Number 410, August 2007
Conditions Precedent Revisited
A representative’s primary duty of care to his/her client is to draft an enforceable Contract of Purchase and Sale. This can be challenging when the representative is also trying to protect his/her client’s interests by including certain conditions in the contract for that client’s benefit.
A recent decision of the Supreme Court in Jung v. GNR Property Management Inc. reiterates the importance of taking care in the drafting of conditions precedent, or subject conditions, in Contracts of Purchase and Sale.(1)
In Jung, a representative acting for a buyer of a golf course property included several conditions in the Contract of Purchase and Sale for his client’s benefit. The contract also contained a condition that the seller was to provide the buyer with certain documentation within five days to allow the buyer to obtain financing. The seller failed to provide the documentation within the time specified and the buyer applied for an order requiring the seller’s compliance with the condition. The seller later revoked what he claimed to be a standing offer, rather than a binding Contract of Purchase and Sale.
After considering the terms and conditions of the agreement, the court found there was no binding agreement between the parties and that the agreement was, instead, a revocable offer. The decision rested partly on the specific wording in the agreement and partly on the broadness of two of the conditions included for the buyer’s benefit.
The specific wording in the agreement considered by the court was contained in a clause stating that the buyer and the seller agreed that, prior to committing to its purchase of the land and business, “the purchaser must satisfy itself with respect to those conditions outlined above at his discretion.” The court found this clause implied that the buyer’s decision to remove the conditions was subjective and arbitrary, as both parties appeared to have agreed that the buyer could decide, at his whim, not to remove the subjects. The court also considered that, by including wording in the agreement providing that “upon acceptance and removal of the conditions precedent . . . it shall form a binding agreement of Sale and Purchase,” the parties unambiguously expressed their intention that the agreement wouldn’t become binding until subject conditions had been removed.
The two subject conditions that factored into the court’s decision to find the agreement unenforceable made the agreement “subject to lawyer’s approval” and “subject to accountant approval.” While the conditions were clearly included to protect the buyer (and the representative), they were considered too broad to be enforceable.
While the wording in the agreement with which the court was concerned in this case isn’t contained in the standard Contract of Purchase and Sale, the decision emphasizes the importance of drafting clear, precise and objective conditions to avoid the contract being considered unenforceable and the drafter being exposed to a claim for negligent drafting. See pages 131 -133 of the Licensee Practice Manual for advice as to how to draft a condition precedent so as to reduce the risk of the contract being rendered unenforceable due to the vagueness or broadness of the condition.
The Contract of Purchase and Sale, most recently revised by BCREA and the Canadian Bar Association-British Columbia in April 2007, contains a clause confirming that the Contract of Purchase and Sale is executed under seal and that the seller’s acceptance is irrevocable. Using this Contract will make it difficult for the seller to successfully argue that the conditions of the buyer were too subjective or uncertain to be enforceable.
Jennifer Clee, Staff Lawyer
Real Estate Errors and Omissions Insurance Corporation
| ||1. ||Jung v. GNR Property Management Inc., 2006 BCSC 1692. |
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