at the time the mortgage was entered into s. 8(3)(d)Inequitable terms (harsh, adverse) of mortgage agreement s. 8(3)(e)Gives courts the power to review whether an unconscionable act has taken place (s. 8)Burden on creditor to prove unconscionable act DID NOT happen (s. 9(2))Court have power to deal w/unconscionable mortgage – courts can undo a transaction, require lender to provide calculations, order repayment from either side, set aside the entire agreement, suspend the rights and obligations of the parties (s. 10)FEDERALInterest Act(a) Term of mortgage – borrower has right to pay off mortgage (with three months interest) every 5 years (s. 10(1)), but this right only applies to individuals (not corporations or partnership) (s. 10(2)) Possible Scenarios from Potash v Royal TrustOriginal mortgage w/term of 5 years (Year 1)The term is extended by agreement beyond the 5-year mark (renewal), but the date of the original mortgage stays the sameA renewal is NOT presumed to reset the mortgage date. There MUST be EXPRESS language in the renewal agreement for the mortgage date to be reset Potash v Royal TrustAt the 5-year mark, the borrower has the statutory right to pay off the mortgage (Year 5)At the expiry of the term, the borrower has a contractual right to pay off the mortgage. (beyond Year 5)Original mortgage w/ term that exceeds 5 years.(Year 1)At the 5-year mark, the borrower has a statutory right to pay off the mortgage.(Year 5)If the borrower chooses not to exercise his statutory right, and enters into a renewal agreement for another 5 years, that deems the date of the original mortgage to be the date of maturity of the existing loan. (Year 5)The borrower cannot repay before the 5 year mark(Years 6-9)At the 5 year mark, the borrower has a statutory and contractual right to pay off the mortgage. (Year 10)Original mortgage w/ term of less than 5 years. (Year 1)The borrower has a contractual right to pay off the mortgage at the expiry of the term. (Years 2-4)(b) Disclosure of true interest rate Section 6The true interest rate (showing the principal amount and what the interest rate would be if calculated yearly or half-yearly) MUST be disclosed before a payment is made. Failure to disclose = lender may receive no interest at all (a huge penalty) Section 6 applies to mortgages where the interest is payable by one of the following three methods: Sinking fund plan: every time you make a payment, the fund goes downBlended interest and principal: part of payment goes to interest first, then the rest to principalKilgoran Hotels Ltd v Samek - Court held that the payments in the mortgage contract in question were not blended because they could be separated by simple calculationFerland v Sunlife Insurance - The Court relaxed the definition of blended payments, finding that “principle and interest are blended only if the deed does not disclose the true rate or interest payment”. Under Ferland, the contract in Kilgoran would have been a blended mortgage.Stipulated repayments: schedule of interest that applies to specific payments.Section 7True Interest Rate = Maximum Interest RateThe true interest is the maximum interest rate payable. If the true interest rate is less than the rate of interest that would be charged by virtue of any other provision, calculation or stipulation in the mortgage, no greater interest rate than the true interest rate can be charged. Section 8ArrearsLenders cannot charge more (by way of penalty, fine, or an increased rate of interest) on arrears (arrears = in default or haven’t paid by the expiry of the term) (Re Weirdale Investments) s. 8(1)What constitutes arrears?10% interest imposed if principal NOT paid on due date (i.e. borrower went into arrears) = contravened s. 8(1) (Re Weirdale Investments)Increase from 18% to 24% interest one week before maturity of the loan did not contravene s. 8(1) (Raintree)Interest increased from 12% to 24% one month prior to maturity date did not contravene s. 8(1) (upheld Raintree) (Prenor Trust Co)Interest rate increase from 16.5% to 24% after date of maturity = contravened s. 8(1), against Raintree. Court suggested increase in interest would not violate s. 8(1) if it had a legitimate commercial purpose (Guinness)Agreeing to 1 year renewals at higher interest rate did not violate s. 8(1) (maybe legit commercial purpose?) but administrative and renewal fees held to be in contravention to s. 8(1) (Equitable Trust Company)It is permissible for a lender to charge interest on arrears, provided that interest rate does not exceed the rate payable on principal money not in arrears s. 8(2)Section 9What Happens When Borrower Pays More than True Interest RateIf anything in excess of the true interest rate is charged or if there is a fine, penalty or higher rate of interest on arrears, the sum paid can be recovered (Re Weirdale Investments). So any contravention of ss. 6, 7 or 8 of the Interest Act by a lender entitles the borrower to recovery. Criminal Code – Criminal Interest Rate (ss. 347, 347.1)Criminal interest = effective annual interest exceeding 60% of the credit advanced to the borrower.Annual Effective Rate = (Aggregate Credit/Time for Payment) x Aggregate interest rateAggregate interest = all fees, fines, interest, etc. paidAggregate credit advanced = all you borrow or could borrowTime for repayment = term of the mortgageIt is an offence to enter into an agreement to receive interest at a criminal rate. This offence should be construed narrowly, as per GarlandWhether an agreement or arrangement for credit violates this provision should be determined as of the time the transaction was entered into. If an agreement or arrangement permits the payment of interest at a criminal rate, but does not require it, there is no violation of this offence, but there may be a violation of the offence to receive payment/partial payment at a criminal rate. It is an offence to receive payment or partial payment at a criminal rate (more commonly prosecuted). This offence should be construed broadly, as per GarlandWhether an interest payment violates the provision should be determined as of the time when payment is received.There is no violation of this offence where a payment of interest at a criminal rate arises from a voluntary act of the debtor/borrower (an act wholly within the debtor/borrower’s control, and not compelled by the lender or the consequence of a determining event set out in the agreement). Note: If it’s completely voluntary for a borrower to shorten time in which payment must be made, the interest cannot be categorized as criminal. Interest rate for mortgage calculated over term of mortgage. (Nelson)Enforcement of MortgagesForeclosureMortgages are enforced through a foreclosure process whereby the lender can take the land as part of its enforcement. If a mortgage is in default, the lender has an immediate right to demand repayment of the entire mortgage, subject to the borrower’s right to redeem during the redemption period (~6 months).During the redemption period, if the borrower retains the right to sell property, they can accept any offer for the property so long as the purchase price covers the amount they owe to the lenderThe lender can begin foreclosure proceedings by filing a petition (Rule 21-7, Supreme Court Rules). The lender can ask the court for an order nisi, including a declaration that: The mortgage is in breach; X amount of money is owing; and, The length of the redemption period. If the entire amount is not repaid by the expiry of the redemption period, the lender has the right to enforce the mortgage by applying for a court order to take the land, in one of two ways:Court ordered sale: the lender can sell the land (gets conduct of sale) and use the proceeds to cover the amount owingAny offers must be approved by the court (to ensure that the offer is fair to all the parties)If the purchase is approved, the mortgage on the property is discharged. However, the borrower in default may still owe money to the lender if the sale price does not cover the amount owing. Order absolute: a court order that allows the lender to take absolute ownership of the land (title is transferred to the lender). This amounts to a full settlement of the debt (this extinguishes the borrower’s personal covenant to repay the mortgage, as per s. 32 of the Property Law Act). PrioritiesPriority is governed by the date and time of registration (unless parties express a contrary intention), not the dates of execution of the instruments, as per s. 28 of the Land Title Act. If there are two identical dates and times, priority will be settled by registration number (the lowest number wins). Three exceptions to this rule:Contrary intention: the parties to the mortgage can say that it is subject to other instruments. Priority agreement: lenders can enter into an agreement that rearranges priority of charges.Fraud: if registration occurred as a result of fraud, it cannot take priority over a bona fide charge.Section 20 of the Land Title Act provides that unregistered interests are enforceable between parties, but unregistered interests do not have priority over registered interests. LiensBuilder’s Lien Act Provides lien over property for unpaid fees for contractors and that lien can be registeredConsequence: Although lender registered mortgage on a property prior to a builder’s lien being registered, if that lender makes any advance on that mortgage after a lien is registered, that advance is subsequent in priority to that lien claimBanks will do title searches over a property before advancing money on property’s mortgage to search for registered liensCourt Order Enforcement ActPermits judgments to register against property of the judgment debtor Issue with this – if there are multiple judgments that get registered against the same property, the act says judgement share rateability together (i.e. one does not rank over the other)The priority of payment should be as follows: HankenAll the judgment creditors should be paid out first, including those registered after the mortgage was registered; The mortgage lender should be paid out; Any balance should go to the judgment debtor/borrower. Unless you can get people to agree in above situation how to get the money sorted out, you’re going to have to get a court orderProperty Law Act S. 28: if there is a registered mortgage, it takes priority, EXCEPT if there is another mortgage and first mortgage needs to make another advance, then it needs to have another agreement w/ second mortgage to make sure the advance gets first priority Strata Property ActAllows strata corporations to file liens for unpaid strata fees or fines – super priority over registered charges (i.e. a registered mortgage)Employment Standards ActPermits for a lien against property of employers for unpaid wages of employeesEnforce that lien by going to court for a certification and registering that against titleEven before its registered, there is a lien on the propertyWorkers Compensation ActCollects fees from employers, if left unpaid, forms lien on property of employer even if unregisteredFamily Law ActPermits spouses who are not on title to register a claim against the title of a spouse who is on title, particularly for the family homeTax Liens - Every Tax Statute that Exists Acts create a lien on the property of the party who is liable to pay that taxGST liens get priority over other encumbrancesLeases for less than 3 yearsCreates a lien/encumbrance against title that affects everyone who has an interest in property, despite it not being registered (doesn’t actually need to be registered)Good Year: mortgage and lease of property, if lease was put on property before the mortgage, and mortgage gets enforced, tenant could walk away with no liabilityReasoning = identity of the owner is changing, and tenant has no privity with that new ownerDefaults in the ProcessIn order to close, the parties must be “ready, willing, and able to complete”. Vendor’s obligationThe vendor must be able to convey title free and clear of all charges and encumbrances, or as agreed, except those reservations that exist because of the original Crown grant (s. 9 of the standard form Contract of Purchase and Sale). The basic charge that must be cleared is the vendor’s mortgage.Purchaser’s obligation The purchaser must be able to pay the vendor, as agreed. Title DefaultsVendor’s Obligations S. 185 Land Title Act: Deliver to the purchaser an instrument (Form A, as per s. 185 of the Land Title Act) that allows title in the property to be registerable under s. 4 of Property Law ActS. 6 Property Law Act: Vendor must have their own title registered before transferring title to the purchaser Means that title must be in the vendor’s name, not in the name of a shell company (Caplan v Coles)S. 7 Property Law Act: adequately “describe the parcel of land intended to be transferred” Providing the property’s legal description to the purchaserS. 186 Land Title Act: subject to implied covenant they will deliver title to P free from all encumbrancesEncumbrances that have a restrictive effect on the normal use and enjoyment of the property will result in title default (Re Hughes, confirmed in Ferria v Chen)i.e. covenant that restricts building height = title default (Ferria v Chen)i.e. sewage easement in favour of municipality w/no restrictive effective on normal use and enjoyment of property = NO title default (Re Hughes).A financial encumbrance, even if it is an empty mortgage (already paid out; no obligation behind it) (Campbell v Frolic)What Constitutes a Title DefaultYES Title DefaultNO Title DefaultEncumbrances that have a restrictive effect on the normal use and enjoyment of the property (Re Hughes, confirmed in Ferria v Chen), e.g. covenant that restricts building height (Ferria v Chen).A financial encumbrance, even if it is an empty mortgage (already paid out; no obligation behind it) (Campbell v Frolic).If title is not in the vendor’s name (as required by s. 6 of the Property Law Act), but rather in the name of a shell company, for example (Caplan v Coles). Minor encumbrances that have no restrictive effect on the normal use and enjoyment of the property (Re Hughes, confirmed in Ferria v Chen), e.g. sewage easement in favour of municipality (Re Hughes).Damage to Property - RiskS. 16 of the standard form Contract of Purchase and Sale sets out who bears the risk for the property in the interim period, after execution of the contract and before closing: “All building on the Property and all other items included in this purchase and sale will be, and remain, at the risk of the Seller until 12:01 am on the Completion Date. After that time, the Property and all included items will be at the risk of the Buyer.” This means that the vendor will want their insurance in place until 12:01 am on the completion date, and the purchaser will want their insurance to kick in as of 12:01 am on the completion date. The vendor bears the risk for the property during the interim period.In larger commercial contracts, the purchaser will want to negotiate options for varying levels of damage to property (i.e. an option to terminate the contract if a certain level of damage occurs to the property)Patent & Latent DefectsPATENT DEFECTSLATENT DEFECTSPatent defects are defects that are easily seen on reasonable inspection; defects “discoverable by inspection and ordinary vigilance on the part of a purchaser” (Gronau). e.g. missing roof, no wallsThe caveat emptor (“buyer beware”) rule applies, meaning that the vendor has no obligation to draw the purchaser’s attention to these defects (Gronau). Latent defects are defects that cannot be easily seen on reasonable inspection (Gronau). e.g. structural crack concealed with temporary patching and matching bricks (Gronau)If the vendor is aware of any latent defects and actively conceals them, caveat emptor does not apply and the purchaser can sue for rescission (equitable remedy that allows parties to go back to pre-contractual position) or damages (Gronau).MisrepresentationFraudulent MisrepresentationNegligent MisrepresentationInnocent MisrepresentationWhat is it? A false representation made knowingly. In other words: “a false statement which, when made, the representor did not honestly believe to be true” (Roberts v Montex Development).Onus is on the party alleging fraud to prove the fraud (high standard!). In some cases, failure to disclose will also amount to fraudulent misrepresentation (Allen v McCuthcheon). A false representation made negligently. A representation made innocently that turns out to be false.0759594 B.C. Ltd. v. 568295 B.C. Ltd:If you have a full disclosure clause in the contract, have to add a knowledge qualifierIf you don’t draft clearly, a court will read in a warranty to a vendor, even if it’s for unknown informatione.g. representation that condo was designed to provide maximum sound-proofing between homes (Montex Developments v Roberts).e.g. innocent mistake as to the quantity of the land conveyed (Hyrsky).Purchaser’s remedyCourts will award rescission if fraudulent misrepresentation relates to a fundamental term of the agreement. Fraudulent misrepresentation is an exception to the doctrine of merger (Redican v Nesbitt). This means that an innocent party may be awarded rescission, even if fraudulent misrepresentation is not discovered until after closing. Otherwise, courts will award damages to the purchaser. Courts will award rescission if negligent misrepresentation relates to a fundamental term of the agreement. Otherwise, courts will award damages to the purchaser.Courts will typically only award damages for innocent misrepresentations. Rescission may also be awarded, but only if the innocent misrepresentation is discovered before completion (doctrine of merger); exception is where innocent misrepresentation amounts to error in substantialibus, in which case a court may award rescission, even if the innocent misrepresentation was discovered after completion (Redican v Nesbitt). e.g. in Roberts, purchaser wanted rescission but court found sound-proofing misrepresentation did not go to the root of the contract, so only damages.e.g. in Hyrsky, court awarded the purchaser rescission because what they got was totally different from what they contracted for = error in substantialibus (a total failure of consideration).What constitutes error in substantialibus?The Court in Hyrsky said: “In order to constitute error in substantialibus, there must be a mutual fundamental mistake as to the quality of the subject matter.” A mistake that goes to “the very root of the contract”. An error in substantialibus by the vendor will typically entitle the purchaser to the equitable remedy of rescission. Error in substantialibus is an exception to the doctrine of merger, allowing an innocent party to claim rescission after completion. Time of the Essence (TOE)“Time of the essence” means that there must be strict adherence by the parties to the specified time for performance (Norfolk)A failure to adhere to the specified time for performance is considered a fundamental breach, and gives the innocent party the right to terminate the contract.S. 31 of the Law and Equity Act provides that equity will step in to provide relief to time requirements unless otherwise stated and wording is necessaryIf you are not ready, willing and able to complete, you cannot rely on “time of the essence” – have to do your part first (Norfolk)If both sides are not ready, the P&S agreement doesn’t die, but either party can set a new reasonable closing date to restore “time of the essence” (Norfolk)A failure to adhere to the specified time for performance is considered a fundamental breach, and gives the innocent party the right to terminate the contract. The innocent party must act promptly and communicate to the other side whether they would like to terminate or affirm the contract (A&G Investments)If a purchaser fails to adhere to “time of the essence”, the vendor may terminate the contract. If the vendor elects to terminate, the purchaser’s deposit is “absolutely forfeited” to the vendor. If time is of the essence, the minute you miss the deadline for closing, the contract is dead. Waiver of TOE:By agreement, either express or impliedIf you want to set a new closing date, you must restate that time is of the essence; it is not sufficient to state that all other terms and conditions remain the same (Ambassador Industries)Where it would unjust/inequitable to enforce time of the essence, as in Salama Enterprises;Was inequitable in Salama Enterprises b/cParties’ conduct implied that they both wanted to keep the contract aliveNo significant impact on innocent party by not enforcing time was of the essenceBy the innocent party, if the other party is not ready; If neither of the parties are ready, as in Norfolk and Shaw Industries. If neither of the parties is ready to complete, either of the parties can set a new, reasonable time for closing and time of the essence will be restored. But to restore time of the essence, you need to expressly say so in the amended agreement, per Ambassador Industries! Title InsuranceTitle insurance insures owners against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Because BC is a Torrens System, title insurance is uncommon both in the residential and commercial deals. In the residential context, it may be present at the request of a bank (to offset risk). In the commercial context, it may be requested by purchasers from jurisdictions where it is common practice (Ontario, Alberta, US etc.).There are both owner and lender policies:Owner insuring against losses such as defaults in title stemming from forgery and encroachments (from lands adjoining and over your own lands), and unmarketable titleLender insuring bank that mortgage is enforceable and is in priority COLLAPSING TRANSACTIONTenderTender is the delivery of all money, title, docs, etc. on Closing Day as required by the PSA. Is evidence of being “ready, willing, and able” to completeIs inconsistent with terminating the agreement Proper tender must be in strict compliance with the terms of the Contract of Purchase and Sale – tender must be in the manner, at the time, and to the party as required by the Contract (Norfolk)Tender requires perfection. There cannot be any conditions attached to tender.If one party has what they need, but the other party does not, you cannot complete. A party will fail to tender perfectly, and therefore be in breach of the contract, if they are not “ready, willing, and able” to complete on the Closing Day. Two specific things that must be tendered on Closing Day: The purchaser must tender money, in the form agreed to in the contract (e.g. cash). Tender must be to the correct partyIf the contract says tender must be to the parties to the contract (i.e. P/V), it must be to them personallyShould include in contract an authority of lawyers acting for the parties to accept and give documents (to avoid this issue)The vendor must tender title, free and clear of all encumbrances or as otherwise agreed. Remember the details of the vendor’s obligations with regards to title, set out in the Property Law Act:Vendor must deliver to the purchaser an instrument (Form A, s. 185 of Land Title Act) that allows title in the property to be registerable under the Land Title Act; Property Law Act, s. 4. Good practice to have a letter of transfer prepared to demonstrate that V is ready willing and able to assign transfer (in case P is failing to provide documents to provide closing forms). Vendor must have their own title registered before transferring title to the purchaser (title must be in the vendor’s name, not in someone else/a company’s name); Property Law Act, s. 6.V can’t force P to finish a sale where V does not have title yet – not ready willing and able if this is missingVendor must adequately “describe the parcel of land intended to be transferred” (by providing the property’s legal description to the purchaser); Property Law Act, s. 7. Vendor is subject to an implied covenant that they will deliver title to the plaintiff free from all encumbrances; Land Title Transfer Form Act, Schedule 2 and s. 186 of the Land Title Act. In order to have full access to remedies (like specific performance), you must go through will all the steps of tender, regardless of whether you think the other party will be ready or not. Only an unequivocal statement by the other side that they will not tender releases the innocent party from its obligation to tender too (Norfolk). If both parties have not tendered, it does not automatically terminate the agreement. It negates the “time of the essence” clause and it is up to one or both parties to propose a new closing date. (Norfolk)Where both parties are in breach – neither side can rely on the breach of the other to terminate the contract or require performance (Norfolk).The purchaser is obligated to prepare conveyance documents because most contracts will say purchaser bares the costs of conveyance, meaning they have the obligation to prepare documents and other actions necessary to do the transfer (Grewall Farms)RepudiationWas the contract repudiated?Express: “I am terminating the contract because you did x”Can be actual or anticipatoryIndirect: by parties’ actions, it appears as though they’re not going to fulfill their covenants (i.e. failing to tender)If party does not tender, that can be treated as a repudiation of the contractIf the purchaser does not prepare the conveyance documents or allocate funding for purchase price = indirect repudiationIf the vendor is not ready to transfer clear title or sign conveyance documents = indirect repudiationIf one of the parties fails to fulfill a condition precedent by purported time = fundamental breach gives innocent party right to repudiate the contract (A&G Investment Inc v 0915639 BC)What does innocent party want to do in light of repudiation?Accept repudiation and terminate the contract – damagesClaim damages for the non-fulfillment of the repudiating parties’ obligationsMake sure you do all your obligations though or else the contract might be kept alive (Shaw Industries)Accept repudiation and terminate the contract – depositInnocent party can ask for the depositMake sure deposit is not a penalty clause (i.e. is still compensatory in nature)Innocent party can ask for more damages in addition to deposit if they can justify them (i.e. deposit not enough to be compensatory)Make sure you do all your obligations though or else the contract might be kept alive (Shaw Industries: P was late sending in conveyance docs so V did nothing to prep title, court found both parties at fault)Reject the repudiation and keep the contract aliveDo this by fulfilling all your obligations under the contract (i.e. tender perfectly)It’s not a defense to not fulfilling your own obligations to say the other party didn’t fulfill theirs (Shaw Industries)Contrast with Grenwall Farms in which court commented that it felt the P was justified in not prepping documents b/c they saw V wasn’t able/taking any action to tender (wasn’t taking steps to clear title). Court let P get away with not tendering. If you do this, then you can claim specific performance, and potentially damages tooFrustration:Frustration: an action that causes the inability to complete the agreement and it cannot be the voluntary action of the party – one party cannot create the circumstance.The intervening event cannot have been reasonably foreseeable and it must have rendered the contract impossible for it to have been frustrated. If action of 3rd party makes performance of obligations as contemplated by parties impossible (must strike to the root of the contract), contract has been frustrated – neither party is at fault, contract rescinded, parties put back in place before contract existed (BC v Cressey)For there to be an effective force majeure event, it must make the transaction impossible and it must be completely unanticipated. Payment of Funds:No ability to have checks greater than $25M, if need to pay more than that price need to wire transfer, cannot use multiple small cheques – be aware of wire cut off timesRemediesSpecific Performance:Specific performance is an equitable remedy that involves the enforcement of a contract. Specific performance requires:That you go to court with “clean hands” (you must have fulfilled all your own obligations) – i.e. you need to tender, completing acts to property that was outlined in the contractThat you be vigilant/act quickly; You can’t sit on this a while and then request specific performanceThat the contract still be alive (not terminated). Anything that the party does contrary to the contract being alive (e.g. failing to tender perfectly/not being “ready, willing, and able”; grabbing a purchaser’s deposit) is an indication that that party should not have access to the remedy of specific performance; and,V saying they get to keep deposit is in conflict with keeping the contract alive (don’t do this if you want specific performance)P asking for the return of the deposit is in conflict with keeping the contract alive (don’t do this if you want specific performance)That the property in question be unique, irreplaceable (Semelhago). If a property is not unique “to the extent that its substitute would not be readily available”, specific performance is not justified but the claimant will be able to seek damages.The party seeking specific performance must take actions to mitigate its damages (Southcott).Should specific performance be awarded and were mitigatory actions taken?If no, is the plaintiff justified in its mitigatory inaction?Is the plaintiff’s inaction reasonable in these circumstances? – Seeking specific performance, but did not buy another property because needed the money to buy the property in questionYou can ask for SP in combination w/damages – innocent party may have suffered hardships in addition to not just getting/selling the propertyYou can ask for damages in lieu of SP – damages are assessed at the date of the trial (Semelhago).You can pursue SP before the breach occurs (i.e. in the case of anticipatory breach)SPECIFIC PERFORMANCE AS A VENDOR’S REMEDYIf a vendor wishes to maintain its right to claim specific performance, it should tender, and tender perfectly. In other words, to claim specific performance, a vendor must be “ready, willing, and able” to complete (have title, free and clear of encumbrances or as agreed). SPECIFIC PERFORMANCE AS A PURCHASER’S REMEDYIf a purchaser wishes to maintain its right to claim specific performance, it should tender, and tender perfectly. In other words, to claim specific performance, a purchaser must be “ready, willing, and able” to complete (deliver the conveyancing documents and have the money). DamagesPurpose: compensatory – put the parties in the position that they would have been in had the contract been fulfilled (Mavretic: property went up in value, argued no loss to the vendors with purchasers not completing)Courts do not want innocent party collecting a windfall i.e. if keeping a deposit goes beyond compensating innocent party from what they’ve lost, court will reduce amount they can keep (Mavretic)Calculating Damages for breach of PSA:General rule is that damages are calculated from the day of the breach (Semelhago, Mavretic)HOWEVER, Mavretic illustrates that this rule isn’t followed often – courts have tendency to view date of assessment of damages as contextual (means they look to the circumstance of the case)i.e. in Mavretic, court indicated that the status of the real estate market (i.e. if the value of property increased or decreased) could influence when court set date of damages calculationi.e. if calculating damages from date of breach would lead to an injustice, court can choose another date (Semelhago: value increased between breach and trial)The Deposit: Return to the Purchaser, or Forfeiture to the VendorTHE DEPOSITThe return or forfeiture of a deposit has the effect of terminating the Contract of Purchase and Sale (the innocent party is accepting the repudiating party’s repudiation).Even if there is no express forfeiture clause in a Contract of Purchase and Sale, if the money is identified as a deposit, the vendor will likely be able to keep it. However, where there is no express forfeiture deposit and the money paid by the purchaser was not intended as a deposit to guarantee performance of the contract, courts will not imply a forfeiture clause and a purchaser in default will be entitled to the return of their money (Hirst v Moore: payments over time not determined as deposit). Court will look at what the actual damages in relation to the amount of the deposit (Mavretic)If the actual damages are LESS than the deposit amount, innocent party will not be allowed to keep the full deposit amount (courts will not allow the innocent party to have a windfall)If actual damages are MORE than the deposit, the innocent party is free to sue for more damagesFORFEITURE OF DEPOSIT/RETAINING THE DEPOSIT AS A VENDOR’S REMEDYIf a purchaser repudiates, the vendor can ask for forfeiture of the purchaser’s deposit. This action terminates the contract (the vendor is accepting the purchaser’s repudiation), relieving both parties of any outstanding obligations under the contract. The vendor may then sue the purchaser for any damages not covered by the deposit. Questions to AskDoes the contract allow me to keep the deposit? (is there a forfeiture clause?)Does the deposit look like a penalty – is the size of the deposit out of comparison to the damages I have suffered under the K (is it unconscionable to keep the deposit) (Stockloser)Courts can relieve against the keeping of a deposit if it seen as a penalty (out of proportion) RETURN OF THE DEPOSIT AS A PURCHASER’S REMEDYIf a vendor repudiates, the purchaser can ask for the return of their deposit. This action terminates the contract (the purchaser is accepting the vendor’s repudiation), relieving both parties of any outstanding obligations under the contract. The purchaser may then sue the vendor for damages.LiensVENDORS LIENDid the vendor transfer title but the purchaser HAS NOT paid FULL purchase price?If yes, vendor’s lien as arisen – consequence of entering a PSA is:The transfer of beneficial interest in property to purchaser (Lysaght v Edwards)In exchange for vendor’s claim over interest in purchase price (Gordon v Hipwell)Vendor’s lien arises as equitable right even before a claim or action has startedVendor’s lien can take two forms:Commence an action for the unpaid purchase price and get a Certificate of pending litigation against purchaser’s interest in the property.Consequence: Vendor’s claim has to be resolved before the purchaser can take any further action on the propertyFiling a caveat against the purchaser’s titleVery difficult to get these registered – registrar has the discretion to register If you have a real claim, the registrar will tell you to start a claim instead Usually register it where there is some risk of something happening to titlePURCHASER’S LIENDid the purchaser pay vendor purchase price (even just some of it) but the vendor failed to transfer title?If yes, purchaser’s lien has arisen – consequence of entering a binding PSA is: The transfer of beneficial interest in property to purchaser (Lysaght v Edwards)Contract doesn’t have to expressly to contemplate the purchaser’s lien – it’s automatic when PSA entered intoBinding PSA necessary for effective purchaser’s lien (Pan Canadian)RescissionRescission is an equitable remedy that involves the undoing of a contract, returning the parties to their original positions (the unmaking of a contract). The availability of rescission also depends on whether it is possible to undo the contract. If the parties cannot be put back to their original positions, the innocent party can only claim damages. Rescission is only available in four circumstances:Fraudulent MisrepresentationIf an executed contract, innocent party needs to show defendant committed fraud to rescind contractExamples:Actively concealed latent defect (Gronau)i.e. structural crack concealed w/temporary patching and matching bricksInnocent Misrepresentation if (Kingu):The misrepresentation was made about an existing fact (NOT a future fact)Misrepresentation was made with the intention the other party would act on itThe misrepresentation induces the innocent party to enter into the contractThe innocent party acted promptly to disaffirm the contract after learning of misrepresentationNo innocent 3rd parties have acquired rights to the propertyMust be possible to restore parties substantially to their pre-contractual positionsError in Substantialibus A fundamental error that goes to the root of the contract; what the party got was substantially different from what they contracted for < can come up with regards to negligent and innocent misrepresentation (Hyrsky v Smith)i.e. Mistake regarding the quality and identity of the land (Hyrsky: portion of the property sold not actually owned by vendor was an error in substantialibus)Breach of Warranty (fundamental term in the contract is breached)Determine if the term is material (issue of mixed law and fact)TEST: is there a substantial likelihood that the term would have been considered important by a reasonable investor in making his or her decision (0759594 BC Ltd)E.g. in 0759594 BC Ltd, fact that V did not tell P 60% of the property could not be developed because it was protected under a provincial statute (P was not aware of this before closing), and there was strong community dissent for the development of a commercial retail space in that area breached clause in PSA asserting V warranted to disclose all material facts pertaining to the property (even ones V didn’t know about)COMPLETION/CLOSINGUndertakings An undertaking is a promise given by a lawyer to another person whereby the lawyer assumes a personal obligation to act or refrain from acting in a certain manner.A breach of an undertaking can lead to: (a) civil liability to those who relied on the undertaking; (b) professional disbarment; (c) damage to professional reputation. Only lawyers can give undertakings. Any letter giving an undertaking must be signed by the lawyer (you cannot get someone else, e.g. legal assistant, to sign an undertaking letter on your behalf). Undertaking deemed to exist when: (a) by issuing a trust cheque, a lawyer is deemed to have undertaken that the cheque will be paid except in unusual circumstances that the lawyer can justify; (b) if the purchaser’s lawyer accepts the purchase money in trust and also receives a registerable conveyance from the vendor in favour of the purchaser, the purchaser’s lawyer is deemed to have undertaken to pay the purchase money to the vendor on completion of registration. Undertaking given by one lawyer to another lawyer can ONLY be released/altered by the lawyer to whom it is given – NOT the clientPrinciples for UndertakingsNever give an undertaking unless it is wholly within your power to comply with it (Handbook 4-2).If an undertaking or trust condition is imposed on you, and you are unable to unwilling to accept it, you have to get the other side to agree to change it or immediately return anything that was subject to the undertaking or trust condition (Handbook 11-11). Failure to do so can be seen as acceptance of the undertakings. Imposing undertakings on another lawyer that you would not give yourself is bad practice. You cannot impose on lawyers undertakings that are manifestly unfair, impractical. (Handbook 11-10)Never give an undertaking when a lesser form of assurance will suffice. Always bring forward your undertakings.Always put undertakings in writing (Handbook 11-7.1).Undertakings should be unambiguous in their terms, and clearly drafted (Handbook 11-7.1). Never use the term “undertaking” unless in its proper sense. Procedure for Purchase & SaleNOTE: In order to use undertakings in a real estate transaction, there must be express authority from the clients for the lawyers to do so in the PSA (first stated in Ed Wong and then adopted in BC by Norfolk)Has to be express – Term in contract demanded simultaneous transfer of payment and title very likely not possible without undertakings, but NOT ENOUGH to authorize undertakings (Norfolk)In response to Re Wirick, the Law Society adopted Rules 3-88 and 3-89, which require that lawyers report to the Law Society: (a) any failure of a bank to provide a registerable discharge within 60 days of any real estate transaction, and, (b) any failure of a lawyer on the other side to register a discharge within 60 days. The purchaser’s lawyer prepares the closing documents (Form A, new mortgage) and forwards these documents to the vendor. Documents include: the transfer + the new mortgage (Shaw v Greenland). [PL Undertaking #1: Purchaser’s lawyer undertakes that, to the best of their knowledge, the purchaser has fulfilled all of the conditions for funding (new mortgage executed, insurance purchased, etc), except the registration of the new mortgage, which will happen in Step 3.]*In BC, in the residential context, a lawyer can represent both the purchaser and the purchaser’s bank to prepare the Form A transfer and the new mortgage documents.The vendor’s lawyer has the transfer documents executed and returned to the purchaser. Remember: the only person who needs to sign the Form A is the vendor. (Property Law Act s. 4)[PL Undertaking #2: Purchaser’s lawyer undertakes not to register the transfer until they hold, in their trust account, sufficient funds for the transaction > funds held in trust account + new mortgage money, to come from lender = full purchase price.] The purchaser is now in control of all the documents. On the day of close, the purchaser’s lawyer registers the transfer (Form A) and, following this, the new mortgage. Upon registration, the purchaser will receive a pending registration number > do a post-search.[PL Undertaking #3: Purchaser’s lawyer undertakes to give the purchase money to the vendor after obtaining a satisfactory post-search, showing that the purchaser will be the owner of the property as contracted for, e.g. free and clear of all charges that are to be discharged, or as agreed]. [PL Undertaking #4: Purchaser’s lawyer undertakes to return the transfer, unregistered, or to make application to have the transfer withdrawn (along with the new mortgage), if they cannot uphold undertakings 1-3.]The purchaser’s lawyer requests and obtains the closing funds from the purchaser’s bank, and then pays the vendor’s lawyer. [Purchaser’s lawyer has now fulfilled undertaking #3][VL Undertaking #1: Vendor’s lawyer undertakes to pay out the existing mortgage upon receipt of the closing funds from the purchaser’s lawyer.]The vendor’s lawyer, on receipt of the closing funds, will pay out the existing mortgage, and provides the balance of the funds to the vendor. [Vendor’s lawyer has fulfilled undertaking #1]The vendor’s lawyer will secure the discharge of the existing mortgage, and will register this discharge (typically a few weeks after the close date). [VL Undertaking #2: Vendor’s lawyer undertakes to use “diligent and commercially reasonable efforts” to obtain the discharge of the existing mortgage, i.e. do their best.][VL Undertaking #3: Vendor’s lawyer undertakes to provide details of the discharge in due course to the purchaser.]POST-COMPLETIONThe Doctrine of Merger (DOM)The doctrine of merger provides that the lesser deeds merge into a greater deed. DOM destroys all pre-closing representations once title is transferred – all you have left after close are the representations in the title transfer document (Form A).In Fraser Reid, there was an express warranty that the new house be built with all applicable by-lawsSurvival Clause: if present in the contract of P&S, all representations and warranties will survive closing (if not there, they will not survive). This means that if a warranty/rep is not fulfilled, you can sue for it even after closing. Note: our Form A provides that representations and warranties, including the implied covenants from the Land Title Transfer Act, remain effective after registration/closing. Exceptions to DOM:Error in substantialibusIs grounds to ignore doctrine of merger (i.e. allow P to sue/rescind contract after closing based on innocent misrepresentation outside P&S agreement) (Redican)Means an error that goes to the root of the contract (total failure in consideration) (Hyrsky v Smith)TEST: what was the subject matter of the agreement?Examples:Mistake regarding the quality and identity of the land (e.g. in Hyrsky, portion of the property sold not actually owned by vendor was an error in substantialibus)Fraudulent MisrepresentationIs grounds to ignore doctrine of merger (i.e. allow P to sue/rescind K after closing based on innocent misrepresentation outside P&S agreement) (Redican)Rule of caveat emptor does not apply where latent defects in property are actively concealed by vendors (Gronau)Requires dishonesty – if no dishonesty then may be negligent of innocent misrepresentationCan be an omissionIn Allen v McCutcheon, vendor failed to disclose a number of latent defects (that home had no proper foundations, BC Hydro extended 25, not 5ft, over property, that the sceptic tank & field were defective, electric wiring system was defective, and that portion of stuccoed wall had no finishing coat on it) amounted to fraudulent misrepresentation and purchaser was allowed to rescind contract after closingCollateral AgreementWhat they Are: warranties/representations outside the PSA that can also survive doctrine of merger (i.e. can be enforced after closing)TEST: when is a statement a warranty in law (something with contractual force) rather than a mere representation? – if a warranty can be a collateral agreement and survive closing (Roberts)Must be made in the course of dealings that led up to the contract and becomes part of the contractMust have been made intentionally or implicitly intended by parties to have been a warrantyStatement of fact on something that the P is ignorant to and the V has special knowledge ofWhat they’re used for: courts use collateral obligation as a device to elevate pre-contractual reps/warranties to contractual when they see an inequitable situation Things that can bar enforcement of collateral obligations:Parole evidence rule – where parties have reduced their agreement to writing, evidence of prior to reps and negotiations ARE NOT admissible to either add, vary or contradict written agreementEntire agreement clause – a clause in the PSA that states the written contract is the entire contract – anything outside four corners is invalid/unenforceable (they’re valid and available for parties to use Intrawest Corp: property in Whistler, said there would be ski runs going to the property)Only enforced if evidence that both parties have lawyers & were made aware of clause (Roberts: said the new development would have max sound-proofing)When courts analyze entire agreement clauses, it’s a matter of fact whether the parties intended the clause to exclude reliance on the collateral contract (Intrawest Corp)If both parties are sophisticated and the contract is not an adhesion contract, courts are more willing to enforce entire agreement clauses (Intrawest Corp)Where the contract was clearly intended to govern the relationship between the parties, it would not accord with commercial reality to give no effect to the entire agreement clause (Intrawest Corp)Implied CovenantsWarranty of Fitness (Habitability)The common law implies a warranty that the work on a newly built or renovated home has been done in a good and “workman-like manner” (defined as the standard of the profession). This implied warranty of fitness includes: a covenant that the builder has used good and proper materials; a covenant that the property is reasonably fit for human habitation). Title CovenantsThe Form A transfer implies a number of covenants, including that the vendor will deliver title to the plaintiff free from all encumbrances, that the transfer of the property will include all the buildings and benefits attached to the land, and that the purchaser will have “quiet possession”; Land Title Transfer Form Act, Schedule 2 and s. 186 of the Land Title Act. ................
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