This last month I had an accepted offer on a home and had a backup offer come in. The backup offer was a very weak offer because the condition precedent (subject to clause) was so subjective. It was subject to the buyer viewing and liking the property. Normally no one would take an offer like this seriously but it was a backup and had just a 3 day subject time so it was accepted. The conditions precedent (subject to clauses) cannot be subjective they have to be distinct.
This just came out from the BCREA and covers the finer points of a subjective subject to clauses and options.
This would have worked for me a few years back when a buyer bought a place in 4 days and would not deposit and would not read the strata docs. We had no consideration and no contract only an offer. It went through but he could have backed out. It was an odd deal one that I would have rather not be a party to but odd things do happen.
Read on from the BCREA Cheers Scott.
OFFER VS. OPTION VS. CONTRACT OF PURCHASE AND SALE
Some conditions precedent are so imprecise or subjective that they prevent the formation of a contract. Pending the weak subject’s removal, we have only, in law, an offer. Removing the subject in question amounts to accepting the offer. Until the buyer delivers written notice removing the offending subject by the subject removal deadline, there is no contract. A famous example is,1
. . . [s]ubject to the approval of the president of the corporate purchaser.
Since fulfillment of this condition precedent depends on how someone feels, it is subjective. In a dispute over a subjective subject clause, one side typically obtains legal advice to leverage the arrangement’s status as an offer to their advantage. A seller might cancel the deal before the buyer removes the problematic subject clause, thereby revoking the offer.2 Or, a buyer might do nothing to fulfill the feeble subject, letting the offer, in law, lapse.
Suppose that, as the result of a subjective subject clause, all we have, in law, is an offer. What if the seller, for consideration or under seal, promises not to revoke that offer? Now, we have an option:3
Where consideration is provided for leaving the offer open, the transaction is known as an option. In essence, it consists of two contracts, one the agreement regarding the offer, the second the contract arising if that offer is accepted.
With this in mind, in 2003 BCREA added to the Contract of Purchase and Sale what is now section 22.4 Section 22 essentially provides that if, pending removal of a subjective subject clause, there is only an offer, the seller promises under seal not to revoke that offer before the subject removal deadline.
In Gordon Nelson Inc. v. Cameron, a standard form contract was subject to the buyer, in its sole discretion, finding suitable financing.5 The buyer paid a $1 million deposit. In addition to the pre-printed section 22, the parties added this comparable term:
Upon acceptance of this offer, the Buyer hereby agrees that the sum of Ten Dollars ($10.00) of the initial deposit shall be non-refundable to the Buyer and the Seller acknowledges receipt of such sum as consideration for the Seller . . . allowing the Buyer the benefit of the Buyer’s subjects and conditions and agreeing that the Seller’s acceptance of this offer is irrevocable.
The buyer did not remove its financing subject because it couldn’t find suitable financing. The sellers refused to return the deposit, claiming that the buyer breached the contract by failing to use sufficient effort to remove their financing subject.6 The buyer sued to recover its deposit.
The court found that the subjective subject clause, coupled with the term comparable to our section 22, created an option, not a contract. There was not yet any contractual obligation to use specific efforts to obtain financing. As long as the buyer acted honestly, it could choose not to exercise its option. The court ordered the $1 million deposit and accrued interest, returned to the buyer, minus the $10 payment to the sellers.
Unless the parties want an option, a REALTOR® should avoid a subjective subject clause. Instead, when apt, use one of the more objective subject clauses recommended by the Real Estate Council of British Columbia in the Professional Standards Manual.7 Council’s wording is far more likely to produce an enforceable contract.
Mike Mangan
B.A., LL.B.
| 1. | Wiebe v. Bobsein, (1985) 20 D.L.R. (4th) 475 at para. 15 (BCCA). | |
| 2. | For more information, see Real Estate Council of British Columbia, “Subject to” Clauses — General Information” Professional Standards Manual, 7th edition, online athttps://www.recbc.ca/psm/how-the-law-works. | |
| 3. | CCH Canadian Limited, British Columbia Real Estate Law Guide, looseleaf, Vol. 1, (North York, CCH Canadian Limited, 2000) at paragraph 3055. | |
| 4. | In the Contract of Purchase and Sale — Commercial Real Estate, see section 40. | |
| 5. | Gordon Nelson Inc. v. Cameron, 2017 BCSC 1269. | |
| 6. | For information when a party is justified in refusing to remove a subject clause, see Legally Speaking No. 497 in October 2017. | |
| 7. | Professional Standards Manual. |
“Copyright British Columbia Real Estate Association. Reprinted with permission.” BCREA makes no guarantees as to the accuracy or completeness of this information or the currency of legal information.
Cheers,
Scott & June Simmons
The Salt Spring Team
