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Professional Standards Manual

Trading Services

4. General Information

(a) Contract Clauses - View Entire Section

(XVI) "Subject to" Clauses — General Information - View Subsection
(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.