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Professional Standards Manual

III. Trading Services

General Information

(a) Contract Clauses

(i) Contracts of Purchase and Sale

The intent of each item included in any contract must be clear and so specific that there is no misunderstanding possible with regard to who will do what and by what date.

Drawing upon the experience of many licensees, the Council has collected some samples of clauses intended to meet various situations in normal real estate practice in the hope that licensees will find them of use. When in doubt on any question, licensees are advised to seek the advice of their managing broker and, if necessary, a lawyer. A slight delay or extra expense at an early stage may help to prepare an enforceable contract. This care will reduce the chance of misunderstanding and litigation.

Licensees must be familiar with the form of contract they use and be knowledgeable as to how to use the necessary clauses and phrases. The Professional Standards Manual is the sole recommended source of clauses in the province, however, no clause should be used without due consideration as to its meaning and effect. Clauses must be tailored to suit the needs of the parties. While the sample clauses are useful in many circumstances, it is important that the clauses be reviewed prior to insertion into a contract, to ensure that they are suitable for the circumstances. The clauses must clearly and accurately reflect the intentions of the parties. The sample clauses may need to be altered accordingly. Licensees must recognize their limitations and refrain from negotiating contracts beyond the scope of their knowledge and experience. Such expertise results from training and study. All licensees are urged to participate in educational programs to keep their skills current.

(ii) Approved Form of Contract of Purchase and Sale

For drafting contracts involving residential properties, the Council recommends that licensees use the latest edition of the Contract of Purchase and Sale developed for use in British Columbia by the B.C. Real Estate Association and the Canadian Bar Association (B.C. Branch). A number of other versions of the Contract of Purchase and Sale have been developed for various types of properties (e.g., commercial properties, manufactured homes, first nations lands, etc.).

The approved contract and all addendum pages should be cross-referenced. The following system for numbering pages is suggested: if the original contract and addenda consist of three pages, then the appropriate page number should be written at the top of each page (i.e., page 1 of 3, page 2 of 3, or page 3 of 3).

When faxing/e-mailing the contract, it is imperative to include the ‘‘Information about the Contract’’ page.

(iii) General Guidelines

The Council recommends that licensees ensure that contracts address all material issues to ensure that there is no confusion as to the nature of the contractual terms and to make certain that all contracts are valid and enforceable. Council reminds licensees that the parties are relying on them to ensure a contract is properly executed.

When licensees or any other person, other than a principal, in a transaction are purporting to act on behalf of a party to a transaction, the scope of their authority should be evident in writing and clearly recorded in the contractual documents. Section 5-3 of the Rules requires that before signing a contract on behalf of a client, the licensee must have obtained written authorization from the client or the client’s authorized agent. Similarly, when a party to a transaction purports to act under a power of attorney or if a corporate party acts through an authorized signatory, the extent of that authority should be readily available and clearly disclosed in the contract. The same obligation to verify, document and record holds true when a seller, who is not registered on title, purports to have authority to sell a property on behalf of the registered owner. (See ‘‘Powers of Attorney and Dealing with Authorized Representatives’’.)

(iv) Dealing with Amendments to Original Contract of Purchase and Sale

All amendments to an original Contract of Purchase and Sale must be made on a Contract Amendment or Addendum Form and signed by all the parties to the contract, each of whom must receive a copy dated the day of the amendment. The Amendment or Addendum Form must clearly refer to the original contract and should also state that ‘‘all other terms and conditions remain the same’’. Where any dates are changed as to completion, adjustment, possession or subject clause removal, licensees must state that ‘‘time shall remain of the essence’’.

(v) Revival of an Expired Contract

[01/16/2011 The following information added to Professional Standards Manual]

Some licensees attempt to revive an expired contract by having the buyer and seller sign the subject removal addendum after the time for the removal of the subject clause has expired or by having the parties sign an addendum attempting to revive the expired contract.

An expired contract cannot be revived. Licensees should draft a new Contract of Purchase and Sale for the parties to sign or have them sign an extension addendum before the contract expires.

(vi) Acting on Behalf of a Party to a Trade in Real Estate

The seller or buyer may appoint someone (a real estate licensee or another person) to act on his or her behalf, and even to sign agreements as his or her agent, thereby meeting the requirement of reducing the agreement to writing. However, as indicated above, the Rules require that a licensee obtain the specific written instructions prior to signing any documents on behalf of the principal for whom he or she is acting as agent. This authorization should set out the exact terms and conditions under which the licensee is authorized to sign. A telegram, letter or fax may be used for these purposes but it must be received and in the licensee’s hands before he or she attempts to act on the principal’s behalf.  Licensees must avoid signing documents on behalf of anyone based on oral instructions. Additionally, licensees should not rely on an e-mail as authorization from a client unless they are certain that the e-mail was written and sent by the person from whom it appears to have been received.

A licensee accepting documents from another licensee signing on behalf of a buyer or seller will want to see evidence of the authority. It should be attached to all documents where the licensee has signed on behalf of his or her principal.

(vii) Powers of Attorney

Where it is desirable or necessary to rely on a Power of Attorney, it is prudent practice for licensees to recommend that the Power of Attorney be granted to someone other than the licensee, preferably on their lawyer’s advice. When a person who has been granted a Power of Attorney signs a contract on behalf of the person granting the Power of Attorney, the correct way for the contract to be completed is as shown in this example:

‘‘Mary Smith grants a Power of Attorney to her friend Ted Lee to enter into contracts for the sale of her property.’’ Ted Lee would then sign both the Listing Contract and Contract of Purchase and Sale using the following statement: ‘‘Mary Smith by her attorney in fact, Ted Lee’’, followed immediately by Ted Lee’s signature.

**Alert**

A Form A transfer executed under a Power of Attorney, to be filed in the Land Title Office at the time of completion of a sale, requires a Power of Attorney to be in proper form. Licensees should note that different types of Powers of Attorney can be granted by one person to another. While the form of such authority may authorize a party to sign contracts and certain other documents for another party, it may not be sufficient for Land Title purposes. Whenever any Power of Attorney is contemplated or utilized in a trade in real estate, licensees should advise parties to seek the advice of their respective lawyers as soon as possible to ensure the form of Power of Attorney being used is valid and is acceptable for Land Title Office purposes. It should be noted that the Power of Attorney may expire after a specific time or be invalid for other reasons. Licensees should advise their clients to obtain legal advice before proceeding.

(viii) Due Diligence Required When Dealing with the Elderly

[11/03/2011 The following section was added to the Professional Standards Manual]

Licensees should exercise due diligence when dealing with persons who appear to suffer from memory impairment, dementia or some other form of mental disability.

Licensees should be aware that there is new legislation that came into force on September 1, 2011 that deals with any incapacity on the part of an individual. The provincial government has decided to bring into force portions of the Adult Guardianship and Planning Statutes Amendment Act, 2007 (Bill 29) as amended relating to the Power of Attorney Act, the Representation Agreement Act, advance medical directives, health care consent, and other matters. These reforms create three incapacity planning documents: enduring powers of attorney, representation agreements, and advance directives.

Section 10 of the amendments defines an enduring power of attorney to mean a power of attorney:

  1. In which an adult authorizes an attorney (adult person) to:
    1. make decisions on behalf of the adult, or
    2. do certain things in relation to the adult’s financial affairs, and
  2. (b) that continues to have effect while, or come into effect when, the adult is incapable.

“Financial Affairs” is defined to include “an adult’s business and property, and the conduct of the adult’s legal affairs.”

A representation agreement provides a mechanism whereby an adult may arrange in advance how, when and by whom decisions about their health care or personal care, the routine management of their financial affairs or other matters will be made if they become incapable of making decisions independently.

As of September 1, 2011, an adult person will be able to predetermine what health care they may wish to have, or not have, at a later time when they are no longer capable of giving instructions. Any adult will be able to make an advance directive in which he or she may give or refuse consent to any health care in the future provided that any instructions will not be valid and will be severed from the advance directive if carrying out these instructions would be contrary to law. Many advance directives will address end of life decisions, but the document may also be used to address specific types of treatment.

Licensees should contact family members to determine whether they or anybody else hold a power of attorney or have been appointed as a legal representative or substitute decision maker for this person under any of these statutes to ensure that this person is making the right decisions.

Licensees should obtain a true copy of the power of attorney, representation agreement or advance directive for their file, and read the document to ensure that they are dealing with the person who has the legal authority to deal with the property.

If there are no family members, or neither the family members or anybody else does not hold a power of attorney or has not been appointed as a legal representative or substitute decision maker, the licensee should ensure that the person obtains independent advice before entering into any real estate transactions.

For further information please visit www.ag.gov.bc.ca/incapacity-planning/index.htm

(ix) Witnessing Signatures

The person who signs a document as a witness to the signature of a party to the contract is attesting that he or she was present and saw the signing.

While the signatures of the parties to a Contract of Purchase and Sale do not have to be witnessed in order to make the contract legally binding, some financial institutions, as part of their due diligence in considering whether to provide financing, are insisting the parties’ signatures be witnessed. In order to witness a signature, a person must be present at the time the party, whose signature is to be witnessed, is signing the contract. If a licensee is not present when the party is signing the contract, that licensee must not witness the signature after the fact. If a licensee knows he or she will not be present when a contract is going to be signed, he or she should tell the party to ensure that someone is present to witness the signature. Telling the parties the reason for this will hopefully help them understand the importance of this from the financial institution’s perspective.

(x) Dealing with Legal/Beneficial Owners

The person or company shown as the registered owner of real property on the Certificate of Title at the Land Title Office may not be the person or company who signs the Contract of Purchase and Sale as seller of that property. Under what circumstances might that occur, what are some of the legal issues involved, and what should you do as the licensee who may be involved in the sale?

In trades in real estate, for a variety of reasons, one entity may appear as the registered owner of real property and another entity may sign the Contract of Purchase and Sale as seller. This may happen, for example, if the registered owner holds the property in trust for another entity. In that case, the beneficial owner (the person(s) for whom the property is being held in trust), may sign the contract. If the contract is signed by the beneficial owner, there will usually be a recognition of the trust in the contract (e.g., John Doe in trust for Mary Black). As well, there will normally be a covenant by the buyer to accept a transfer from the registered owner and not the beneficial owner who signs the contract. That covenant acts as a waiver of section 6 of the Property Law Act, which provides that the person who signs the contract as seller is the person who must sign the transfer. There may be warranties and representations of the beneficial owner, of the registered owner, of both, or limited warranties and representations of each.

In other circumstances, the registered owner may wish to structure the transaction as a sale of shares, rather than a sale of the real property. The sale may involve the shares of the registered owner or the shares of the beneficial owner of the real property.

Because real estate contracts involving different legal and beneficial owners can be complex, lawyers should draft these contracts and should advise the sellers and buyers in respect of these contracts to ensure that all legal issues are appropriately addressed. Licensees should not draft such contracts nor should they provide legal advice respecting those contracts.

Even in a relatively simple residential real estate transaction, problems can arise, which, if the licensee undertakes the drafting of such a contract, may expose the licensee to liability. For example, if a licensee attempts to draft such a contract prior to receipt of the results of a title search, a contract for sale may be drafted with the seller when, in fact, the property is legally owned by some other person or company. In that case, the seller may have to transfer title into his or her name to comply with section 6 of the Property Law Act (a costly transaction involving, in part, Property Transfer Tax) or face the possibility that the buyer may legally refuse to complete if presented with a transfer from the seller as shown on the contract, rather than the registered owner as shown on title.

In a simple residential trade in real estate, depending on the circumstances, the lawyer might deal with the issue of split legal /beneficial ownership as follows:

1. have the contract signed by the beneficial owner;

2. include a statement in the contract such as ‘‘The Buyer acknowledges that the property is held in trust for the Seller by (name of registered owner) the ‘Registered Owner’’’; and

3. include a covenant of the buyer such as ‘‘The Buyer agrees to accept a transfer executed by the Registered Owner in satisfaction of the Seller’s obligation pursuant to section 6 of the Property Law Act’’.

Licensees involved in these types of transactions should use caution and advise the sellers and buyers to obtain legal advice.

(xi) Assignments

[05/16/2016 the following section updated]

a) Real Estate Contract Assignments
A contract assignment occurs when a buyer transfers the contract to buy property to someone else before the completion date. The buyer can transfer the contract for any price, even for a higher price than they paid for the property. The buyer does not have to pay the seller any additional money if they make money from selling the contract.


Real estate contracts are assignable under the law unless the contract expressly forbids it. Section 36 of the Law and Equity Act provides that the seller’s consent to the assignment is not required, provided that notice in writing of the assignment is given to the seller.


b) Provincial Requirements for Licensees Relating to Real Estate Contract Assignments
On May 16, 2016, requirements relating to the assignment of real estate contracts came into force in BC. These requirements apply in all transactions where a licensee is acting for the seller and/or the prospective buyer of real estate (except where the contract is for the sale of a development unit by a developer, as those terms are defined in section 1 of the Real Estate Development Marketing Act).


All licensees providing trading services should carefully review the amendments to the Regulation.


The amendments provide that a licensee preparing a proposed contract for the purchase and sale of real estate (an “offer”) must include the following terms (the “Standard Assignment Terms”) unless otherwise instructed in writing by the person to whom they are providing trading services:

  1. this contract must not be assigned without the written consent of the seller; and
  2. the seller is entitled to any profit resulting from an assignment of the contract by the buyer or any subsequent assignee.


The amendments further provide that licensees must take certain steps if they are involved in a potential real estate transaction where an offer to be presented to the seller does not include the Standard Assignment Terms. These requirements are further discussed below.


c) Licensees Acting for Buyers

Notice to Seller Regarding Assignment Terms
If you are acting for a buyer and you are aware that an offer to be presented to the seller:

  • does not include one or both of the Standard Assignment Terms;
  • alters either of the Standard Assignment Terms;
  • or creates a new assignment term that is in any way different from the Standard Assignment Terms;

you must notify the seller’s licensee (or the seller, if the seller is unrepresented) using the Notice to Seller Regarding Assignment Terms form, available on the Council’s Forms page under the subheading “Disclosure Forms”.

Provide the form to the seller’s licensee at the same time the offer is presented.


You must use the Council’s form entitled Notice to Seller Regarding Assignment Terms, which is available on the Council’s website under the heading “Forms and Fees” and the subheading “Disclosure Forms”. You must provide the Notice to Seller Regarding Assignment Terms form to the seller or the seller’s licensee at the same time the offer is presented.

The same obligations apply to you if you are acting on your own behalf or on behalf of an associate as a buyer (directly or indirectly) in a real estate transaction. If you are aware that an offer to be presented to a seller does not include one or both of the Standard Assignment Terms, alters either of the Standard Assignment Terms, or creates a new assignment term that is in any way different from the Standard Assignment Terms you must provide the Notice to Seller Regarding Assignment Terms form to the seller or the seller’s licensee at the same time the offer is presented. These notice obligations are in addition to your obligation to disclose your interest in trade to the seller.


Advice to Buyers Regarding Assignment Terms and Conditions in Offers
When you are acting for a buyer and advising the buyer on whether to include the Standard Assignment Terms (or other terms and conditions relating to the assignment of the contract) in an offer, you should carefully consider and discuss with the buyer what may be best for them. For example:

In every case, when acting for a buyer you must be guided by your duties to your client. This includes your duties to act in the best interests of the client and in accordance with the client’s lawful instructions, and to advise the client to seek independent professional advice on matters outside of your expertise.

Assignment Option Clause 
Where the buyer wishes to have an express right to assign the contract to any third party, you should ensure they strike the default clauses from the Contract of Purchase and Sale (if the standard contract form is used) and consider using the following clause in the contract:

Assignment Option Clause

The Buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the Seller; said assignment not to relieve the Buyer from his or her obligation to complete the terms and conditions of this contract should the assignee default.

In preparing an offer where the assignment of the contract of purchase and sale is contemplated, you should not use clauses such as ‘‘and/or nominee’’ or ‘‘and/or assignee’’ to describe the buyer. Arguments could be made that contracts containing such phrases in the description of the buyer are unenforceable due to uncertainty in the identity of the buyer.

Additional Buyer Assignment Clause 
Where the buyer wishes to have an express right to assign the contract by adding a specific buyer prior to closing (e.g. a spouse or family member), consider using the Additional Buyer Assignment clause in the contract, and provide the Notice to Seller Regarding Assignment Terms form to the seller or the seller's licensee at the same time the offer is presented:

Additional Buyer Assignment Clause

Notwithstanding Section 20A of the Contract, the Parties agree that the Buyer may, without the consent of the Seller, add (insert name of specific party/parties) as an additional buyer to the contract prior to closing. The Seller’s consent does not release the Buyer from liability under this Contract.

In preparing an offer where the assignment of the contract of purchase and sale is contemplated, you should not use clauses such as ‘‘and/or nominee’’ or ‘‘and/or assignee’’ to describe the buyer. Arguments could be made that contracts containing such phrases in the description of the buyer are unenforceable due to uncertainty in the identity of the buyer.

Licensees Acting for the Assignor or Assignee of a Contract
If you are asked to represent an assignor (original buyer) or assignee (ultimate buyer) pursuant to a Contract of Purchase and Sale, you should, as a minimum, ensure that:

  1. the assignor has the right to assign and the assignee has the right to receive a valid assignment by referring to the original contract;
  2. a proper assignment is drafted and validly executed (BCREA has created two forms entitled ‘‘Assignment of Contract of Purchase and Sale — New Development’’ and ‘‘Assignment of Contract of Purchase and Sale — Non-Development’’, both available on Webforms);
  3. the assignor is aware of their obligation to provide the seller with notice in writing of the assignment (unless the clause in the Assignment Option Clause has been used);
  4. the identities of the parties are clear and verified (e.g., proper photo identification, passport, etc., especially when the assignment involves parties with whom the seller may not be familiar); licensees acting for assignors should be particularly careful to establish the identity of the assignor. Licensees should confirm through acceptable identification that the person asking that the contract be assigned is the purchaser on the contract;
  5. the assignor’s and the assignee’s rights to the initial deposit under the original contract, if any, are dealt with; and
  6. in the event that an assignor or assignee is a corporate party, the individual signing on behalf of the corporate entity has the authority to bind the corporation (this may involve conducting a company search and obtaining a copy of the corporate resolution allowing that individual to execute the assignment on the company’s behalf).

Assignors should determine whether GST applies as a result of the assignment. As a licensee, you should advise your clients to seek independent professional advice on that issue.


Because the procedure and documentation for assignment can be complex and fraught with difficulties, it is in everyone’s best interest to advise all parties to seek legal advice in the drafting of effective and enforceable assignments of any Contract of Purchase and Sale. You should document having provided this advice. Members of real estate boards/associations may also wish to refer to the additional information about assignments of contracts (e.g., BCREA Assignment of Contract of Purchase and Sale — Q&A Guide and ‘‘A REALTOR’s Guide to the BCREA-CBA Assignment Agreement’’) found on the REALTORLink website.


d) Licensees Acting for Sellers
If an offer presented to a seller does not include one or both of the Standard Assignment Terms, as the seller’s licensee you must do the following, before the seller accepts the offer:


a) Provide the seller with the Notice to Seller Regarding Assignment Terms form presented by the buyer’s licensee (this will not apply where an offer is presented by an unrepresented buyer, as unrepresented buyers are not obliged to provide that form);


b) Inform the seller that the offer before them is missing the Standard Assignment Term(s);


c) Advise the seller whether the offer provides that the contract may be assigned;


d) If the offer provides that the contract may be assigned, advise the seller:
i. about any conditions on the right of assignment of the contract, and
ii. about the seller’s entitlement under the contract to any profit resulting from an assignment of the contract, if applicable.


The goal of the these requirements is to ensure that before they enter into a contract for the purchase and sale of their property, the seller understands and accepts the terms and conditions that will govern any assignment of the contract by the buyer, regardless of whether:

  • the offer contains the Standard Assignment Terms;
  • the offer is silent with respect to assignments; or
  • the offer contains assignment terms that differ from the Standard Assignment Terms.


When you are advising the seller on whether or not to insist that an offer include the Standard Assignment Terms (or other terms and conditions relating to the assignment of the contract), you should carefully consider and discuss with the seller what may be in their best interests. For example:

  • Consider the market conditions: is it a buyers market? A seller’s market?
  • Consider the seller’s circumstances.
  • Discuss your obligations under the regulations and the Notice to Seller Regarding Assignment Terms form, when appropriate.
  • If there are any issues outside of your expertise, advise your client to seek independent legal advice.

As a licensee, you have an obligation to discuss everything material to the transaction with your client, including the subject of assignments. If the seller is uncertain about any of the terms in the contract they should be advised to seek legal advice.


In every case, as a licensee acting for a seller you should be guided by your duties to your client. This includes the duty to act in the best interests of the client and in accordance with the client’s lawful instructions, and to advise the client to seek independent professional advice on matters outside of your expertise.


e) Requirements for Brokerages

Brokerages are required by section 8-4(1) of the Rules to keep copies of Notice to Seller Regarding Assignment Terms forms.

These copies must be provided to the brokerage by licensees who:

  • act for a buyer,
  • act for themselves as a buyer, or
  • act for a seller.
(xii) Buying from an Estate

 [July 2015: the following information updated in the Professional Standards Manual]

If a licensee is considering acting on behalf of an executor of an estate that is selling property, or acting for a buyer of an estate property, they should confirm whether the executor or administrator has the legal authority to act on behalf of the estate. This authority will take the form of a grant of probate or letters of administration.

If a grant of probate or letters of administration has not been obtained, then the executor or the administrator may not have the legal authority to sign a listing agreement, or enter into a Contract of Purchase and Sale on behalf of the estate.

Licensees are therefore encouraged to advise their client to seek independent legal advice before their client signs a listing agreement, and/or enters into a Contract of Purchase and Sale.

An example of the proper way for an executor or administrator to sign a contract on behalf of the estate is: ‘‘G. Seller, Executor [or Administrator] of the Estate of (name of the deceased).’’

 

On March 31, 2014 the Wills, Estates and Succession Act [SBC 2009] c. 13 came into force, replacing a number of BC statutes, including the Estate Administration Act, Wills Act, and Wills Variation Act.

 

 

 

(xiii) Non-Resident Withholding Tax

A non-resident withholding tax applies to the sale of non-resident owned real estate. The Non-Resident Withholding Tax Guide is available on the Government of Canada website at www.cra-arc.gc.ca/E/pub/tg/t4061/t4061-e.html.

Licensees should also advise their non-resident clients to obtain professional advice.

(xiv) Terminology: On or Before

‘‘By’’ and ‘‘on or before’’, legally, mean the same thing.

(xv) Legal Counsel

It is recommended that all parties to a transaction be advised to seek any legal advice from their own lawyers. As a general rule, the seller and buyer should not consult the same lawyer.

(xvi) "Subject to" Clauses — General Information

A contract signifies the common intention of the parties to be legally bound by their respective obligations. If the parties have not expressed those obligations with sufficient clarity, there is no contract because there does not yet exist the necessary common intention to be bound by definite obligations. The law requires all of the terms and conditions of a contract to be sufficiently clear. The law does not enforce arrangements whose essential terms or conditions are uncertain.

The ideal subject clause is one whose criteria are so clear that it is completely obvious whether the criteria for satisfying that clause are met. To determine the certainty of a subject clause, the courts often consider whether the criteria for satisfying the subject clause are subjective or objective. A subjective criterion is one that depends on the personal view of the individual who decides it. In contrast, an objective criterion is one that depends on an external event. The more subjective the wording of a subject clause, the more likely a court will find the clause to be uncertain.

(1) How the Law Works

The leading statement of the law in this area is found in the dissenting judgment of Mr. Justice Lambert in Wiebe v. Bobsein, [1985] 64 B.C.L.R. 295; 39 R.P.R. 228; 20 D.L.R. (4th) 475; [1985] B.C.J. No. 1742 (C.A.). In that case, Mr. Justice Lambert compared the different results that occur, depending on whether a subject clause is subjective, objective, or partly subjective and partly objective. First, he described the consequence of using a subjective subject clause (Wiebe v. Bobsein, [1985] B.C.J. No. 1742 at paragraph 15).

Each condition precedent case must be considered on its own facts. As (the trial judge) indicated, some conditions precedent are so imprecise, or depend so entirely on the subjective state of mind of the purchaser, that the contract process must still be regarded as at the offer stage. An example would be ‘‘subject to the approval of the president of the corporate purchaser’’. (Emphasis added.)

This means that if a subject clause is wholly subjective (sometimes called a whim and fancy clause), the court may view the arrangement, in law, as nothing more than an offer by the seller that the buyer may accept by removing the subject clause. In other words, even though there was an initial offer, followed by an acceptance, and the document is called a Contract of Purchase and Sale, the arrangement, in law, is nothing more than an offer until the subject clause is removed.

Next, Mr. Justice Lambert explained what happens when the subject clause is objective (paragraph 15):

In other cases, the condition precedent is clear, precise and objective. In those cases, a contract is completed; neither party can withdraw; but performance is held in suspense until the parties know whether the objective condition precedent is fulfilled. An example would be ‘‘subject to John Smith being elected as Mayor in the municipal election on 15 October of this year’’.

If the subject clause is objective, a contract comes into existence as soon as the offer is accepted. The obligation to carry out the contract to completion is suspended until the subject clause is removed.

Finally, Mr. Justice Lambert described the result when a subject clause is partly subjective and partly objective (paragraphs 16-18),

But there is a third class of condition precedent. Into that class fall the types of conditions which are partly subjective and partly objective. An example would be ‘‘subject to planning department approval of the attached plan of sub-division’’. This looks objective, but it differs from a truly objective condition in that someone has to solicit the approval of the planning department. Perhaps some persuasion of the planning department will be required. Can the purchaser prevent the condition from being fulfilled by refusing to present the plan of sub-division to the planning department? This type of case has been dealt with by implying a term that the purchaser will take all reasonable steps to cause the plan to be presented to the planning department, and will, at the proper time and in the proper way, take all reasonable steps to have the plan approved by the planning department.

The law in relation to implying terms in an agreement is no different in relation to conditions precedent than it is for other terms of an agreement. Business contracts should not be permitted to fail over an omission that the parties would immediately have corrected if the parties had noticed the omission at the time the contract was made. And we have the business efficacy test and the officious bystander test to guide us. In the example I have given, it is clear that business efficacy requires that someone must present the plan of sub-division to the planning department, and the officious bystander test would be met by both parties answering the hypothetical question of the hypothetical onlooker, as to who will present the plan, by saying: ‘‘Of course the purchaser will do it’’.

But there are cases that fall in this third class of condition precedent where it will not be possible to imply the missing term, and the agreement will fail for uncertainty. In those cases the court cannot write a contract for the parties.

Where a subject clause is partly subjective and partly objective, the court must determine whether its features are objective enough to constitute a contract. If, on the other hand, the clause is predominantly subjective, then the arrangement will amount to nothing more, in law, than an offer which the buyer may accept by removing the subject clause.

(2) How To Make a Subject Clause More Objective

The ideal subject clause is one whose criteria is so clear that everyone may easily know whether the clause is fulfilled or not. The more objective the criteria, the easier it is to determine whether the subject clause is fulfilled or not.

A licensee makes a subject clause more objective by using specific criteria to measure its fulfillment and, where practical, requiring a reasonable interpretation of those criteria.

(3) Using Specific Criteria

To make a subject clause more objective, a licensee begins by asking questions along the following lines. The licensee may then use the answers to develop clear, precise and objective criteria for the relevant subject clause.

1. What is my client actually concerned about?

A licensee answers this question by identifying the essential problem(s) that concerns the client.

2. What feature(s) must be present or absent to know if evidence exists to justify that concern?

To answer this question, a licensee should look for specific criteria whose presence, or absence, is consistent with the presence, or absence, of the particular concern.

For example, suppose in a residential purchase the buyer wishes to make an offer subject to inspection. The buyer’s agent could use the following subject clause:

Subject to the Buyer on or before (date), at the Buyer’s expense, obtaining and approving an inspection report.

This condition is for the sole benefit of the Buyer.

This clause, however, tends to be subjective because its fulfillment depends mainly on the buyer’s personal preferences instead of external criteria. To objectify this clause, the licensee begins by asking the first question:

1. What is my client actually concerned about?

In this example, the buyer wants to avoid purchasing a property that requires repairs. The essential concern, however, is cost. The buyer does not want to buy a property that carries the risk of expensive repairs. From the buyer’s perspective, costly repairs affect the use and value of the property.

Using this information, the buyer’s agent could make the subject clause more objective by adding the following:

Subject to the Buyer on or before(date), at the Buyer’s expense, obtaining and approving an inspection report against any defect that adversely affects the property’s use or value.

This condition is for the sole benefit of the Buyer.

2. What feature(s) must be present or absent to know if evidence exists to justify that concern?

When the buyer’s agent in this example looks for specific criteria whose presence, or absence, is consistent with the buyer’s concern, the agent asks the buyer to put a dollar value on the problem. How much money is the buyer willing to spend on repairs, if necessary? By asking the buyer, the buyer’s agent in this case determines that the buyer’s threshold is $1,500. If the property requires repairs in excess of $1,500, the buyer does not want to purchase it unless the seller takes responsibility for those repairs.

Using this information, the buyer’s agent may make the subject clause even more precise, as follows:

Subject to the Buyer on or before(date), at the Buyer’s expense, obtaining and approving an inspection report against any defects whose cumulative cost of repair exceeds $1,500 and which adversely affect the property’s use or value.

This condition is for the sole benefit of the Buyer.

(4) Adding a Requirement of Reasonableness

Another way to objectify a subject clause is to add reasonableness as one of the criteria. The law uses the standard of care of a reasonable person as an objective standard. In the same fashion, a licensee may make a subject clause more objective by requiring its criteria to be reasonably assessed. For instance, the buyer’s agent in this illustration may make the subject clause more objective by stating, in effect, that certain defects will be evaluated reasonably, as follows:

Subject to the Buyer on or before(date) at the Buyer’s expense, obtaining and approving an inspection report against any defects whose cumulative cost of repair exceeds $1,500 and which reasonably may adversely affect the property’s use or value.

This condition is for the sole benefit of the Buyer.

In its final form, this subject clause is much more objective than the one with which we started.

(5) The Different Interests of a Seller and Buyer

A seller and buyer have different interests that affect how they negotiate a real estate transaction. Although most subject clauses tend to favour the buyer, some specifically benefit the seller. When considering the different interests of a seller and buyer regarding a subject clause, it is important to first identify for which party’s benefit the clause exists.

A subject clause may be in any party’s favour. Where the parties agree to a subject clause that is sufficiently objective, a contract exists. If so, the law implies as a term of the contract that the party with the benefit of the subject clause must act fairly, honestly, and in good faith to satisfy the subject clause.

(6) Acting for the Seller

The seller’s interests vary depending upon whether the subject clause in question benefits the buyer or the seller.

(7) Where a Subject Clause Benefits the Buyer

Where a subject clause benefits the buyer, the seller’s best interests are served by ensuring that the wording of the subject clause is sufficiently certain. In addition, the more substantial the initial deposit, the better.

The seller is best served by getting a substantial deposit when the parties first enter the agreement, rather than waiting until the buyer removes his or her subject clause. At common law, the seller is entitled to keep the deposit if the buyer defaults. If the buyer fails to use his or her best efforts to remove the subject clause, the buyer will be in breach of the implied term of the agreement that requires the buyer to act in good faith. If so, the seller may keep the deposit on account of damages as a result of the buyer’s breach.

If the buyer attempts to escape the contract, for example, by alleging that a subject clause is so subjective that, in law, there is only a standing offer pending subject removal, the seller is in a significantly better position to negotiate a resolution to the dispute if the original agreement includes a substantial deposit held in trust.

The seller is also best served by a subject clause that is sufficiently objective to constitute a contract. If a seller receives an offer that contains a very subjective subject clause in favour of the buyer, the seller’s licensee should do several things. First, the licensee should warn the seller that the more subjective the wording of a subject clause, the more likely a court will find the clause to be uncertain. If the seller accepts the buyer’s offer, and the subject clause is too subjective, the arrangement, in law, will be nothing more than a standing offer until the subject clause is removed. If there is not yet, in law, any contract, the buyer will not have any obligation to act fairly, honestly, and in good faith to satisfy the subject clause. In other words, by accepting an offer that contains a very subjective subject clause, the seller takes the risk there will be nothing in law to enforce.

If, in the licensee’s view, the subject clause is too subjective, then after explaining the risks in general terms, the licensee may recommend a counter-offer with more objective language or a very short subject removal period. If the seller disregards the licensee’s recommendations, the licensee should recommend that the seller obtain independent legal advice before accepting the buyer’s offer. In each case, a licensee should keep a written record of the licensee’s advice to the client, including the warning about the risk the seller takes by not following the licensee’s advice.

(8) Where a Subject Clause Benefits the Seller

Where a subject clause benefits the seller, the seller’s best interests are served by ensuring that the wording of the subject clause is sufficiently certain.

For example, suppose the seller’s financial obligations exceed the sale price. This happens, for instance, where the outstanding balance of the seller’s mortgage exceeds the sale price and the seller makes the deal subject to arranging his or her financial affairs to raise the necessary funds to clear the mortgage from title on completion, as follows:

Subject to the Seller’s confirmation and satisfaction with the arrangement of financial affairs on or before(date), which enable the Seller to proceed with this Sale.

This condition is for the sole benefit of the Seller.

Since the fulfillment of this subject clause depends substantially on subjective criteria, this arrangement, in law, may be nothing more than the buyer’s standing offer to purchase the seller’s property that the seller may accept by removing the subject clause. If so, the seller’s agent best protects the seller by modifying the clause referenced in the section ‘‘Contracts under Seal’’ to prevent the buyer from revoking the buyer’s offer while the seller considers his or her financial affairs.

(9) Acting for the Buyer

A buyer may request a subject clause whose fulfillment depends substantially on subjective criteria in the mistaken expectation that it gives the buyer greater flexibility, without appreciating the buyer’s legal risk.

Where a licensee represents the buyer, it is common for the buyer to ask the licensee to prepare an offer with subject clauses whose removal depends substantially on subjective criteria. For example, the buyer may instruct the licensee to write the offer, ‘‘subject to satisfactory financing’’. The buyer may also prefer this wording because it withholds information from the seller about the buyer’s financial circumstances.

Bearing in mind how the law works, it is important to warn the buyer that by using a subject clause whose removal depends substantially on subjective criteria, the buyer may create an opportunity for the seller to escape the agreement. The more subjective the wording of a subject clause, the more likely a court will find the clause to be uncertain. If the subject clause is too subjective, the arrangement, in law, is nothing more than an offer until the subject clause is removed. If an arrangement amounts only in law to a standing offer pending subject removal, the seller may revoke the offer by cancelling the deal anytime before the buyer removes the subject clause. However, a clause that provides that the seller’s acceptance is irrevocable, as discussed below under the heading ‘‘Contracts under Seal’’ and which is contained in the standard Contract of Purchase and Sale, prevents the seller from cancelling the deal before the subject clause is removed.

(10) Option Clause

An Option Clause is an effective tool for addressing the consequences of a subject clause that tends to be too subjective. An option is a legally enforceable agreement by which a seller promises the buyer to keep an offer open for acceptance until a specified time. In other words, an option is a contract by which the seller promises to make an offer irrevocable. The British Columbia Real Estate Guide gives the following useful definition of an option.

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. (British Columbia Real Estate Guide, © CCH Canadian Limited, at ¶3055 in Volume 1).

Consideration means that each party must give a promise, or carry out some other act by which that person gives up something, in exchange for the promise or act of the other party. The law permits parties to a contract to create a contract under seal, which allows a promise to be enforced without evidence of consideration.

(11) Contracts under Seal

The latest edition of the Contract of Purchase and Sale developed by the B.C. Real Estate Association and the Canadian Bar Association (B.C. Branch) contains a clause which provides that the acceptance of the seller is irrevocable until the terms and conditions are waived or declared fulfilled or any options are exercised. The provision also provides that the Contract of Purchase and Sale is executed under seal. Clause 21 of the standard Contract of Purchase and Sale provides:

Acceptance Irrevocable (Buyer and Seller)

The Seller and the Buyer specifically confirm that this Contract of Purchase and Sale is executed under seal. It is agreed and understood that the Seller’s acceptance is irrevocable, including without limitation, during the period prior to the date specified for the Buyer to either:

(a) fulfill or waive the terms and conditions herein contained; and/or (b) exercise any option(s) herein contained.

As a result of this clause, once the seller accepts the contract, the seller cannot argue that the conditions imposed by the buyer were too subjective or uncertain to be enforceable. In other words, the acceptance of the seller is irrevocable. Additionally, because the clause provides that the Contract is executed under seal, no additional consideration is required to be paid by the buyer to the seller.

Throughout the Professional Standards Manual, various clauses are referenced which may be determined to be too subjective to be enforceable. In all cases the following statement appears below the clause:

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’ above.

If a licensee is using the current version of the Contract of Purchase and Sale, the contract is automatically executed under seal.

However, if a different form of Contract of Purchase and Sale is used and the Contract contains subject clauses that are overly subjective, licensees should include a clause that provides that the Acceptance is Irrevocable similar to Clause 21 as set out above and ensure that the contract is executed under seal in the following way.

For each party, ensure the presence of an adhesive wafer seal, or a mark representing a seal, adjacent to the line reserved for that party’s signature. If a mark is used to represent a seal, write the word seal next to the mark. It does not matter whether the mark representing the seal is a preprinted black dot on the paper itself, or a hand drawn ellipse containing the printed word seal, or anything else, so long as the document clearly shows the intention to execute the option agreement under seal. Each party’s seal, or mark representing a seal, must be placed on the paper before or at the time that party signs the document.

If a seller or buyer does not personally execute the Option Clause under seal but instructs someone else to sign it as their agent, the licensee should note the following concerns. In Friedmann Equity Developments Inc. v. Final Note Ltd. (2000), 188 D.L.R. (4th) 269, the Supreme Court of Canada confirmed that as a general rule, an agent who executes an agreement under seal in the agent’s own name will be personally liable upon it if the agent fails to disclose the name and existence of the agent’s principal. This is called the sealed contract rule. Where an agent makes a contract under seal without disclosing the name and existence of his or her principal, the sealed contract rule makes the agent personally liable under the agreement. The rule also prohibits the principal from suing, or being sued, under the contract. To avoid personal liability under the sealed contract rule, an agent who signs an option agreement under seal on behalf of the seller or buyer must record both the identity of the principal on whose behalf he or she is signing and his or her status as an agent. For example, suppose the seller has given a power of attorney to the listing licensee to execute the option agreement. The licensee should sign the addendum containing the Option Clause under seal, as follows:

[Seller’s name] by his or her attorney in fact, [Licensee’s signature]. Followed by the date and time.

Or

[Licensee’s signature] as agent for [Seller’s name]. Followed by the date and time.

Because the standard ‘‘Contract of Purchase and Sale’’ contains the Acceptance Irrevocable Clause and is executed under seal, it may be that even a very subjective subject clause will not render the contract unenforceable as the court will accept that Clause 21 effectively prevents the seller from revoking his or her acceptance. However, the clause has not yet been tested in court. Thus, in all cases, and particularly, where the standard ‘‘Contract of Purchase and Sale’’ is not used, such as in an Offer to Lease or where the contract is prepared by a developer, a licensee should keep the following in mind.

Summary

1. Strive to make each subject clause as objective as possible. Avoid making the outcome of the subject clause substantially dependent on subjective criteria (e.g., the state of mind of the buyer or of a third party).

2. Despite a licensee’s best efforts, there will be occasions where a client’s instructions, or circumstances, compel the use of a subject clause that is very subjective. If it is not possible to avoid a clause that depends substantially on subjective criteria, a licensee should:

a. Warn the seller, or buyer, as the case may be, that there may not be a binding contract. Instead, the arrangement, in law, may be nothing more than a standing offer by the seller to the buyer that the buyer may accept by removing the subject clause.

b. If so,

(i) the seller’s agent should warn the seller that:

(1) if, pending subject removal, there is no contract, the buyer may have no obligation to act fairly, honestly, and in good faith to satisfy the subject clause, and

(2) if the seller receives another offer while such a standing offer exists, the seller should obtain legal advice if he or she wishes to revoke the standing offer in order to proceed with the second offer.

(ii) the buyer’s agent should:

(1) warn the buyer that there is the potential for the seller to cancel the deal by revoking the seller’s standing offer until the buyer removes the subject clause; and

(2) recommend the use of one of the Option Clauses shown above to bind the seller to keep the offer open until the subject removal deadline;

(3) alternatively, keep the length of time for removal of the subject clause as short as possible;

(4) where a licensee uses an Option Clause supported by consideration, the licensee must verify that the consideration is actually paid and obtain a receipt for it;

(5) where a licensee uses an Option Clause supported by a seal, the licensee must ensure there is a seal, or a symbol representing a seal, beside each party’s signature and ensure that the seller and buyer personally sign the document.

(12) True Conditions Precedent

Quite apart from any concerns about the subjective nature of a subject clause, our common law also distinguishes between a true condition precedent and an ordinary condition precedent.

At common law, a true condition precedent is a condition that is wholly dependent on the will or actions of someone who is not a party to the contract. If a contract contains a true condition precedent, then at common law no party may unilaterally waive that condition.

In 1978, the province amended the Law and Equity Act to override the common law rule preventing the unilateral waiver of a true condition precedent. Section 54 of the Law and Equity Act provides:

54. If the performance of a contract is suspended until the fulfillment of a condition precedent, a party to the contract may waive the fulfillment of the condition precedent, even if the fulfillment of the condition precedent is dependent on the will or actions of a person who is not a party to the contract if

(a) the condition precedent benefits only that party to the contract,

(b) the contract is capable of being performed without fulfillment of the condition precedent, and

(c) where a time is stipulated for fulfillment of the condition precedent, the waiver is made before the time stipulated, and where a time is not stipulated for fulfillment of the condition precedent, the waiver is made within a reasonable time.

Clause 3 of the standard form ‘‘Contract of Purchase and Sale’’ anticipates section 54. Clause 3 says in part, that,

Each condition, if so indicated, is for the sole benefit of the party indicated.

When a licensee writes a subject clause whose satisfaction depends completely on the will or actions of a third party (e.g., a lawyer, an accountant, a relative, a local government), the licensee must state in writing for whose sole benefit that clause is written to engage section 54. If the licensee fails to engage section 54 by stating for whose sole benefit the clause exists, the common law rule applies and the clause may only be waived if all parties consent. For example, suppose a contract is subject to the local government adding the property to the municipality on or before 12:00 p.m. on the 15th day of the month, but the clause fails to state for whose benefit it exists. Suppose, too, that by 10:00 a.m. that morning, it is clear the municipality will not make any decision about the property for at least several more months and that the buyer wants to waive the subject clause to proceed with the deal. Since the subject clause fails to engage section 54 by stating for whose benefit it is written, the common law rule applies and the buyer cannot waive the subject clause without the seller’s consent. If desired, the seller can then terminate the transaction by refusing to consent.

(13) Removing or Waiving Subject Clauses

The ‘‘standard’’ form, ‘‘Contract of Purchase and Sale’’, anticipates that the parties to the agreement may wish to use one or more subject clauses. The standard form contract says, in part, in clause 3:

3. TERMS AND CONDITIONS: The purchase and sale of the Property includes the following terms and is subject to the following conditions:

The document then provides a blank space in which the licensee may write any additional terms beyond those in the preprinted wording, plus any subject clauses, in accordance with the licensee’s instructions. Alternatively, the licensee may use the blank space to refer the reader to another document that is attached to and forms part of the contract and which contains the additional terms and any subject clauses; for example, (see attached Addendum which forms part of this contract).

Each condition, if so indicated, is for the sole benefit of the party indicated. Unless each condition is waived or declared fulfilled by written notice given by the benefiting party to the other party on or before the specified date for each condition, this contract will be terminated thereupon and the deposit returnable in accordance with the Real Estate Services Act.

(14) Removing a Subject Clause

To remove a subject clause, a party must deliver written notice to every other party on or before the subject removal deadline. Verbal notice is not sufficient because the standard form contract requires, ‘‘written notice given by the benefiting party to the other party on or before the specified date…’’.

The standard form contract anticipates that a party will remove a subject clause by declaring it fulfilled or by waiving it. When the requirements for satisfying a condition are met, we say it is fulfilled. For instance, suppose a contract for the purchase of a residential property contains the following subject clause from this manual:

Subject to the Buyer, at the Buyer’s expense, obtaining and approving an inspection report on or before (date) .

This condition is for the sole benefit of the Buyer.

If the property inspector reports that everything is fine, the buyer can declare the subject clause fulfilled. On the other hand, if the buyer decides to proceed with his or her purchase without any inspection, the buyer may waive the subject clause.

For certainty, the written notice used to remove (by waiving or declaring fulfilled) a subject clause should include the exact wording of the subject clause to be waived or declared fulfilled. The following notice is an example of how the above subject clause could be waived or declared fulfilled.

Date

The Buyer hereby waives / declares fulfilledthe following subject clause: ‘‘Subject to the Buyer, at the Buyer’s expense, obtaining and approving an inspection report on or before (date) This condition is for the sole benefit of the Buyer’’.

Witness Signature Buyer’s Signature

* Licensees should select whether this clause has been waived or declared fulfilled.

(15) The Practice of Adding New Terms on a Subject Removal Addendum

[04/10/2010 The following information added to Professional Standards Manual]

There appears to be a growing practice in the industry whereby some licensees are using the Subject Removal Addendum to a Contract of Purchase and Sale to add an amendment to the contract (e.g. a price reduction) after the removal of the subject clauses and then having the buyers sign at the bottom of the Subject Removal Addendum.

This imposes a risk on the buyer as, once all of the subject clauses have been removed, the seller may not agree to the amendment and may take the position that the buyer has removed all subject clauses, and therefore there is a firm and binding Contract of Purchase and Sale.

An amendment constitutes a contract to change an existing contract. Since the amendment itself amounts to a contract, there must be fresh consideration or a seal in support of it. An amendment made without new consideration or a seal is unenforceable because it is a gratuitous promise.

A licensee seeking an amendment to a Contract of Purchase and Sale on behalf of the buyer must first confirm with the other parties that any discussions about the proposed change will not terminate the existing contract. During the ensuing discussion over the proposed amendment, the licensee must emphasize to all parties that the original Contract of Purchase and Sale remains binding on them until any amendment is finalized. The licensee should prepare the amendment on a separate form. This should be done and signed by the parties to the Contract of Purchase and Sale prior to the removal of the subject clauses, which are then removed on a separate addendum. If, at the time the amendment is to be signed, the time for the removal of the subject clauses is in danger of expiring, then a further amendment to the contract may be included on the same form extending the time for subject removal. An example of a Contract of Purchase and Sale Amendment form is included below.

For those licensees who use the BCREA preprinted Contract of Purchase and Sale Addendum form to make amendments to the Contract of Purchase and Sale, they should ensure that it contains the following clause:

“All other terms and conditions in the said Contract of Purchase and Sale remain the same and in full force and effect. Time shall remain of the essence.”

Licensees must alert their clients that there are risks to consider when amending the terms of an already accepted contract on a Subject Removal Addendum form. Both the buyer and seller should be advised to get independent legal advice so that they may understand their options in this regard.

Contract of Purchase and Sale Amendment

DATE ____________________

RE: Address _________________________________________________

Legal __________________________________________________

Further to the Contract of Purchase and Sale dated _____________________

Made between _______________________________________as Seller, and

___________________________________________________ as Buyer and

Covering the above mentioned property, the undersigned hereby agree as follows:

_______________________________________________________________

All other terms and conditions in the said Contract of Purchase and Sale remain the same and in full force and effect. Time shall remain of the essence.

___________________________ _________________________________ Seal

Witness Buyer

_________________________ _________________________________Seal

Witness Seller

 

(xvii) Financing Information
(1) Pre-Approved Financing

As part of the process of purchasing real estate, many buyers are being pre-approved for financing prior to making an offer. This usually entails a financial institution agreeing that the buyer qualifies for a mortgage up to a maximum amount. However, licensees need to be aware that while the financial institution may have pre-approved the amount of money it is prepared to lend a buyer, it retains the right to also approve the property used as security for the financing. This will often include approving the appraised value of the property to ensure an acceptable loan/value ratio, as well as the physical condition of the property.

**Alert**

Council is of the view that a subject to financing clause, such as the New First Mortgage Clause found below, should be included in Contracts of Purchase and Sale even where the buyer has been pre-approved for financing.

(2) New First Mortgage Clause

New First Mortgage Clause

Subject to a new first mortgage being made available to the Buyer on or before (date) , in the amount of $ (amount) at an interest rate not to exceed ___ % per annum calculated (select either half-yearly or monthly) , not in advance, with a ____- year amortization period, ____- year term and repayable in blended payments of approximately $ (amount) per month including principal and interest (plus 1/12 of the annual taxes, if required by the mortgagee).

This condition is for the sole benefit of the Buyer.

NOTE: This clause must not be used for a Seller-take-back mortgage.

While the standard ‘‘New First Mortgage Clause’’ can be applied to nearly every residential contract, there will be occasions when the buyer will be applying for unconventional financing (e.g., land assembly, shopping centres, high-rise buildings or warehouse purchases). Licensees must be aware that courts have sometimes declared vague mortgage clauses to be unenforceable whim and fancy clauses.

Because the standard Contract of Purchase and Sale contains an option clause and is executed under seal, when using a standard Contract of Purchase and Sale, the seller is irrevocably bound by the contract even if the subject to financing clause is vague. See the section entitled ‘‘Option Clause’’ for more information.

(3) Mortgage Covenants Affected by Property Law Act

The Property Law Act significantly changed the law in British Columbia relating to the continued liability of a mortgagor on his or her personal covenant after his or her residential property had been sold.

It is necessary for all licensees to advise sellers and buyers regarding the effect of the amendments in transactions involving the assumption of a mortgage.

It is an advantage to the seller to be released from any further liability on a mortgage that is being assumed by the buyer. For this reason, it is recommended, in a residential transaction where the buyer will be assuming an existing mortgage, that a condition be inserted in the contract to ensure that the seller’s covenant on the mortgage is released. The Assumption of Existing Mortgage Clause set out below includes as a subject that the mortgagee release the seller from the seller’s covenant.

The amendments to the Property Law Actinclude the following provisions:

1. The changes relate only to a residential mortgage (which is defined as a mortgage or agreement for sale) registered against the residence where the borrower resides, and where the financing was entered into or assumed to permit the borrower to acquire the residence, make improvements to the residence or make expenditures for family or household purposes.

2. Where an original borrower sells the home and the buyer (new owner) has assumed the mortgage, the original borrower’s liability will be extinguished unless the lender demands payment in full within three months after the existing term of the mortgage has expired. As well, an original borrower will be able to extinguish his or her liability by having the lender approve the credit worthiness of a buyer or proposed buyer. The second alternative is more attractive to the seller, because the seller is released from liability on the mortgage at an earlier date.

3. When the lender specifically approves, in writing, the assumption of the mortgage or agreement for sale by the buyer, then the seller is released from the covenant. The lender may not unreasonably withhold approval. If the seller or the buyer feels that the lender is unreasonably withholding approval, he or she may apply to the Supreme Court of British Columbia for relief.

(4) Assumption of Existing Mortgage Clause

Assumption of Existing Mortgage Clause

The sum of approximately $ (amount A) by way of cash down payment.

The Buyer will assume all obligations under the existing (rank)mortgage held by (name of lender) with an outstanding balance of approximately $ (amount B) at an interest rate of % per annum calculated (select either half-yearly or monthly)not in advance, with a ‘‘balance due’’ term date of (date)with blended payments of $ (payment amount)per month including principal and interest (plus 1/12 of the annual taxes, if required by mortgagee).

NOTE: Amounts (A) and (B) must equal total purchase price.

Subject to the mortgagee approving the Buyer in writing on or before (date), thereby releasing the Seller from liability under section 24 of the Property Law Act.

This condition is for the benefit of both the Buyer and the Seller.

(5) Refinance of Existing Mortgage

Under certain circumstances, a substantial payout penalty may be avoided by the buyer arranging a new mortgage through the existing mortgagee.

Refinancing with Existing Mortgagee Clause

Subject to the Buyer arranging financing with (name of existing mortgagee) and to (name of existing mortgagee) providing the Seller with written confirmation on or before (date), that upon completion the Seller shall be released, without penalty or cost, from its covenants under the existing mortgage.

This condition is for the benefit of the Seller and the Buyer.

CAUTION: This clause is to be used only in conjunction with the ‘‘New First Mortgage Clause’’ detailing the mortgage to be arranged by the Buyer.

Such a clause should be reviewed by the seller’s lawyer.

(6) Sale Price Insufficient To Cover Financial Encumbrances

Licensees should be aware that, in some instances, sellers may find themselves unable to clear title as their financial obligations are greater than they expected and exceed the proceeds of the sale. Examples of this might occur when penalties are applied for the early pay-out of a mortgage, interest has accumulated if mortgage payments have fallen into arrears, or if a lien against the property is unsatisfied. The amounts of these sorts of financial obligations can be very substantial and, when combined with commissions payable, may create a circumstance where the seller has no practical remedy and the transaction collapses, leaving the buyer, the seller and the licensees involved all in regrettable positions with potential legal implications.

At the time of listing a property, it is a prudent practice for licensees to discuss with a seller their obligation to clear title and the nature of the expenses they will face at closing. Licensees should advise their seller-clients to review the terms of their mortgage, as well as to seek written confirmation from their lending institution of the amount of any outstanding mortgage balances, accrued interest, or penalties. A seller who is planning on acquiring another property, based on the sale of an existing property, may also want to familiarize himself or herself as to the portability of his or her existing mortgage and any terms, conditions and time limitations that may apply.

Licensees who advise and assist their clients in obtaining clear and certain information as to their financial obligations at the time of listing a property, place their clients in a position of being able to make informed decisions when considering any offers. This ultimately sets the stage for a smooth completion without surprises.

In the event there is any question whether the sale price is sufficient to cover financial encumbrances and real estate commission, licensees should protect the seller (and themselves) by use of the following clause in the contract:

Financial Obligations Exceed Sale Price Clause

Subject to the Seller’s confirmation and satisfaction with the arrangement of financial affairs, on or before (date), which enable the Seller to proceed with this sale.

This condition is for the sole benefit of the Seller.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

(7) Seller To Take Back First Mortgage

It is recommended that preparation of all seller-take-back mortgages be referred to the seller’s lawyer.

Seller To Take Back First Mortgage Clause

The Seller will take back a first mortgage, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date) and approved by the Buyer on or before (date) , in the amount of $ (amount) at an interest rate of % per annum calculated (select either half-yearly or monthly) , not in advance, with a ___-year amortization period and ___-year term and repayable in blended payments of $ (amount) per month including principal and interest (plus 1/12 of the annual taxes, if required by the Seller).

The mortgage will provide that if the Buyer disposes of or agrees to dispose of the property, the full balance will immediately become due and payable at the Seller’s option. The Seller will draw and register the mortgage at the Buyer’s cost.

The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date).

This condition is for the sole benefit of the Seller.

NOTE: If the seller is being asked to carry a second mortgage, it is important that the listing agent find out the terms and amount of the first mortgage the buyer is contemplating. The licensee must disclose the amount of the first mortgage when writing subject clauses regarding seller-take-back mortgages. See also ‘‘Additional Mortgage/Agreement for Sale Clauses.’’ Otherwise, the seller may be inadequately secured.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

If the seller has not sought legal advice before signing the offer, a subject clause such as the one found below should be added allowing him or her to obtain such advice.

Lawyer’s Approval of Financing Terms Clause

Subject to the Seller’s lawyer approving the financing terms and conditions on or before (date)

This condition is for the sole benefit of the Seller.

(8) Second Mortgages

The term of the second mortgage should be concurrent with and not exceed the term of the first mortgage.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

New Second Mortgage Clause

Subject to a new second mortgage being made available to the Buyer on or before (date), in the amount of (amount) at an interest rate not to exceed ___ % per annum calculated (select either half-yearly or monthly), not in advance, with a ___-year amortization period, ___-year term and repayable in blended payments of approximately $(amount) per month including principal and interest (plus 1/12 of the annual taxes, if required by the mortgagee).

This condition is for the sole benefit of the Buyer.

(9) Seller Taking Back Second Mortgage

It is absolutely imperative to state the exact amount and details of any first-mortgage financing ranking ahead of the second mortgage to be carried by the seller. Failure to do so could result in a buyer being able to finance a property via the first mortgage in excess of its value, leaving the seller in the bad position of having little or no equity left in the property to protect the seller’s second mortgage.

It is customary for mortgagees to stipulate that mortgage documents will be prepared by their conveyancer at the expense of the mortgagor. It is recommended that this provision be included in the Contract of Purchase and Sale whenever the seller and/or a private investor will be carrying or advancing mortgage money.

**Alert**

Some mortgages may contain a term that provides that the mortgage secures all amounts that the borrower may owe to the financial institution. If the first mortgagor initiates foreclosure, the amount secured by the mortgage may be the amount of the first mortgage as well as any other borrowings, including amounts owed on personal loans or credit cards.

Sellers willing to take back a second mortgage should consider inserting a term in the contract that prohibits the buyer from entering into a mortgage which contains such terms.

 

Seller To Take Back Second Mortgage Clause

The Seller will take back a second mortgage, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date), and approved by the Buyer on or before (date), in the amount of (amount) at an interest rate of __ % per annum, calculated (select either half-yearly or monthly)not in advance, with a ___-year amortization period, ___ -year term and repayable in blended payments of $ (payment) per month, including principal and interest (plus 1/12 of the annual taxes if required by the Seller, if not already being collected by the first mortgagee). Such second mortgage will provide that if the Buyer disposes or agrees to dispose of the property, the full balance will immediately become due and payable at the Seller’s option.

The Seller will draw and register the mortgage at the Buyer’s cost. This condition is for the sole benefit of the Seller.

The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date)This condition is for the sole benefit of the Seller.

The Seller’s second mortgage is to rank after the (select either new or existing) first mortgage of no more than $(amount) at ___% interest with a term due date of (date) .

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

If the seller has not sought legal advice before signing the offer, a subject clause such as the one here should be added allowing him or her to obtain such advice.

(10) Buy-Down of New First Mortgage

Where the seller is buying down a new first mortgage arranged by the buyer, it is recommended that the buy down clause follow the subject to first mortgage clause.

NOTE: This technique is used in periods of high interest rates when the buyer wants a more attractive mortgage rate. The seller is willing to accept a reduction by paying a sum to the mortgagee/broker to accomplish this end. The mortgagee receives a better ‘‘yield’’ on the mortgage. The net result to the buyer is less interest to pay over the term of the mortgage.

Seller To Pay Discount To Buy-Down Rate for Buyer Clause

Subject to a (select either first or second) mortgage being made available to the Buyer on or before (date) , in the amount of $ (amount) at an interest rate not to exceed %per annum, calculated (select either half-yearly or monthly)not in advance, with a ___-year amortization period, ___-year term, and repayable in blended payments of approximately $ (payment) per month, including principal and interest (plus 1/12 of the annual taxes, if required by the mortgagee).

The Seller will pay a discount to the (select either mortgagee or broker) on the  (select either first or second) mortgage arranged by the Buyer, sufficient to yield the mortgagee an interest rate of ___ %** per annum, calculated (select either half-yearly or monthly)not in advance, for a term of  ___ years, but the amount of discount and buy-down costs may not exceed $(amount) in total and will be deducted from the proceeds of sale due to the Seller on completion.

This condition is for the sole benefit of the Buyer.

 

* This is the ‘‘bought-down’’ rate (i.e., what the Buyer wants).

** This is the ‘‘market ’ rate (i.e., what the Lender wants).

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.

(11) Agreement for Sale (Right To Purchase)

Although not in common use, an agreement for sale is a contract for the sale of an interest in land under which the buyer agrees to pay the purchase price, over a period of time and, on full payment, the seller is obliged to convey title to the buyer.

Licensees should note that, when performing title searches, they may discover the notation ‘‘RP’’ or Right to Purchase. This is what the Land Title Office uses to denote an agreement for sale. Agreement for Sale is the term used in the real estate industry to denote a Right to Purchase. Licensees should also note that only one RP can be registered on a title.

The time period involved in an agreement for sale, whereby a seller can take action against a buyer who is in arrears on payments in an agreement for sale, is now the same as that for a mortgage.

Agreements for sale may still be advantageous in certain circumstances, for example, where the seller has an existing mortgage at an interest rate which is lower than current market rate. In that case, the interest rate on the agreement for sale would be at least either the current interest rate or a higher rate than the seller has on the current mortgage. In this case, the clause for an agreement for sale with an underlying mortgage would be the appropriate clause to use. The term of the agreement for sale should be concurrent with and not exceed the term of the first mortgage.

Some lenders do not allow assumption of an agreement for sale. It is important to ensure that the clients have confirmation in writing from either the mortgagee or the mortgagee’s lawyer.

When proposing agreements for sale, licensees should keep in mind the particular requirements of the seller and the buyer. The most important concerns will be the interest rate to be charged, the payments on the agreement for sale and the term of the agreement for sale. The terms of the underlying first mortgage will influence the position of the principals to the agreement for sale.

Agreement for Sale (With No Underlying Mortgage Which Allows Resale) Clause

The Seller will carry the remaining balance of $ (amount) by way of an Agreement for Sale, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date) and approved by the Buyer on or before (date) ), at an interest rate of % per annum, calculated (frequency) not in advance, with a _____-year amortization period, ______-year term and repayable in blended payments of $ (payment) per month, including principal and interest (plus 1/12 of the annual taxes, if required by the Seller).

The Agreement for Sale will provide that if the Buyer disposes, or agrees to dispose of his or her interest in the property, the full amount then owing under the Agreement for Sale will immediately become due and payable at the Seller’s option.

The Seller will draw and register the Agreement for Sale at the Buyer’s cost.

The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date).

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.

Agreement for Sale (With Underlying Mortgage) Clause

The Seller will carry the balance of $ (amount) by way of an Agreement for Sale, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date) and approved by the Buyer on or before (date) ), at an interest rate of %per annum calculated (frequency) , not in advance, with a (number)-year amortization period and a term to expire (date) ** and repayable in blended payments of $ (payment) *** per month including principal and interest (plus 1/12 of the annual taxes, if required by the Seller). The Seller covenants and agrees to pay the existing first mortgage in favour of according to the terms of the mortgage.

* Amount includes underlying mortgage.

** Term expiry date to correspond to underlying mortgage.

*** In order to protect the Buyer, this amount should be at least as large as monthly payments on the underlying mortgage.

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.

In most cases, the term expiry date of the agreement for sale will correspond with the underlying mortgage. In any event, the parties are advised to seek expert advice from a mortgage broker or accountant with regard to the terms.

Licensees must ensure that the parties are adequately informed regarding their risks if payments on the underlying mortgage are not made.

Licensees should also advise the buyer and seller to seek legal advice regarding their respective risks in this situation.

The Agreement for Sale Clause will contain the following additional provisions:

Agreement for Sale Clause

The Agreement for Sale is subject to an underlying mortgage held by (name) with an outstanding balance of approximately $ (amount) at an interest rate of % per annum calculated (frequency), not in advance, with a ‘‘balance due’’ term date of (date) , and with blended payments of $ (amount) per month including principal and interest.

The Seller covenants to maintain the underlying mortgage in good standing and to pay and satisfy in full when due or when the Agreement for Sale is paid off, and on any failure to do so, the Buyer may pay the underlying mortgage directly, and deduct such payment from amounts owing to the Seller under the Agreement for Sale.

If the Buyer disposes of or agrees to dispose of the property, the full amount then owing under the Agreement for Sale shall immediately become due and payable at the option of the Seller, and any penalty payable because of the resulting prepayment of the underlying mortgage will be paid by the Buyer.

The Seller will draw and register the Agreement for Sale at the Buyer’s expense. The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date).

This condition is for the sole benefit of the Seller.

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.

(12) Additional Mortgage/Agreement for Sale Clauses

Open (Prepayment in Part) Mortgage Clause

The principal balance may be paid at any time, in whole or in part, without notice, bonus, or penalty.

Open (Prepayment in Full) Mortgage Clause

The principal balance may be paid at any time, in full, without notice, bonus, or penalty.

Penalty (Prepayment in Part) Clause

The principal balance may be paid at any time, in whole or in part, upon payment of an additional (number of months) months’ interest as a penalty and by way of compensation for said prepayment.

Penalty (Prepayment in Full) Clause

The principal balance may be paid at any time, in full, upon payment of an additional (number of months) months’ interest as a penalty and by way of compensation for said prepayment.

Some lenders require an interest differential in lieu of or even in addition to a prepayment privilege commonly called a penalty. This amount is usually the loss of interest for the balance of the term. The licensee must confirm what is payable by a seller as it may affect his or her ability to clear title, pay a commission and/or buy again. A Mortgage Verification letter asking for details should be sent to the lender and kept on file for consultation during the offer presentation to ensure the seller’s status is protected.

A prepayment privilege is a designated amount of interest, usually three to six months, which is normally less onerous than the interest differential.

(xviii) Miscellaneous Clauses

Seller Purchasing Residence Clause

Subject to the Seller entering into an unconditional agreement on or before (date) to purchase another residence.

This condition is for the sole benefit of the Seller.

NOTE: This subject clause is to give a seller the opportunity to acquire a new home before being committed to sell and vacate his or her existing home. From the buyer’s perspective, the subject removal period should be as short as possible.

Friend/Relative Approval (for Buyer or Seller) Clause

Subject to approval of the (select either purchase or sale) by (name) on or before (date) .

This condition is for the sole benefit of the Buyer/Seller.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

(xix) Zoning Approval

Confirmation of Zoning Clause

Subject to the Buyer confirming on or before (date) that zoning for the Property is (indicate desired zoning) .

This condition is for the sole benefit of the Buyer.

This clause may be adapted for other situations where confirmation of specific information is required by the buyer.

Change of Zoning Clause

Subject to the Buyer, at the Buyer’s expense, obtaining final approval of zoning change from (current zoning) to (desired zoning) on or before (date) The Seller will co-operate with the Buyer in the zoning application process.

This condition is for the sole benefit of the Buyer.

(xx) Goods and Services Tax (GST)

[04/09/2013 The following information updated to reflect switch back to GST]
[08/24/2010 The following information updated to reflect switch to HST]

The application of the Goods and Services Tax (GST) to real estate transactions is complex. Generally speaking, GST applies to the sale or rental of real estate unless the sale or rental is exempt.

Exemptions may include but are not restricted to the following: residential rents, sales of used residential housing other than substantially renovated property, sales of personal-use land by an individual or an estate, certain sales of farmland to related individuals where the farmland is for personal use, and most sales and rentals of real property by charities, non-profit organizations and other public-service organizations.

NOTE: Licensees are responsible for the accuracy of any advice they may provide concerning the application of GST to real estate transactions. Both the buyer and the seller should be advised that if they have any questions regarding GST liability, exemptions, or their right to apply for a rebate, they should contact a lawyer, accountant or the nearest Canada Revenue Agency Office.

On April 1, 2013, the Harmonized Sales Tax (HST) was replaced by the federal GST and the BC Provincial Sales Tax (PST).  For any contracts entered into prior to April 1, 2013, and which close after April 1, 2013, there are certain rules for the transition from HST to GST and PST that may impact a buyer or seller’s obligations with respect to the payment of GST or PST. If a buyer or seller has entered into a Contract of Purchase and Sale prior to April 1, 2013, they should contact a lawyer, accountant or the nearest Canada Revenue Agency Office with respect to the application of such transitional rules.

There are brochures and GST memoranda available at Canada Revenue Agency offices that licensees may find useful regarding current rebate limits and exemptions, including the GST New Housing Rebate brochure RC4028(E). Licensees in smaller centres not served by a Canada Revenue Agency office may call 1-800-959-1953. On the Internet, government publications are available at www.cra-arc.gc.ca.

Where the buyer has not received independent advice regarding GST liability, exemptions, or rebates, prior to entering into a Contract of Purchase and Sale, the following clause should be inserted into the Contract:

Receipt of Information or Professional Advice by Buyer/Seller Concerning GST Liability Clause

Subject to the (select either Buyer or Seller) receiving and approving information or professional advice concerning the (select either Buyer or Seller) GST liability, GST exemptions or GST rebates, on or before (date) .

This condition is for the sole benefit of the (select either Buyer or Seller) .

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

Before using the following clauses in the written contract, licensees must clearly indicate whether GST, if applicable, is included in the purchase price or if it is in addition to the purchase price. The following clause should be inserted into the contract for this purpose

Purchase Price to Include/Not Include GST Clause

The purchase price to (select either include/not include) GST.

Where the buyer acknowledges responsibility for paying the GST, the licensee should insert the following clause into the contract:

Buyer’s Responsibility to Pay GST Clause

The Buyer confirms the receipt of independent GST advice concerning the obligation to pay GST and will be responsible to pay any GST and apply for any GST rebate in connection with this transaction.

Where, for some reason, the seller agrees to pay GST on behalf of the buyer, the licensee should insert the following clause into the contract:

Seller’s Agreement To Pay GST Clause

The Seller will pay any GST in connection with this transaction and the Buyer will assign any rebate entitlement to the Seller.

Of course, the above-noted clauses can be amended or worded to fit a particular situation.

NOTE: Because of the complexity of the application of the Goods and Services Tax to real estate transactions, it is strongly recommended that licensees not give advice with respect to the application of the Goods and Services Tax to particular situations. If the wrong advice is given, the licensee may be liable for any problems that might arise as a result of incorrect advice.

(xxi) GST and Lease Land

[04/09/2013 The following information updated to reflect switch back to GST]
[08/24/2010 The following information updated to reflect switch to HST]

The following information has been received from the Canada Revenue Agency:

Builders who construct, or substantially renovate, a residential building that is situated on leased land, must self-assess and pay the GST on each unit. This differs from the typical practice of charging GST to the purchaser and remitting that amount to the Canada Revenue Agency.

The GST must be based on the fair market value of each unit as it is completed or at the time a purchaser takes possession, whichever comes later. Normally this would mean that the builder would self-assess based on the current GST rate X the fair market value (before tax) of the unit at the time the transaction is complete. With respect to the New Housing Rebate which may be available to the purchaser, the value of the leased land must be excluded from the calculation. The value of the leased land is a question of fact and will vary depending on the circumstances of each case.

If you have any questions or require further information regarding this subject, please contact your local Canada Revenue Agency Office, Business Enquiries line.

(xxii) Disclosure Issues
(1) Wood Burning Stoves/Fireplace Inserts

Licensees should be aware that there are several factors which affect fire insurance coverage on dwellings which contain a wood burning appliance. Although the BCREA Property Disclosure Statement addresses the issue, it does not, in itself, provide sufficient evidence that the property is insured, or is insurable.

The following issues should be addressed:

1. The wood burning unit itself must have the appropriate CSA, UCL or other required approval, or, failing that, specific individual approval by the Insurer.

2. The chimney must meet current municipal building code and/or insurer’s specifications.

3. The wood burning unit must be installed with clearances and a non-combustible base that complies with municipal and/or insurer’s specifications.

4. Application for insurance coverage must be made and notice given to the insurer that the dwelling contains a wood burning device. The insurer may then accept, surcharge or refuse the application.

A buyer of property where a wood burning device is included should be made aware of the previously mentioned factors and the following notation should be included in the Contract of Purchase and Sale:

Wood Burner May Void Insurance Clause

The Buyer acknowledges and accepts that the (select either wood stove or fireplace insert and/or chimney) installed on the property may not be approved for legal use and may render any fire insurance void.

If required, the following condition may be added to the contract:

Wood Burner Insurance Confirmation Clause

Subject to the Buyer obtaining confirmation from his or her insurance agent on or  before (date) that the (select either wood stove or fireplace insert and/or chimney) installed on the property will not void his or her fire insurance coverage.

This condition is for the sole benefit of the Buyer.

(2) Fire/Property Insurance

Insurance companies are more frequently declining applications for insurance coverage from individuals who have a bad insurance claim history. If, in the opinion of the insurance company, an individual has had too many claims, the insurance company may decline to provide fire/property insurance. The individual may have an existing policy in place with an insurance company but when he or she attempts to insure a different property, he or she finds the insurance company no longer wants his or her business.

A second scenario involves the property itself. The current owner of a property may have had insurance on that property for many years and the insurance company continues to provide fire/property insurance. However, when the property is sold and a new buyer applies for insurance, the insurance company may deem at that time that the property no longer qualifies for insurance coverage. This could arise where the electrical service is less than 100 amps, or the roof is old (perhaps 25 years or older), or where the home contains galvanized plumbing, old wiring, or a wood stove that has not passed inspection. With the exception of wood stoves, the insurance provider may consider these unresolved maintenance issues.

In a typical real estate transaction, the issue of fire/property insurance is not addressed until after the conditions are removed and, in some cases, closer to completion date. If the buyer is unsuccessful in obtaining fire/property insurance, the mortgage company is not protected and will not provide mortgage funds. The end result may be a collapsed transaction, the buyer’s deposit may be at risk, and the seller may suffer losses as a result of the transaction not proceeding.

To adequately protect your clients, the issue should be discussed with your client, including the potential problems that might arise if the buyer were unsuccessful in obtaining insurance. The buyer should decide if a clause should be included in the offer to confirm that the property and the buyer qualify for insurance coverage. The following sample clause could be included in a Contract of Purchase and Sale in such circumstances.

Fire/Property Insurance Clause

This offer is subject to the Buyer obtaining approval for fire/property insurance, on terms and at rates, satisfactory to the Buyer, on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

(3) Property Disclosure Statements (PDS)

Separate disclosure forms now exist for Residential, Strata Title Properties and Farms and Acreage. Licensees are advised to use the correct disclosure statement. The specific Property Disclosure Statement forms, while not mandatory under RESA, assist sellers and licensees in providing information about known defects. Licensees should consider the following points regarding the PDS, property inspections and disclosure:

1. It is important to use the right PDS for the type of property being listed; e.g., use a strata title PDS for strata title properties.

2. Because use of the PDS is not required by law, some sellers may not want to complete it. This does not, however, absolve a seller from his or her obligation to disclose any known material latent defects in the property to a buyer and similarly does not relieve the listing agent from disclosure of any known latent defects to a buyer or his or her agent. A seller who does not wish to complete a PDS should be reminded of this fact.

3. Given that the PDS is widely used, a buyer’s agent could be negligent if he or she did not inquire if a PDS exists, and if so, to obtain and provide a copy of the form to the buyer. The PDS should also be incorporated as part of the Contract of Purchase and Sale.

In order to state clearly that the PDS is to become part of the Contract of Purchase and Sale, the following clause must be inserted in the contract:

(xxiii) Property Disclosure Statement Clause

Property Disclosure Statement Clause

The attached Property Disclosure Statement dated (date) is incorporated into and forms part of this contract.

If the PDS is not available before the offer is written, then a subject to clause should be inserted in the offer to allow for delivery and approval of the applicable PDS.

Buyer Approving the Property Disclosure Statement Clause

Subject to the Buyer on or before (date) obtaining and approving a Property Disclosure Statement with respect to the information that reasonably may adversely affect the use or value of the property.

This condition is for the sole benefit of the Buyer.

If approved, such statement will be incorporated into and form part of this contract.

NOTE: These documents have been produced by BCREA. The instruction here does not apply to any other generic disclosure statements produced elsewhere.

It is advisable for the licensee to provide, on the contract, a deadline by which the seller will provide the appropriate PDS and a slightly later deadline by which the buyer will approve or reject it.

Licensees will find it helpful to colleagues to leave copies of the disclosure statement available for review when the property is being shown.

(1) Disclosing Defects: How the Law Works

Licensees should be aware of the B.C. Supreme Court decision in Curtin v. Blewett.

The Curtins bought a strata property from the Blewetts. The PDS was incorporated into the Contract of Purchase and Sale.

The sellers answered ‘‘NO’’ to question #25 on the PDS which asked ‘‘Are you aware of any infestation by insects or rodents?’’

The sellers had a previous termite problem in March 1997 which they considered solved after treatment and a 10-year guarantee. There were no further problems up to the time the buyers took possession, and shortly thereafter, the termites appeared again.

The judge held that the sellers were not at fault because the question and others that start ‘‘Are you aware’’ is in the present tense and did not refer to past infestations.

The judge also held that there was no fraudulent misrepresentation on the seller’s part. The representation regarding infestation was not false at the time they made it.

The buyers apparently removed the subject to inspection clause without getting an inspection.

The judge quoted Mr. Justice Boyle in Arsenault v. Pedersen et al. who made the following comments about the PDS:

I have no idea who drafted those questions but they are clearly drawn in a manner offering more protection to a vendor than to a purchaser and in a manner to provide a sales person or vendor with an air of rectitude which might not on all occasions be deserved even given the cautionary line: ‘‘buyers are urged to carefully inspect the property and, if desired, to have the property inspected by an inspection service of their choice’’.

The disclosure statement does not call upon a vendor to warrant a certain state of affairs. It requires the vendor to say no more than he or she is or is not aware of the problem.

Licensees who act for buyers should caution their clients that questions on the PDS worded ‘‘Are you aware…’’ refer only to the present tense. A negative answer does not mean that there has not been a problem in the past or that a past problem will not recur.

Buyers should be advised to obtain an independent inspection, even if a PDS exists and is incorporated into the contract.

(xxiv) Property Inspections

In recent years, pre-purchase property inspections have become more common in the marketplace. The Council considers this a positive development in that a property inspection will assist the buyer in understanding, prior to the purchase, the condition of the property and what repairs may be necessary.

For this reason, a buyer’s agent should always advise a buyer to have an independent inspection of a property and the licensee should explain the importance of why such an inspection is necessary and that licensees are typically not qualified to provide home inspection advice. If a buyer chooses not to have an inspection, the agent’s advice to do so should be documented. This documentation can take one of several forms.

Some market areas and/or agents have developed a contract addendum that specifies additional terms to be included in all Contracts of Purchase and Sale. Such an addendum might include a clause such as the one that follows, when the buyer is to have the property inspected.

Inspection of Property Clause

Subject to the Buyer, on or before (date) at the Buyer’s expense, obtaining and approving an inspection report against any defects whose cumulative cost of repair exceeds (select a monetary value) and which reasonably may adversely affect the property’s use or value.

The Seller will allow access to the property for this purpose on reasonable notice.

This condition is for the sole benefit of the Buyer.

Alternatively, where such a preprinted addendum is not used and the buyer chooses not to have the property inspected after having been so advised, the licensee should provide separate documentation of this fact by way of a letter addressed to the buyer confirming that on a particular date, the buyer was advised to have the property inspected but chose not to do so. A copy of this confirmation letter should be kept in the brokerage’s transaction file.

In some cases, in addition to a buyer wanting to have the property inspected, a seller may also want such an inspection before listing the property for sale so that the seller is aware of what issues the property inspection report may identify.

If a licensee intends to refer clients to a property inspector, the safest way to do so is to provide a list of at least three professionals with whom the licensee, or others he or she knows, has dealt and have the client call, interview, and select them independently. It is recommended that licensees avoid ‘‘steering’’ buyers towards particular service providers or communicating information about their fees.

Effective March 1, 2009, providing a property inspection for a fee became an activity for which a licence is required. Consumer Protection B.C. is the agency responsible for property inspector licensing. For further information, visit www.consumerprotectionbc.ca.

Licensees should exercise care in selecting those to be included in this list of service providers. Before making a referral, licensees should, ensure the individual is properly licensed, consider the inspector’s experience and credentials and also what insurance coverage the inspector carries, such as errors and omissions insurance, liability insurance and worker’s compensation coverage.

Once a buyer has determined which property inspector is to be used, licensees must respect the client relationship this creates between the buyer and the property inspector. The buyer is paying the property inspector for professional advice with respect to the condition of the property he or she is considering purchasing. Licensees should not attempt to thwart that relationship either by downplaying the importance of deficiencies noted by property inspectors or by making disparaging comments about the buyer’s choice of property inspectors.

As with any subject clause, the length of time allowed for its removal should be reasonable while not being unnecessarily long. In the case of property inspections, sufficient time is required to arrange and conduct the inspection, prepare the report, and have the report reviewed by the buyer. The goal is to ensure the buyer has full knowledge of the results of the inspection and, if necessary, clarification from the inspector or any other qualified person as required.

In order to avoid the possibility or even the appearance of a conflict of interest, licensees are advised not to pay the cost of the inspection report on behalf of a buyer. If the licensee were to pay, the inspector could be suspected of not wanting to jeopardize the transaction of the person paying him or her, who might or might not ask for his or her services in the future, depending on the conclusions of the inspection report.

Finally, as with any referral, section 5-11 of the Rules requires that if a licensee is to receive a referral fee or other consideration from a property inspector, this must be disclosed in writing to the licensee’s client.

A question often arises whether the seller’s agent should be present during the inspection. The Council recommends that the seller’s agent either be present or obtain permission from the seller that the seller’s agent is not required to be present during the inspection. In making this decision, the seller should be advised whether the buyer and/or the buyer’s agent intend to be present when the property inspector views the property. If the seller agrees that the seller’s agent does not need to be present, the seller’s agent should obtain the full name and address of the inspector as well as information on whether the inspector is bonded.

(xxv) Health and Environmental Concerns

[03/01/2013 The following section was updated with new information]

Buyers and occupiers of real estate are becoming more aware of health, safety, and environmental aspects of property they intend to purchase and/or occupy. Legislation reflects those concerns and mandates ever more stringent levels of safety, greater disclosure and broader responsibilities and liabilities for these matters. Buyers, sellers, and current and former owners are variously included in that responsibility and potential liability.

Asbestos insulation (see Asbestos Awareness is a Licensee’s Responsibility) and urea formaldehyde foam insulation have already attracted interest as possible health risks.  The presence of radon gas (see Radon Gas – A Health and Environmental Concern in some areas of the Province), lead pipes and even lead-based paint has become a greater concern to some buyers. Currently, no B.C. ruling requires the disclosure of the presence of a high-voltage transmission line in a neighbourhood nor of a psychologically impacted residence. However, for personally valid reasons, some consumers may well be motivationally affected by the proximity of a power line or knowledge of a death or other tragedy on a property.

 Aware of these and similar problems, a prudent buyer’s agent will take adequate steps to ensure that the client is fully informed and protected. A seller’s agent, on the other hand, must obey the client’s lawful instructions on whether or not to reveal such information but also must avoid committing fraud or misrepresentation. If there is a sound factual basis for suspecting that information from a seller is incorrect or misleading, the licensee has a duty to verify it.

(1) Contaminated Sites – Site Profile

[03/01/2013 The following section was updated with new information]

Contaminated sites legislation in B.C. requires that a site profile (Schedule 1 of the Contaminated Sites Regulation) must be provided if the owner or the occupier of land is performing any scheduled activities and if the owner is applying for subdivision, zoning, development or variance permits, soil removal, or demolition, or if the property is for sale.

The site profile must be provided to a potential buyer (unless the buyer waives this requirement in writing) of property, which the seller knows or reasonably ought to know was used for industrial or commercial purposes. Such purposes are listed in Schedule 2 of the Regulation. The profile must be given to the potential buyer at least 30 days before the transfer of the property, but if closing is less than 30 days from the date of the Contract of Purchase and Sale, then it must be given before the date of the contract.

The seller is exempted from providing the profile if: (a) an accurate site profile already exists in the Contaminated Sites Registry (access by BC Online at www.bconline.gov.bc.ca); (b) the site has already been determined to be a contaminated site; c) if the property is used mainly for residential purposes; or (d) at the time of the Contract of Purchase and Sale, the property had never been zoned for any other use than primarily residential. The Site Registry is an important source of information for buyers and their agents when conducting their due diligence searches.

Buyers can be put at great financial risk in the case of an unexpected or undisclosed environmental problem because the liability for remediation is absolute, retroactive, joint and several. Licensees are cautioned that the failure to inform sellers that a site profile may be required might be considered professionally negligent.

Licensees must discuss these issues, like others, with their client to ascertain the level of importance of each to the client. If the client wishes the licensee to do so, he or she should include a reference to the issues involved in the Contract of Purchase and Sale as they may be of material concern to the client for health reasons. In this case, the licensee should write subject to clauses covering the confirmation of required information.

The Ministry of Environment has developed a Fact Sheet for real estate licensees, sellers and buyers at this link: www.env.gov.bc.ca/epd/remediation/fact_sheets/pdf/fs11.pdf

Further information about Site Profiles can be found at this link: www.env.gov.bc.ca/epd/remediation/site_profiles/index.htm

(2) Special Knowledge Areas

**Alert**

Licensees should ensure that the public understands the scope of potential issues of concern. Clients and customers should be encouraged to disclose to the licensee particular issues they may wish to incorporate into any contract. Licensees must stress that it will be the client’s responsibility to research those issues to their satisfaction.

Just as there are different specialties within the real estate industry, so there are differences between urban and rural real estate practices, many of which can represent potentially dangerous liabilities for the practitioner who does not acquire local knowledge. A referral to a local professional may be the most responsible step to take on behalf of a buyer or seller.

The following section deals with some of the issues facing licensees in various areas of B.C. There may be additional local issues with which a licensee must be familiar. It is up to the licensee to research the local area, obtain advice, and ensure that the buyers and sellers with whom he or she is working are informed of all pertinent concerns.

The following list suggests a few of the issues which may require investigation. The Professional Standards Manual deals with some of these topics, but the prudent licensee will investigate further:

(3) Special Concerns with Rural Land

Specific rural problems that occur in significant numbers of Errors and Omissions claims include the inadequacy of sewage disposal fields and the quantity and quality of water supply.

See also information on harvesting timber and underground storage tanks.

(i) Sewage Disposal Systems

In BC, many homes outside major urban areas don’t have access to a public sewer system. This means wastewater must be treated on the property, in accordance with the provincial Sewerage System Regulation, using what is known as an “onsite wastewater treatment system.” 

RFC_4_septic1

For licensees representing sellers of properties with onsite wastewater treatment systems, there are a number of details they should be familiar with, in order to provide informed and competent service to their clients.

Licensees may wish to consider the following questions when listing a property with an onsite wastewater treatment system:

Does the Sewage System Regulation (SSR) apply to my client’s property?

The Sewerage System Regulation (SSR), which came into force on May 31, 2005, covers onsite wastewater systems that:

  • process a sewage flow of less than 22,700 litres per day;
  • serve single-family systems or duplexes;
  • serve different buildings on a single parcel of land; and
  • serve one or more parcels on strata lots or on a shared interest of land.

The SSR requires that records of the construction of the onsite system, and of any subsequent alterations to it, be filed with the local health authority. This applies to all properties, including those in remote areas or unorganized territories, whether a building permit is required or not.

What about properties with systems constructed prior to May 31, 2005?

The SSR is not retroactive. However, the seller should be able to prove that the system was in compliance with the regulation in effect at the time the system was constructed. Permits were required for systems built prior to May 31, 2005 and should be available at the local health authority. Please keep in mind that many documents have been lost/destroyed through the years, so the lack of information at the health unit may not necessarily mean that a permit was not taken.

Has the system been planned and installed according to the regulations?

Owners who have constructed a new onsite wastewater treatment system on or after May 31, 2005, or whose systems have been altered or repaired since that date, must have retained the services of an authorized person to plan, install and maintain the system. An authorized person is either a professional engineer or a Registered Onsite Wastewater Practitioner (ROWP). Although systems constructed prior to May 31, 2005 are not subject to this requirement, it is highly recommended that system maintenance be performed by a ROWP.

ROWPS are registered with the Applied Science Technologists & Technicians of British Columbia (ASTTBC), which recognizes four categories of practitioners:

  • Planners, who perform site and soil assessments, design systems, and create maintenance plans for systems,
  • Installers, who install systems according to design plans,
  • Maintenance Providers, who monitor and maintain systems, and
  • Private Inspectors, who inspect and assess existing systems.

Before beginning construction of an onsite wastewater treatment system, the authorized person must file the system’s plans and specifications with the local health authority. Within 30 days of completing the installation of the system, the authorized person must file the following documents with the local health authority, and provide copies of all documents to the owner:

  • a letter of certification;
  • a plan of the system including an As-Built Drawing; and
  • the Operating and Maintenance Manual.

Has the Use Changed?

Where a new use will be made of an existing onsite wastewater treatment system previously permitted under the 1985 Wastewater Treatment Regulation (for example, a house being built to replace a temporary or seasonal dwelling), an authorized person should conduct a site evaluation and a documented inspection of the system to determine if it is suitable for the new use.

If the system requires upgrading, all regulatory filing provisions apply, including plans, specifications and a site evaluation with report.

Has the system been adequately maintained?

All onsite wastewater treatment systems need regular ongoing maintenance. Once an onsite system is installed, upgraded or repaired, it is the homeowner’s responsibility to ensure that the maintenance plan is followed. If the homeowner does not maintain the wastewater treatment system properly, malfunction and possible failure of the system can result, and the homeowner may need to pay for costly repairs or replacement of the disposal system.

The Sewerage System Regulation and the Sewerage System Standard Practice Manual (created by the Ministry of Health) stipulate who may design, install or maintain sewage systems. All work on onsite systems, such as repairs to systems, and any maintenance on systems, must be performed by an authorized person. This includes the regular monitoring and maintenance of septic tanks, treatment plants or processes and dispersal fields (which may be required up to three times per year depending on usage and other conditions that may affect performance).

House with field

Have I obtained all required documentation for the system?

As a licensee acting for the seller of a property with an installed onsite wastewater treatment system, you should obtain the pertinent records from the local health authority in order to verify that:

  • for a wastewater treatment system installed prior to May 2005, the appropriate permit has been issued and the system was installed with the approval and inspection of the appropriate department of the B.C. government; or
  • for any wastewater treatment system installed after May 2005, that it was installed by an authorized person as defined in the Sewerage System Regulation and a Letter of Certification was filed with the local health authority; and
  • records of any major repairs and/or upgrades to the system have been filed with the health authority.

Wastewater treatment systems may be subject to periodic inspections by the local government or the health authority may have issued a work order for a particular system. Licensees should check with the local health authority for the existence of such work orders and inspection reports.

Should the system be inspected?

Inspections of a property’s onsite wastewater treatment system, which are a condition of sale by mortgage or insurance companies, or by prospective buyers, must be performed by an authorized person, either a ROWP registered as a Private Inspector or a professional engineer. ASTTBC recommends that sellers have an inspection prior to listing their property for sale in order to identify any necessary maintenance or repairs. This can simplify the disclosure to buyers and alleviate concerns.

Allow for appropriate time line to book an inspection and to gather all the required paperwork. Accessing the required documents from health authority offices or archives may take several days. Inspections of existing onsite wastewater treatment systems can be challenging and time-consuming, as they may be buried beneath mature landscaping, making the system in some cases difficult to locate and assess, as well as to perform any necessary maintenance and repairs.

Ensure the authorized person receives:

  • all documents from the health authority,
  • land title documents indicating the location of any reserve fields and/or any existing covenants for reserve field easements,
  • records of past maintenance done on the system.

If the system is to be inspected, a clause such as the following should be included in the Contract of Purchase and Sale:

Sewage System Inspection Clause
Subject to the Buyer, at the Buyer’s expense, receiving, reviewing and being satisfied with a report from an appropriate authorized person (as defined in the British Columbia Sewerage System Regulation (‘‘Regulation’’)) concerning the operational function and condition of the components of the wastewater treatment system on the property (‘‘System’’), and compliance of the System with the Regulation on or before (date) .

This condition is for the sole benefit of the Buyer.

What if the inspection reveals problems with the system?

Existing systems that require repairs and/or replacement must be brought into compliance with the Sewerage System Regulation, with limited exceptions. In addition to determining that the system was appropriately installed, a buyer should determine whether any maintenance on the system is in compliance with the Maintenance Plan filed with the health authority.

What disclosure is required?

Sellers must disclose any known problems with a septic system. Typically, a record of pumping (of the septic tank) and a copy of the septic permit (if applicable) is usually sufficient for disclosure purposes. Filing with the health authority is only required if there has been a substantive change to the septic system.

If a Seller has confirmed that an existing wastewater treatment system has been properly installed, inspected and approved, the following clause should be suggested by buyers’ agents for inclusion in an offer:

Seller Sewage System Representation and Warranty Clause
The Seller represents and warrants that:

  1. the wastewater treatment system on the property (‘‘System’’) was installed, inspected and approved by an authorized person as defined in the British Columbia Sewerage System Regulation; and
  2. a permit/letter of certification respecting the System is on file with the local health authority.

If an inspection reveals that the wastewater treatment system for the property does not meet the necessary standards, the contract should provide a clause such as the following:

The Buyer acknowledges and agrees that the onsite wastewater treatment system (“System”) does not meet the approved standards as required and defined in the British Columbia Sewerage System Regulation, and/or that a permit and/or letter of certification respecting the System is not on file with the local health authority. The Buyer acknowledges and agrees that the Seller has not made any representations nor given any express or implied warranties with respect to the System. The Buyer accepts the System, in its present condition, “as is, where is.”

What if there’s no wastewater system on the property?

In the case of a property without sewage services, the contract should provide a clause allowing the buyer to obtain a site assessment by an authorized person for an onsite wastewater treatment system.

Assessing Property for Wastewater Treatment System Clause
Subject to the Buyer, at the Buyer’s expense, having the property assessed (‘‘Assessment’’) by an appropriate authorized person (as defined in the British Columbia Sewerage System Regulation), to determine the feasibility of installing an onsite wastewater treatment system on the property (‘‘System’’), along with the cost associated with the installation of the System, and the Buyer being satisfied with the Assessment on or before (date).

This condition is for the sole benefit of the Buyer.

Our thanks to the Applied Science Technologists and Technicians of BC for their review and feedback on this article.

For Further Information

(ii) Water Supply

In the case of unproven water supply from either an existing or a new source, the buyer will be concerned not only with quality but also with quantity.

When a property is connected to a municipal or community water supply, water is often taken for granted. The rural experience is often quite different — water conservation practices being the rule rather than the exception. When the water supply expected by the buyer disappears, the consequences can be disastrous.

During examinations for discovery in an Alberta case, the plaintiff buyers testified that the water supply was much less than capable of meeting their family’s needs. As a result, a number of extraordinary measures were required. Two members of the family showered in the morning and the other members showered in the evening. They could not do any watering in the yard and they flushed the toilets only when absolutely necessary. That sort of evidence has the potential to generate considerable sympathy at trial.

What should a licensee do when he or she is asked a question with respect to the well? Many buyers do not know the proper questions to ask of the sellers or the buyer’s agent to make an informed decision to purchase a rural property. The water quality and quantity is crucial to a buyer in deciding to purchase a property and a buyer may not be aware of the importance of water quality and quantity.

Licensees have an obligation to avoid error, misrepresentation or concealment of pertinent facts. Therefore, licensees must take reasonable steps to discover the facts pertaining to every property they may list or sell.

When someone says, ‘‘I want the water tested’’, a licensee should be clear what tests the client wants conducted on the water and a condition should be included in the offer to purchase to meet those standards to the buyer’s satisfaction. The test for mortgage approval may be at a lower standard than is satisfactory to the buyer’s personal needs for water quantity and quality. The buyer needs to determine the quality and quantity of water to meet his or her personal needs and then request water tests that will determine if the water meets those standards.

When sellers state that they had enough water quantity for their needs, what does that mean for the buyer? The water needs for each family may be significantly different as a result of the number and age of people living in the house, laundry washed, cattle or horses to water, etc. Does the buyer need the water to be of the quality that babies or individuals with heart conditions can consume?

To minimize potential liability in rural well cases, a listing agent might consider the following practices as a minimum:

  • Secure any representations by the seller concerning the well in writing so as to eliminate any doubt at a later time as to what was said.
  • Does the seller have a well report that verifies his or her information? Have you obtained a copy? Is the well report current? Does it test at the levels necessary to satisfy the buyer’s needs?
  • If a representation based on a well report is to be set out in the listing information, set out the fact that the information comes from a well report and the date of that report. Has the seller experienced any problems with the water supply, on a seasonal or other basis?
  • Are there any restrictions on the use of water by the seller’s household? When acting as agent for a prospective buyer, your duty is to assist the buyer in determining his or her water quality and quantity needs having a regard for all of the inquiries above and also considering the following:
    • If there is no well report or no current well report, recommend as a condition of the sale that the well be tested and approved by the buyer.
    • Determine whether your buyer had any prior experience with wells. If not, ensure that your client understands that the water supply cannot be guaranteed, that a good well can go dry with little or no warning and that even a good well may be subject to seasonal fluctuations.
    • Do not make representations to your client about the sufficiency of the water supply. One family of four people may be able to get by on a two gallon per minute well while another family may need two or three times that amount of water.

Because of the obvious importance of water supply and quality to any rural transaction, prudent licensees will be careful in documenting their files to reflect all of the discussions between them and their client about the water supply and quality.

If necessary, a clause such as the following should be included in the Contract of Purchase and Sale.

Water Quality and Supply Clause

Subject to the Buyer, at the Buyer’s expense, receiving and being satisfied with a report from (name of source of report) concerning the quantity and quality of the water supply on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

Water Potability Clause

Subject to the Buyer receiving and approving a water potability test report done by (name of service) on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

In situations where the existing services were not approved or the site cannot be approved for new services, the prudent licensee should protect the parties to the transaction by noting the same in the contract.

Approval Uncertain Clause

The Buyer acknowledges and accepts that the property may not receive approval for an onsite sewage system and that no representations to the contrary have been made by either the Seller or his or her agent.

In some circumstances, where the property is not serviced by municipal water and sewer services, mortgage lenders may require appropriate certificates regarding water potability and the septic system. Also, a well driller’s certificate confirming adequate water flow may be required.

To meet the Canada Mortgage and Housing Corporation’s (CMHC) requirements, water potability must meet the provincial standard, or in the absence of such standard, Health Canada’s Guide on Canadian Drinking Water.

CMHC advises that it will not delay approval of any insured mortgage application pending lender receipt of a potability certificate. The approved lender is responsible for obtaining the required certificates prior to advancing funds. Copies of all certificates must be retained in the approved lender’s file. For further information, contact CMHC at 1-888-463-6454 or visit www.cmhc-schl.gc.ca.

(iii) Water Licences

Trades in real estate involving land where the water supply is not derived from a well or centralized water supply (e.g., municipal or regional district) may involve the existence of a water licence. Licensees who engage in trades of this type of land should advise their clients to check for the existence of water licences. All water licences must be transferred to the new owner, complete with consideration, prepayments or arrears. It is important to note that water licences are not recorded in the Land Title Office. Under the Water Act, a person conveying or disposing of land with a water licence is required to report, in writing, the transfer of ownership of that land to the Water Stewardship Division of the Ministry of Environment, via the local office of the Integrated Land Management Bureau, also known as FrontCounter BC. The Water Stewardship Division can be reached at 1-800-361-8866. The same number can be used to check for the current balance on a water licence account. Further information can be obtained from the Water Licence website at www.env.gov.bc.ca/wsd/.

(4) Asbestos Awareness is a Licensee’s Responsibility

[11/20/2012 The following section was added to the Professional Standards Manual]

WorkSafeBC is working to increase awareness about asbestos health and safety hazards relating to those undertaking repairs, renovations or demolitions in residential properties, whether done by property owners themselves or contractors. WorkSafeBC reports that incidences of asbestos related disease are increasing.

If not handled correctly, workers are in danger of inhaling asbestos-contaminated air and serious chronic health problems can occur. These diseases will not affect you immediately; they often take a long time to develop, but once diagnosed, it is often too late for corrective treatment. For licensees, heightened asbestos awareness is relevant when providing real estate services to buyers, sellers, landlords and strata corporations who are considering acquiring, disposing of, renovating, demolishing or undertaking repairs to a property that may have asbestos containing materials. This need for awareness applies equally to licensees who provide trading, rental or strata property management services. As licensees are regularly reminded, the Council expects licensees to take appropriate steps to alert their clients to the existence of known health or environmental concerns. This would include advising clients to have a property inspected for the presence of asbestos in advance of undertaking any of the activities described above and, further, alerting clients to the consideration of the costs, which may be substantial, associated with the removal of materials that contain asbestos.

Licensees will find a safety, health and environmental inspection/testing/government approval clause below that would be appropriate to be used by licensees representing buyers, who are offering to purchase a property in which there may be materials that may contain asbestos.

This clause is also found in the online version of the Professional Standards Manual.

According to WorkSafeBC information, building materials containing asbestos were commonly used in construction until around 1990. Materials used that may contain asbestos include, but are not limited to, insulation; shingles and felt for roofing; exterior siding; pipe and boiler covering; compounds and cement, such as caulk, putty, roof patching, furnace cement; wallboard; texture coat; acoustical ceiling tiles and plaster; vinyl floor tiles; linoleum; and wiring. Loose-fill vermiculite insulation may also contain traces of asbestos.

Licensees will find many useful online sources about asbestos and asbestos removal, which they and their clients may wish to review, including information provided by WorkSafeBC, Canada Mortgage and Housing Corporation, the Provincial Government, and many municipalities throughout the Province. Here are links to just a few:

(5) Radon Gas – A Health and Environmental Concern in some areas of the Province

[06/19/2012 The following section was added to the Professional Standards Manual]

All Licensees are reminded that they are expected to demonstrate competency and apply reasonable care and skill in their provision of real estate services to their clients, whether those services are trading, rental property management or strata property management services. In order to demonstrate competence a licensee must be knowledgeable about local environmental conditions that may be material to the interests of their clients, be they buyers, sellers, landlords, tenants or strata corporations. While licensees are not expected to be experts in all areas that impact real estate, they are expected to be alert to potential environmental/health concerns in the areas in which they practice and are obliged to advise clients to seek independent professional advice on matters outside of the expertise of the licensee.

An example of an environmental/health concern affecting real estate that has been widely reported is the presence of radon gas in some areas of the Province. The links below are excellent sources of information on radon gas that licensees may wish to review and direct any clients to, who may be impacted by the potential for the presence of radon gas in a property they occupy, are considering selling or buying.

www.healthlinkbc.ca/healthfiles/hfile42.stm
www.cmhc-schl.gc.ca/odpub/pdf/61945.pdf

The Council expects licensees to take appropriate steps to alert their clients to the existence of known health or environmental concerns, in the geographic area(s) in which they provide real estate services. A prudent licensee may wish to research and be able to provide suggestions as to where clients may obtain factual information and independent advice such as the links provided above. In addition to radon gas, this expectation would apply to other environmental/health considerations that impact real estate, including but not limited to, underground oil storage tanks, asbestos, sewage, suitability of site topography and water potability.

(6) Underground or Above Ground Heating Oil Storage Tanks

[05/09/2013 The following section was updated with new information]
[11/17/2011 The following section was updated with new information]

Licensees involved in the listing or sale of a property that contains, or may contain, an underground or above-ground heating oil storage tank (OST) should be aware that the presence of an OST can, because of the potential environmental concern, expose sellers and buyers to significant financial loss and liability. If the presence of an OST is either known or suspected, both buyers and sellers should be advised to seek the advice of an environmental professional as well as legal advice about their obligations and potential liabilities.

Many homes built before 1970 were heated using oil that was stored in an underground or above-ground OST. When homes were later converted to natural gas or electricity, underground tanks were not usually removed from the property; instead, the tanks were commonly left in place, filled with sand and capped. OSTs that remain buried may have rusted and corroded. If oil remained in the tank, leaking of that remaining oil could cause (or may already have caused) contamination of the property and adjacent properties. 

What to do if you are representing a seller 

If a seller is aware of an unused or abandoned OST, the seller has an obligation to disclose this fact in cases where the OST constitutes a material latent defect.  While an unused or abandoned OST may not be necessarily considered a material latent defect under all circumstances, it seems clear, at a minimum, that a court would find an OST to constitute a material latent defect if actual leakage could be shown to have occurred. Of course, any representation about an OST on a disclosure statement made by the seller must be accurate, and a licensee acting for a seller must not be party to a representation that he/she knows to be incorrect.  A seller may need to consult an environmental and legal professional as to whether the tank in question is a material latent defect. 

Where a seller is not aware of an unused or abandoned OST, but the licensee has reason to believe that an unused or abandoned OST may be present on the property, there is at least a possibility that an OST, if found to be present, would be considered to be a material latent defect.  The courts have also held that a licensee acting for a seller has a duty “to check the completeness and accuracy of all information which it is usual and customary for brokers to verify.”  Accordingly, it may be prudent for a licensee to advise the seller-client to take the steps necessary to determine whether in fact an OST is present, so that the later discovery of a tank, either before completion or after the sale of the property, does not leave the seller exposed to significant potential liabilities and expenses. 

What to do if you are representing a buyer

If a licensee representing a buyer has knowledge that a property contains an unused or abandoned OST, the licensee has a duty to make this fact known to the buyer-client and to advise that the presence of the OST can, because of the potential environmental concern, expose the buyer to significant financial loss and liability. If, on the other hand, a licensee acting for a buyer is not aware of an unused or abandoned OST, but suspects (or reasonably ought to suspect) the presence of an OST based on such factors as the age of the property, then section 3-3(1)(h) of the Rules requires the licensee to use reasonable efforts to determine whether an OST is present.  If the licensee’s own efforts do not answer the question, then section 3-3(1)(d) of the Rules requires the licensee to advise the buyer-client to seek any necessary professional advice, such as the advice of an environmental engineer or consultant, and possibly legal advice as well. 

What to do if you are acting as a limited dual agent

A licensee acting as a limited dual agent has a duty to be impartial to the interests of both the seller and the buyer, and must ensure that any advice about the presence or suspected presence of an OST given to one party is also given to the other.  The duty of impartiality means that if an OST is discovered after acceptance of an offer, the licensee cannot provide advice to either party, and should recommend that both the seller and the buyer seek independent legal advice. 

What to do if an OST does exist

Where it has been determined that an OST does exist, licensees and their clients should be aware of BC Fire Code provisions for the decommissioning of an underground OST that require the use of good engineering practices when removing, abandoning in place, or temporarily taking out of service, an underground OST. Additionally, licensees should refer their clients to the BC Ministry of Environment Fact Sheet entitled Residential Heating Oil Storage Tanks, which sets out concise and valuable information and advice. This Fact Sheet, and other useful information and links, can be found at the Ministry of Environment’s website at www.env.gov.bc.ca/epd/remediation/residential-heating/index.htm

Further, licensees must ensure that they or their clients enquire at their local government  (city/municipal/district/regional) office as to any bylaws, restrictions or permit requirements concerning unused or abandoned OSTs, as local governments have differing requirements and provisions for enforcing the removal or abandonment of underground or above-ground OSTs (usually administered by the local fire department). This is particularly important in areas where underground or above-ground storage tank removal enforcement is a priority. 

Lending institutions and insurers should also be consulted as they may also have corporate policy regarding underground or above-ground OSTs. 

When drafting contracts with respect to properties containing underground or above-ground OSTs, licensees should familiarize themselves with the information found in the Safety, Health and Environmental Disclosure Clauses section of the Professional Standards Manual, which can be found online at www.recbc.ca/psm/safety-health-and-environmental-disclosure-clauses/.

(7) Safety, Health and Environmental Disclosure Clauses

NOTE: The clauses in this section may be used for a wide variety of situations involving possible latent defects. Some clauses allow a seller to disclose or warrant and the buyer to acknowledge and accept (or accept the warranty of) the latent defects previously described. They can be used for situations not adequately covered by a Property Disclosure Statement.

Examples include, but are not limited to:

  • potability of water;
  • quantity of water;
  • adequacy of sewage disposal/treatment;
  • suitability of site topography;
  • drainage;
  • soil quality;
  • urea formaldehyde insulation;
  • asbestos;
  • underground oil storage tanks; and
  • contaminated material.

Inspection/Testing/Government Approval Clause

Subject to the Buyer receiving and being satisfied with a site inspection and report from (select inspecting body or expert tester or government authority) concerning (describe condition) on or before (date) .

The Seller will allow access to the property for this purpose on reasonable notice.

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

Possible Safety, Health or Environmental Condition Clause

The Seller discloses, and the Buyer acknowledges, that the (select either building or property) contains (describe condition) and the Buyer accepts the (select either building or property) in this condition.

UFFI and Asbestos Insulation Disclosure Clause

The Seller discloses, and the Buyer acknowledges, that the (select either building or property) (select either contains or has contained) (type of insulation) and the Buyer accepts the (select either building or property) in this condition.

Seller’s Disclosure Where Condition Has Been Tested Clause

The Seller discloses that the (select either building or property) was tested for (describe condition) on (date) by (name of testing contractor or government authority) .

The results of the test indicated that no (describe condition) was present (select either in or on) the (select either building or property) . As evidence of such testing, the Seller attaches the following documents:

(List)

The buyer accepts the condition of the (select either building or property) in reliance on these documents.

Seller’s Disclosure Where Condition Has Been Removed Clause

The Seller discloses that, although (describe condition) was known to have been (select either in or on) the (select either building or property)such (describe condition) to the best of the Seller’s knowledge, was (select either removed or remedied) on (date) . As evidence of the (select either removal or remedy) , the Seller attaches the following documents:

(List)

Seller’s Disclosure but Corrective Measures Taken Clause

The Seller discloses that the (select either building or property) did have (describe condition) but has undergone the following corrective measures:

(List)

The Buyer accepts the condition of the (select either building or property) in reliance on these corrective measures.

Seller’s Disclosure but Condition at Acceptable Level Clause

The Seller discloses that the (select either building or property) was tested for (describe condition) on (date) by (name of testing contractor or government authority) .

The results for such testing indicated that (describe condition) is acceptable and, accordingly, no further action has been taken.

The Buyer accepts the condition of the (select either building or property) in reliance on this testing.

Seller’s Warranty Clause

The Seller warrants that, to the best of the Seller’s knowledge, the (select either building or property) does not have (describe condition) .

Buyer’s Site Profile Clause

Subject to the Buyer reviewing and approving the site profile on or before (date) .

This condition is for the sole benefit of the Buyer.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal

Seller’s Site Profile Clause

The Seller, at his or her expense, will provide to the Buyer a completed site profile (Schedule 1 of the B.C. Contaminated Sites Regulation) for the subject property on or before (date) . The Seller warrants that the information contained therein is true and correct to the best of the Seller’s knowledge.

**Alert**

Sellers should be advised that the seller is responsible for all contamination on the property that the seller fails to disclose to a buyer. Sellers should be encouraged to obtain a site profile at the time the property is sold in order to prevent a buyer from later claiming that the property was contaminated.