Conditional offers, also referred to as conditional sales or pending sales, are beautiful creations. They represent the culmination of the REALTOR® efforts in successfully listing and marketing a property so that it attracts an offer suitable to the seller's needs. The conditional part refers to the fact that the offer has one or more conditions that the buyer or seller needs to satisfy themselves with before proceedings, such as financing or property inspection. Let’s consider some common pitfalls related to conditional sales and how best to think about them.
Pen, Paper, Pending
Of course, there are digital signing options now, but the principle is the same: a property is only pending when the purchase contract is signed and initialed by all parties to the contract. It seems very basic on the surface, but there are points to consider. The phase verbally pending assumes that because the parties have agreed to the terms and price that the property is now pending or at least 'as good as' pending. This is FALSE. The statute of frauds legislation holds that only written agreements are enforceable in Canada, which means verbally pending is not worth the paper it's not written on. For both sellers and buyers, if you want an enforceable contract, it must be completely signed and initialed.
Act reasonably and in good faith
The standard AREA purchase contract contains the legally binding term that both the buyer and the seller agree they will act reasonably and in good faith to satisfy their conditions, including making reasonable efforts to fulfill them. This statement forms part of the legal agreement and therefore is binding upon the parties. Following the bouncing ball of logic, this means a buyer, for example, who requires a condition (ie. financing or property inspection), must exercise best efforts to accomplish those conditions. If they intend to use those conditions as an ‘out’ in case they change their minds and never truly make efforts to complete their conditions, they could face legal liability should the seller pursue them for remedies under the contract.
Time is of the essence
The legal principle "time is of the essence" means that times and dates will be strictly followed and enforced. This also is a legal term of the agreement between the parties in the standard AREA purchase contract that the buyer and seller agree to be bound to. Where this seems to hit home the hardest is in the lapsing of condition days/times, when for whatever reason, the buyer is late providing written removal of conditions to the seller on or before the date & time specified. If that removal of conditions notice is not signed and communicated before the time specified, the contract dies immediately without recourse. There is no mechanism to revive a dead contract, and a new one must be written if the parties are to continue their agreement to transact. To be clear, there is no additional form, consent agreement, or the like which will revive a dead contract to the point that it will be equally defensible as the originally formed contract so the agreement must be re-made. Moral of the story… Don’t choose dates you can’t achieve, and don’t wait until the last minute to remove conditions.
Delinquent Deposits
Many times, we hear the common misconception that if the deposit isn’t received then it's not a pending contract. This is FALSE. As I have discussed in previous articles, the deposit money is earnest money and not material to the transaction itself, so the lack of a deposit does not automatically release the buyer from their legal obligations under the contract. In the standard AREA purchase contract, the seller is given the option to void the contract where a deposit is not delivered in the manner specified in the contract, but that option is not obligatory, and the seller may choose to hold the buyer to their obligations legally even without a deposit in trust.
Many times, these misconceptions are propagated by erroneous online sources, watching TV shows about real estate in other countries, or hearsay at the water cooler, but when buyers and sellers alike have questions about real estate agreements, the best source of information is a REALTOR®. A REALTOR® has the experience and resource network to get answers to the hard questions and help dispel errors in thinking before they become consequential.