For most individuals, purchasing their home can be one of the most significant investments they’ll ever make. When it comes to corporations making real estate purchases, there can similarly be very large sums of money and efforts involved. When a sale falls through, and the parties involved can’t agree on what type of contract was entered into, litigation may be the only way to determine each party’s rights and obligations.
A recent decision from the Alberta Court of Appeal looks at one such case, where the purchaser of land failed to follow through with payment and risked losing both the land and the deposit on the land. Their only effort was to convince the court that they had entered into an agreement for sale rather than a purchase and sale agreement. While there’s only a one-word difference between the two types of agreements, one word can mean a lot in law.
4,400 acres sold for $27 million
In 2018, a purchaser, an Alberta numbered company agreed to purchase 4,400 acres of farmland from the vendor, Kathryn Farms. The parties negotiated the terms of the sale and entered into a Purchase and Sale agreement towards the end of November 2018. The purchaser agreed to pay just over $27 million for the land and paid a deposit of $100,000. The agreement specified that the balance of the purchase price would be due on April 1, 2018 (the closing date). The agreement permitted the purchaser to access the farmland in advance of the closing date to conduct soil tests and collect samples, so long as the purchaser provided the vendor with reasonable prior notice.
The purchaser had intended to fund the purchase by selling property it owned in Germany. Given the potential for delays in securing financing, the parties agreed that if the purchaser was unable to obtain the necessary funds to close the deal by April 1, 2018, the closing date could be pushed back to November 30, 2019. Should the closing date be pushed back, the purchaser would be required to pay 2% per annum interest on the balance of the purchase price. Under the agreement, the vendor would not be required to transfer title until the balance of the purchase price was paid. Further, the agreement stipulated that the purchaser would enter into a lease agreement to lease the land from the vendor. Any rent collected during this time would be put towards the balance of the purchase price.
On March 29, 2019, the purchaser registered a caveat claiming a purchaser’s interest in the farmland. This would trigger a warning to anyone searching the title of the land that the purchaser claimed interest in it.
Purchaser is unable to secure funding to pay the balance of the purchase price
On the April 1, 2018 closing date, the purchaser was unable to pay the balance. This triggered the extension and the parties entered into a lease agreement. However, the November 30, 2019 extended closing date also passed without payment. A second lease was put into place which gave the purchaser access to the property until February 2021, but no agreement was made concerning the balance payment. The purchaser proposed a new agreement that would give it until November 29, 2021 to pay the balance, but the vendor did not accept it.
On January 9, 2021, the vendor agreed to sell the land to a third party for $28.5 million. The vendor asked the purchaser to discharge its caveat, but the purchaser refused to do so, stating that their agreement was an “agreement for sale” rather than a “purchase and sale agreement.”
The difference between an “agreement for sale” and a “purchase and sale agreement”
An agreement for sale is a contract for the sale of an interest in land in which one party agrees to pay the purchase price over time while having access to the land. A layperson might think of it as a lease-to-own situation where you get access to the land before all the money is paid. In an agreement for sale, the purchaser is able to realize equity for the money they’ve already paid if the deal falls through. If the contract fell into this category, the purchaser may have been entitled to some or all of their money back.
A purchase and sale agreement is a contract commonly entered into when a home is being purchased by one party and sold by the other. In a purchase and sale agreement, the balance of the purchase price must be paid in full by the closing date. Typically, homebuyers obtain a mortgage from a bank to pay the balance. However, in this case, the purchaser did not obtain a mortgage since it intended to pay the balance through the sale of the property it owned. The purchaser argued that since access to the land prior to the closing date was permitted, the agreement should be considered an agreement for sale. The Court of Appeal disagreed.
The Court of Appeal agreed with the trial judge’s determination that the original contract was an agreement for purchase and sale. Even though the parties entered into leases and financing agreements, the deal was never an agreement for sale. The original contract had terms that addressed a failure to pay, stating: “[I]f the Purchaser fails to perform any provision of this Agreement then … this Agreement shall terminate.”
For Skilled Representation in Commercial Real Estate Disputes, Contact DBH Law in Calgary
At DBH Law in Calgary, our commercial real estate lawyers regularly provide purchasers and sellers with the advice they need to ensure the efficiency of transactions while proactively planning for the future to avoid costly disputes down the road. We have been representing clients in commercial real estate transactions for more than 25 years. Contact us online or by phone at 403.252.9937 to discover how we can help you today. We work hard to minimize risk and avoid expensive litigation, but we are tenacious in protecting our clients’ rights if litigation is necessary.