Many of Canada’s major cities, including Calgary, have experienced an increase in the cost of house prices over the last couple of years, leading to a competitive housing market in favor of sellers. On the other hand, this has left purchasers looking at new approaches to home ownership or, in other cases, skipping out on some of the key pieces of the process where additional fees are incurred. In some cases, homes might be purchased under conditions that may not actually be possible.
It is not uncommon for a purchase agreement for a home to include a condition that the buyer’s current home be sold to secure a mortgage for the new home. When vendors and purchasers work with experienced lawyers for commercial or residential property, steps can be taken to ensure that all parties are aware of the rights and obligations of all involved.
A recent decision of Withers v. Kephart from the Provincial Court of Alberta illustrates how entering into negotiations and contracts without legal advice can lead to civil litigation over the agreement.
Vendors and Sellers Enter Into Agreement for Home Purchase
The parties involved struck a deal for the sale of a house and executed both a Purchase Contract and a lease without assistance from real estate agents or lawyers. The defendant purchasers agreed to lease the home for up to six months before purchasing it. Both agreements were signed on August 26, 2019. The defendant purchasers moved in immediately, but by February 2020, they told the vendors they would not be able to purchase the home because they had not been able to sell the home they already owned. The defendant purchasers moved out of the house the following month and the vendors took the position that the parties had a binding, unconditional agreement to purchase the home. The defendants on the other hand argued that the purchase depended on the sale of their existing home.
What Did The Contract Say?
The contract was a standard form MLS purchase and sale agreement with an addendum attached. The vendors had prepared the contract. The purchase price was $368,500, with a $6,000 deposit, half of which was payable upon execution of the agreement, and the other half was payable on or before September 30, 2019.
Three days before the contract was signed, the vendors contacted the purchasers to tell them that they would require a letter from the vendors’ bank confirming that they had been pre-approved for the mortgage. The day after the contract and lease were signed, the purchasers provided an email from their mortgage broker confirming the mortgage approval, on the condition that their existing home was sold. The email specified that this condition should also be included in the contract.
The contract also stated that the closing date for the purchase would either be February 29, 2020, or five business days from the sale of the purchasers’ home, though it did not specify that it had to be the earliest of those two dates.
Various Understandings of the Contract
The vendors took the position that the contract was unconditional and was not subject to the sale of the purchasers’ existing homes. They told the court that the purchasers said they would get the money from the family if their home did not sell.
Ultimately, the vendors admitted they did not read the details of the contract (despite putting it together from MLS) but based their understanding of the agreement on their conversations with the purchasers.
Was the Contract Unconditional?
There was no dispute amongst the parties that the purchaser’s mortgage broker said the mortgage was conditional on the sale of their previous home. The purchase contract itself also stated that even though the vendors overlooked that. The vendors stated that they thought, based on the conduct of the purchasers, that the purchase would happen even if the sale of their existing home fell through.
However, the Court outlined various facts stating that there was ample evidence to suggest that they should not have arrived at that conclusion. The first was that the addendum stated that the closing date would be February 29, 2020, or five business days after the sale of the purchasers’ existing home, something that would not be necessary to include if that was not intended to be a condition. Secondly, and perhaps more importantly, the purchasers pointed out there was no reason they would have rented the home for six months if they had been able to purchase it without selling their home.
Determining the Parties’ Objective Intent
The Court relied on a 2014 decision from the Supreme Court of Canada, Sattva Capital Corp. v. Creston Moly Corp., which stated the importance of determining the parties’ objective intent when entering into a contract. The court wrote,
“[T]he interpretation of contracts has evolved towards a practical, common-sense approach … to determine “the intent of the parties and the scope of their understanding” . . . To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning . . . ”
The Court ruled that the contract was conditional. While the purchasers would not be able to recover the $3,000 they had already paid as a deposit, they would not be obligated to pay the second half of the deposit.
Work With Experienced Calgary Real Estate Lawyers at DBH Law
Regardless of how experienced someone might be in property purchases, real estate transactions can be complex and overwhelming. Our team takes pride in the personal connections we build with our clients. The real estate lawyers at DBH Law offer support to clients on a variety of both residential and commercial real estate matters, including assistance with negotiating and understanding purchase and sale agreements. To schedule a consultation with a member of our real estate team, contact us online or call 403-252-9937.