I attended a great Law Society of Upper Canada seminar recently, The Annotated Agreement of Purchase and Sale, chaired by Bradley N. McLellan and featuring Craig R. Carter, Silvana M. D'Alimonte and Bradley N. McLellan as the panel of speakers. I was reminded that I had previously written about representations vs. warranties in an agreement and I thought it might be a good follow-up to discuss conditions in an agreement of purchase and sale.
The word ‘condition’ in an agreement of purchase and sale can be used to describe circumstances that must occur before a transaction will be binding on all the parties. Typical conditions include the offer being conditional upon the buyer obtaining financing and/or upon a home inspection satisfactory to the buyer, among others. These types of conditions allow for the buyer to waive them, should they so choose or terminate the contract on the basis that the condition is not fulfilled.
One important point that came up during the presentation was the concept of good faith. Good faith means that you have approached the transaction with a good faith intention to actually see it through until closing. As an example, I recently heard about a guy who had entered into an agreement to buy a property. He then decided that he didn’t really want the house after all, and he told the vendor that he was not able to get financing in order to withdraw from the agreement.
The vendor was not going to let it go that easily, however; this particular property had been on the market for awhile and the vendor was eager to sell. The vendor demanded to see the documents that the buyer was relying on to claim that financing had not been approved, and was entirely within his rights to do so. This person was actually denied financing (the request obtained after the demand) and so was legitimately able to walk away. If he had not been able to demonstrate that the condition could not be fulfilled, but still failed to close the transaction, he could have been sued. The courts are not going to be very sympathetic if you have not been dealing fairly with the other side.