Agreement of Purchase and Sale Conditional upon...

Posted on: Thursday, March 21st, 2013

An Agreement of Purchase and Sale is the foundation for every real estate transaction and is one of the most important legal documents many individuals will ever sign. Once an Agreement of Purchase and Sale is signed and all conditions have been fulfilled or waived, it becomes a binding contract between the seller and the buyer which cannot be amended unless both parties approve the changes. Typically, it will be difficult to get approval for an amendment once the deal is firm because usually if one party recommends changing the agreement, it is for the sole benefit of that party and therefore, the other party may not agree. A clause pertaining to lawyers approval will help to avoid these problems, as a lawyer can make recommendations before the contract becomes binding on the parties.

It is important that both the buyer and the seller include a clause in the agreement pertaining to lawyer approval. By including a clause such as this both parties are provided with the opportunity to have their lawyer review the document in order to approve of it, make recommendations for amendments that should be made to it, or terminate it completely. An example of a clause that could be inserted is as follows:

This offer is conditional upon solicitor approval of the terms of this Agreement of Purchase and Sale in his sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller within 5 banking days following the date of acceptance excluding Sat/Sun & Statutory holidays, that the above condition has been fulfilled or waived, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller within the time period stated herein.

The most common misconception is that you can make the purchase agreement conditional upon your lawyer’s approval and then you have accomplished the same thing as if the agreement were reviewed before it is signed. This condition should not be relied upon to replace seeking legal advice before you sign. Your lawyer will not have discretion to simply approve or not approve the agreement. A solicitor is only entitled to refuse approval of an agreement if there are genuine legal objections or impediments to the agreement the parties have made. The scope of the approval or disapproval will be limited to the form or content of the agreement and the law does not permit your lawyer to disapprove just because you ask him or her to. Nor does it allow the lawyer to insert new terms or conditions or attempt to renegotiate terms that were simply not understood.

An example of a case that highlights a common misconception about inserting a condition pertaining to lawyer approval is Rahall v. Tait, 2006 ABQB 587, where the buyers of a home were told that their offer had been accepted by the sellers on April 7, 2006. This agreement of purchase and sale had a condition that it was subject to the Sellers lawyer’s approval and they had up until April 10th, 2006 to review this offer with their lawyer. On this day, after reviewing the agreement, the Sellers lawyer informed the potential Buyers that the deal was off. Apparently there was a concern held by the Sellers that the new home they were building was not going to be ready at the time that the proposed deal was scheduled to close. The Buyers were never informed of this concern and were skeptical that the Sellers even asked their lawyer to approve the contract. The Buyers sued the Sellers and a judge concluded that the Sellers did not act in good faith as there was no reason why the lawyer should not have approved of the contract. The fact that the Sellers changed their mind because of a concern that their new home may not be ready in time caused the judge to deem that they were not acting in good faith towards the buyers.

The judge in this case stated that “the term ‘subject to lawyer’s approval’ is not an all-encompassing condition but must be supported by evidence to determine if it was or was not sought out”. In this case, it was determined that the Sellers did not properly seek out approval and that they could not use the late closure of their new home as an excuse to cancel the deal, especially since this information was not shared with the Buyers. The full case decision can be accessed by clicking here.

Overall, it is very important that before you sign the agreement and create a binding contract you need to seek out the opinion of someone who has a legal obligation to give you advice based on what is best for you.

This article can also be found in our November 2012 Newsletter which can be accessed by clicking here.

The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

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