A $6,500,000 sale goes up in smoke due to poor drafting!

A recent case in the B.C. Supreme Court, JBP Developments Ltd. v. Li, 2018 B.C.S.C. 209 provides a lesson to all realtors to take greater care and attention when drafting offers to purchase.

In this case, an oversight in complying with section 9 (TITLE) of the Standard Contract of Purchase and Sale allowed a Buyer was to walk away from a $6,500,000 contract of sale leaving the Seller without a legal remedy!

Section 9 states that the title of the property shall be “free and clear of all encumbrances except subsisting conditions, provisos, restrictions exceptions and reservations, including royalties, contained in the original grant or contained in any other grant or disposition from the Crown, registered or pending restrictive covenants and rights-of way in favour of utilities and public authorities, existing tenancies set out in Section 5, if any, and except as otherwise set out herein.”

Section 9 however, omits many non-financial charges commonly found on titles such as building schemes, easements, covenants, equitable charges, private restrictive covenants, private rights-of way and reciprocal use agreements, to name a few. These non-financial charges can occasionally be detrimental to a Buyer especially if he intends to build on, alter or improve the property.

In JBP Developments ltd. v Li the title contained a private restrictive covenant to British Pacific Properties Ltd. that prohibited any construction, alteration, or location of any building, fence or other improvement without BPP’s approval. Section 9 was not altered to include that covenant and as such the Buyer refused to complete, arguing that the Seller’s inability to deliver the title free from this encumbrance was a breach of contract.

The Seller sued for damages including forfeiture of the deposit but to no avail, as the court held that the Seller failed to deliver the title in accordance with section 9 of the contract.

The Buyer had previously waived or declared fulfilled a subject condition in the contract which read: “Subject to the Buyer approving the title and property disclosure statement.”

Interestingly, the court the court held that was NOT SUFFICIENT, thus rendering the subject condition meaningless.

In other words the court allowed the Buyer to approve the title and then refuse to close based on a flaw in the title!

Personally, I think that the case could have gone either way and the Court of Appeal might have overturned this decision, but apparently it was not appealed.

Thus, the case as it stands represents the current law on the subject matter.

What can you do?

Either add any addition non-financial registrations on the title to section 9 by way of an addendum to the Offer to Purchase (i.e. “The following non-financial charges are added to the exceptions set forth in Section 9: restrictive covenant registered under no. CA67459 etc.) or use the standard BCREA approved clause:

Acknowledgement of TitleThe Buyer acknowledges and accepts that on Completion the Buyer will receive title containing, in addition to any encumbrance referred to in Clause 9 (TITLE) of this contract, any non financial charge set out in the copy of the title search that is attached to and forms part of the contract (note: make sure to attach a copy of the title search!)

In a stable or rising market, Buyers often overlook or don’t care about extraneous non-financial charges on the title, however in a declining market (like the current one), Buyers are often on the lookout for any legal reason not to complete. Make sure that you are not the one that gives them that out –or your insurer may be paying the claim!

When in doubt, feel free to send us a title or contract for review before the offer is presented.

© 2019 Pazder Law Corporation

1460- 800 W. Pender St., Vancouver, BC, V6C 2V6
Tel: 604-682-1509 Fax: 604-682-3196
Web: www.pazderlaw.com Email: plc@pazderlaw.com
Call Kenneth Pazder or Melissa Valana

DISCLAIMER: The foregoing is not legal advice. It is presented for information purposes only. Cases and/or statutes cited or contract provisions may change over time. When drafting a legal contract it is strongly suggested that competent professional advice be obtained by the parties prior to signing the contract or removing subject conditions contained therein.

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