“Privity of contract” is a doctrine of contract law that holds that only those parties to the contract are bound by the terms of the contract and can enforce the obligations stipulated in the contract. A third party that is not a party to the contract does not have privity of contract and thus, cannot enforce the obligations under the contract.”
It is fairly commonplace in real estate contracts in BC that a realtor may seek to give his purchaser the ability to add another party to the contract of purchase and sale on or prior to the Completion Date (the day that the title transfer is registered). That additional party is often a friend or family member of the purchaser who may be needed to help the purchaser qualify for a mortgage.
Clauses which we see include: “The purchaser reserves the right to add one or more family members to the contract without the consent of the seller.” Or, “The purchaser may add or substitute an additional party to the contract without notice to the seller.”
In such cases, we often see conveyance documents sent to us a day or two prior to the closing date with additional buyers included who were not parties to the original contract. In many instances, the conveyance documents are NOT accompanied by an assignment of the contract or any other agreements.
These clauses are improper as they completely ignore the doctrine of privity of contract.
A buyer can no more unilaterally add another buyer to the purchase agreement than I can add a reader of this article to my home insurance policy.
Then how should it be done?
There are basically two ways that a purchaser can add someone else to his or her contract of purchase and sale.
ASSIGNMENT OF CONTRACT
To add another party to a purchase agreement, the purchaser can execute an assignment of the contract from himself to himself and the other party to be added. Notice of said assignment (usually with a copy attached) would be served on the seller prior to the Completion Date, thus obligating him or her to complete the sale with the assignees under s.36 of the Law and Equity Act.BC Laws
Unfortunately, now that s.20 of the standard CBA/REABC contract of purchase and sale prohibits assignments (thanks to the needless meddling of the liberal government in 2016),* the buyer would need permission from the seller to assign the contract or an interest therein to a third party.
The sample clauses referred to above, however, would arguably constitute the necessary permission for an assignment of a part of the buyer’s interest.
The assignment should always make it clear that it does not relieve the original buyer of his obligation to complete the purchase in the event that the assignees fail to do so.
ADDENDUM TO CONTRACT
The second method of adding a party to an existing contract of purchase and sale is by way of an addendum to the contract.
The addendum should be signed by the original buyer and seller AND THE NEW PARTY.
A sample addendum adding a party could look like this:
“In consideration of the sum of $1.00 from each signatory to this addendum to each other signatory, together with the mutual acceptance of the terms hereof:
The buyer and the seller agree that another person (“the additional buyer”) shall be added to the contract of purchase and sale (“the Contract”) as a buyer.
The additional buyer confirms that he has read the Contract (and where applicable, all documents related to the Contract including, but without limiting the generality of the foregoing, any amendments to the contract, documents relating to the buyer’s removal of subject conditions, the developer’s disclosure statement and all amendments thereto, the property disclosure statement, as well as any other documents upon which the buyer has relied to make the offer to purchase the property) AND hereby agrees to be bound to complete the purchase of the property pursuant to the terms of the Contract.
Subject to the foregoing, the parties confirm and ratify the Contract and agree that time shall continue to remain of the essence thereunder.”
The addendum would then be signed by the buyer, the seller and the additional buyer.
If you are going to add a party to an existing contract of purchase and sale, you might as well do it correctly and in such a manner that the seller could sue both the buyer and the additional buyer for breach of contract (or vice versa) should the need arise.
When in doubt consult your real estate lawyer.
(C) 2021 Pazder Law Corporation
* Due to skyrocketing real estate prices and the perceived evil of contract flipping (assigning a pre-sale agreement to a new buyer before the completion date -usually for a significant profit), the liberal government of the day under Christie Clark enacted regulations to cause the Real Estate Association to add a term into the standard contract of purchase and sale which prohibited assignments. This accomplished nothing as almost no one has ever flipped a standard purchase agreement with an individual seller. Virtually ALL contract flipping was done with pre-sale contracts involving developers -a practice which was left UNTOUCHED by the government’s changes.
DISCLAIMER: This is NOT legal advice but merely information for our readers. Case law and statutes are constantly changing so always consult your own legal counsel before considering an amendment to a contract of purchase and sale.