What You Need to Know about Subject Clauses
In this series of short articles, real estate lawyer Bruce Woolley considers “conditions precedent” clauses, often referred to as “subject to” clauses. Does a contract exist before a subject to clause is removed? What should be considered when drafting a clause? What do you need to know about satisfying or waiving subject to clauses? Learn the answers to these and other questions in the Subject-to Series.
An interesting issue, common to most real estate transactions, is how committed a seller is to sell, and how committed a buyer is to buy. By the time a seller has hired a licensee and listed a property for sale, the seller would appear to be quite committed to the sale of the property. It is not often in residential real estate sales that sellers place provisions in the contract of purchase and sale to allow themselves to avoid the proposed transaction. One example might be in the case of an assumed mortgage (no longer common) whereby the seller would want the assumption of the mortgage to be approved by the existing lender, in order to take advantage of the release of liability provisions in the Property Law Act. Even that clause does not deal as much with commitment levels of sellers as it does with legal protection of sellers.
However, it is common in real estate transactions for the purchasers to require provisions in the contract of purchase and sale that allow them to avoid the proposed transaction, for a variety of reasons. These provisions take the contractual form of conditions precedent, more commonly known as “subject to” clauses. They run the gamut from financing clauses to inspection clauses, from title approval to lawyer approval clauses, from strata title document approval to spousal approval. A number of issues arise with these conditions precedent, including:
- does a contract exist before the condition precedent is removed
- what are the issues relating to conditions giving a party a sole discretion
- how does a party properly satisfy or waive a condition precedent
- what does it mean when a condition precedent is for the sole benefit of a party, and
- what are some of the drafting considerations in using common conditions precedent?
In future articles we will explore these issues and consider what might be in the best interests of a seller or a buyer. Depending on who your client is – in other words, to whom do you owe fiduciary duties – the proposed solutions to the issues may not always be the same for buyers and sellers.