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

contract

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.

Real Estate Tip #1: Never Assume Anything

I often advise my clients and their agents to never assume that anything in an MLS Listing is accurate. There is a disclaimer on the bottom of every listing to the effect that the information contained therein is believed to be accurate but not guaranteed.

In many cases, the information is not accurate and as much of it (i.e. size, condition, age, views, GST status etc.) is NOT replicated in the Offer to Purchase, the buyer can seldom rely on it in a law suit when he finds out that the information was wrong after moving into the property (see para. 18 of the standard Contract of Purchase and Sale which purports to exclude all warranties, representations etc. not included in the contract).

The next step for the buyer is usually to sue his realtor for not pointing that out or writing an offer to incorporate the relevant information.

Can that be avoided? Yes. Don’t assume that the listing is accurate. Personally check out any information which is important to the buyer.

In the recent BC Supreme Court case of Laidar Holdings Ltd. v. Lindt & Sprungli (Canada) Inc., 2018 BCSC 66, assumptions were again at the crux of this fairly complicated law suit which resulted in a judgment of almost 500 paragraphs.

A commercial tenant leased some space in Vancouver without verifying that the zoning was appropriate for its particular intended usage.

Its real estate brokerage (in Toronto) wrote the offer up “assuming” that his Vancouver realtor had checked the zoning. The Vancouver realtor “assumed” that the Offer to Lease would contain a provision for the tenant to verify the zoning (it did not). The tenant’s lawyer “assumed” that realtors had already dealt with the zoning issue (there was no indication that the tenant’s lawyer had input into drafting the Offer to Lease).

The tenant signed the lease and later found out that the city of Vancouver would not permit its intended retail space usage.

The tenant then walked away from the lease and was sued by the landlord. The tenant counterclaimed that the lease was invalid and it also sued the realtors as well for not verifying the zoning in advance.

The tenant was held liable for breaching the lease and its Ontario real estate brokerage was held liable for 70% of the tenant’s claim against it (30% was held to be the tenant’s own responsibility).

Zoning is an important consideration in ANY purchase of real estate (particularly commercial) and it is fairly easy to ascertain in advance of making an offer OR it can be included in an offer as a “subject condition” to be removed by the buyer along with other items of due diligence.

The Moral of the Story: Don’t make assumptions regarding real estate matters. There is too much money on the line.

Disclaimer:  The foregoing is for information purposes only and not intended as legal advice to the reader.  Always consult with an experienced real estate lawyer when modifying the standard real estate contract in use in BC. In addition statutory law as well as case law may change from time to time which could render this analysis inaccurate in the future. 

(C) 2018 Pazder Law Corporation 

Title Insurance Re-visited

In light of the December 18, 2015 decision of the B.C. Court of Appeal in Lin v. CIBC Mortgages Inc., 2015 BCCA 518, it’s worth mentioning again that one of the best values in Canadian real estate is title insurance.

In 2013 Lin re-mortgaged his home with CIBC to pay out an existing Bank of Nova Scotia (“BNS”) mortgage and to have some left over funds for other purposes. While he and his wife received the left over funds, their BC notary, Agatha Chung stole the mortgage proceeds destined to pay off the BNS mortgage (along with millions of dollars of other clients’ money).

Much to their chagrin Lin and his wife then had TWO mortgages on their home instead of just the new CIBC mortgage.

Fortunately for them they had purchased an owner’s title insurance policy* some ten years earlier and the title insurer defended their claim that CIBC’s registered mortgage was invalid.

The legal reasoning of the Court of Appeal is in my opinion, dubious, BUT as it is the highest court in BC, its decision is now the law in this province.

It was held that CIBC’s mortgage was not valid and enforceable in these circumstances (as the funds were never really “advanced,” given that the bank’s notary’s undertakings were not complied with by the borrower’s notary).

The net result was that CIBC’s mortgage was struck from the borrowers’ title and the borrowers did not have to pay it back (other than the “left over monies” which they actually did receive). The title insurance company also covered all of their litigation costs through the BC Supreme Court and then the BC Court of Appeal (which would have likely been well over $100K).

Why is Title Insurance such a great bargain?

1. The owner’s policy only cost a few hundred dollars.

2. NO annual premiums are charged after the policy is purchased.

3. There is NO deductible when a claim is made.

4. The policy remains in place for the full purchase price for as long as the owner owns the property.

5. The coverage is much wider than any legal opinion that a lawyer or notary can provide.

6. There is no need to sue the notary (who in this case had fled to China with the mortgage proceeds by then), as the policy is “no fault,” meaning that if the claim is covered it is not necessary to prove negligence or malfeasance to collect (as it is against a notary or lawyer).

How Do You Buy Title Insurance?

Title insurance in BC is generally purchased through a buyer’s lawyer or notary when the property is bought, however it can also be obtained after a purchase as well (called an “existing home owners policy.”)

It covers many risks including title fraud, forgery, survey issues (i.e. encroachments), unpaid liens, taxes or strata levies, outstanding work orders or lack of proper building permits and generally any other claim against the title to the property which a.) the purchaser did not know about and b.) did not cause or agree to.**

Major title insurance companies in Canada include First Canadian Title, Stewarts Title Guarantee Company,* Title Plus and Chicago Title. They are regulated in British Columbia by the Financial Institutions Commission (“FICOM”).

*Stewarts Title Guarantee Company was the title insurer involved in this case which offered protection to its insureds under the “duty to defend” provision of the owners policy.

**Refer to individual policy wording for terms and conditions of coverage.

Disclaimer:  The foregoing is for information purposes only and not intended as legal advice to the reader.  Always consult with an experienced real estate lawyer when modifying the standard real estate contract in use in BC. In addition statutory law as well as case law may change from time to time which could render this analysis inaccurate in the future. 

(C) 2016 Pazder Law Corporation