Words to live by

The three most important words in real estate—location, location, location, right? Not in my world.

As a licensee, the three most important words in your vocabulary should be contract, contract, contract! Why? While poor location can be overcome by attractive pricing, brilliant staging, and clever marketing, there are only two known ways to overcome a poorly drafted contract. I’ll give you a hint—it involves paying or praying (or both).

Not just a form

While standard form contracts are a practical reality of real estate transactions, you should be aware that they are a “one size fits most” and not a “one size fits all” solution. The contract of purchase and sale defines the parameters of any real estate transaction, so don’t treat standardized contracts as mere forms to be filled out.

Rather, it’s critically important for you to ensure that any contract of purchase and sale accurately reflects the agreement that’s being struck and that it adequately protects your clients’ interest. Failing to do so can result in collapsed deals, unhappy clients, and (very) significant claims. Follow my top five tips to help you keep the contract top of mind, and you’ll avoid getting burned.

Tip #1: Know your tools

There’s no doubt that standard form contracts help you work more effectively and efficiently, but have you ever tried clearing a drain with a hammer? By the same token, you should understand the limitations that standard terms impose and that modifications to even the most standard of terms may be necessary.

For example, clause 9 of BCREA’s standard form residential contract stipulates that the seller will deliver title that is “free and clear” subject to certain permitted encumbrances. However, not all encumbrances are permitted to remain on title, and the seller may find themselves in an untenable position if there are charges on title that are not permitted to remain, but which cannot reasonably be discharged. As a prudent real estate licensee, you should therefore be thoroughly familiar with the effect of the standard form contract that you use and its applicability to any given situation. If you aren’t familiar with the standard form contract or any standard terms that you use, be sure to invest the time you need to get familiar with them.

Tip #2: Know your deal

Most, if not all, standard form contracts will include a term stating that there are no agreements or promises other than those set out in the written contract (in BCREA’s standard form residential contract, this is clause 18). Hence, you should ensure that the written contract adequately reflects the agreement that your clients have bargained for.

Each year, we receive countless claims stemming from licensees’ failure to properly document “the deal” in the written contract. Is GST included in the purchase price? Who will pay GST in the event that it is applicable? Is the spa-like hot tub included in the sale? What about that industrial rustic chandelier?

Many things are discussed during the course of a real estate transaction, but if it’s not documented in the written contract, it is NOT a part of the deal, and your client may ultimately turn to you looking for the difference between expectation and reality. My best advice? Avoid the scare by making sure it’s there! Whether acting for a buyer or seller, important representations and warranties should always be included in writing as part of the contract.

Tip #3: Review the contract with your clients

Reviewing the contract of purchase and sale with your clients is one of the most effective risk mitigating measures against claims, and you should make it a part of your standard practice to do so. On one hand, it provides you with an opportunity to (again) carefully review the contract. On the other hand, it provides consumers with an opportunity to raise any issues or concerns. I mean no disrespect to the avian community, but why not kill two birds with one stone? In addition to any non-standard terms and subject conditions, you should fully discuss standard clauses pertaining to the purchase price, deposit, title, completion and possession dates, and included and excluded items. Finally, make it a habit to encourage your clients (preferably in writing) to carefully review the contract themselves and to raise any questions or concerns that they may have regarding its terms prior to execution.

Tip #4: Beware of “adverse clauses”

In reviewing any contract, licensees should also be prepared to highlight any “adverse clauses” or contractual terms that are not in their clients’ interest. This prevents any surprises in the form of obligations that your clients may not have anticipated and didn’t specifically bargain for. Indeed, the courts have stated that in discussing the contract of purchase and sale with their clients, licensees have a basic duty to at least point out terms that are clearly not in their clients’ interests^[1]. Typically speaking, adverse clauses will require your clients to do, give up, or promise something. Here are some examples of adverse clauses that I’ve come across:

1. Adverse clauses for buyers:
   1. The Purchase Price does not include GST (if any) applicable to the purchase and sale of the Property. The Buyer will pay any GST applicable to the purchase of the Property and will be responsible to apply for any GST rebate.
   2. On the Completion Date, in addition to the encumbrances set out in section 9 of the Contract, title to the Property will be subject to the encumbrances and legal notations expressly indicated to remain on title as shown in the title search attached to this Contract.
2. Adverse clauses for sellers:
   1. The sellers warrant that all plumbing, drainage, and electrical systems will be in proper working condition on the Possession Date.
   2. If a special levy is approved by the strata corporation before the Completion Date, the Seller will, on the Completion Date, credit the Buyer with the entire portion of the special levy that the Buyer is obligated to pay under the Strata Property Act.

As a licensee, you should specifically alert your clients to any adverse contractual terms or warranties. Consider whether the obligation imposed by the adverse clause is something that your clients can reasonably fulfill and whether the adverse clause unduly favours the opposing party’s interests to your clients’ detriment. You should then discuss the effect of the adverse clauses with your clients and advise them of their options.

Where the issues involved are complex and/or outside your expertise, advise your clients to seek independent legal advice. Remember, an adverse clause can be struck out, amended to limit what your clients will agree to, or accepted as is. Whatever the situation may be, however, be sure to document your advice and your clients’ instructions to you. As always, you should advise, but let your clients decide.

Tip #5: Comprehend before you send

In a “you snooze, you lose” market, there is undoubtedly pressure on all players to move quickly. However, don’t let this need for speed detract you from prudent practices. Taking a few minutes to carefully review your attachments before hitting Send can save you (and your clients) a whole world of trouble. Double check any offer or counteroffer for errors and inconsistencies and ensure that any intended changes (such as purchase price) are accurately reflected in the document before hitting Send.

If you’re relying on electronic signature software, you must be extremely careful to ensure that the document you are asking your clients to sign is the correct document, incorporating the instructions from your client. Claims have been made against licensees when the document sent to and signed electronically by the client turned out to contain the wrong price or was missing an important clause. Recommend these important legal documents be reviewed in their full size, not on the tiny screen of a cell phone.

Concluding thoughts

There you have it—a poorly drafted contract can have dire consequences for both consumers and licensees alike, with few known ways to overcome them. Regardless of whether you are acting for a buyer or seller, you can avoid falling victim to a poorly drafted contract by following these simple steps:

1. Consider whether the standard terms in the contract apply in the circumstances and whether modifications are necessary to protect your clients’ interest or to accurately reflect the deal as they understand it.
2. Discuss with your clients any important representations and warranties and ensure that they’re included in the written contract.
3. Review the contract of purchase and sale with your clients; encourage them to raise any questions, concerns, or issues they may have in respect of its terms prior to execution.
4. Advise your clients regarding the general effect of the contract and particularly those clauses that are adverse to your clients’ interest. Document your advice to your clients and their instructions to you.
5. Lastly, take a few minutes to double check the contract for any obvious errors or inconsistencies before hitting the Send button.

Oh, and the next time you think “Location, location, location!” try thinking “Contract, contract, contract!” instead. It might just save you from some praying (or paying).

[1] Pepper’s Produce Ltd. v. Medallion Realty, 2013 BCSC 2314.