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Bridge Beat

Feb 19, 2015

How A Notice Provision Can Kill Your Deal

 

You know that most real estate purchase agreements are conditional on some kind of inspection carried out by the Purchaser. The Purchaser gets to waive or not waive the conditions. If the Purchaser waives, the deal is said to be “firm”, meaning the purchaser can’t get out of the deal anymore. If the Purchaser does not waive, the deal is dead. You have also seen waiver clauses that say what happens if the Purchaser does nothing. In most cases, no notice is deemed to be no waiver, and the deal will die (watch for this in your own contract).

So what happens if you want to waive your conditions, but you don’t quite exactly follow the notice provisions in the contract? In December of 2014, the Ontario Court of Appeal handed down a gem of a case called Hightower versus Stevens which dealt with exactly that.

The Hightower story involves a bit of a sneaky purchaser and a vendor who made a mistake. The Vendor was selling two pieces of land and wanted to allocate more purchase price to one than the other for tax planning purposes. It assigned one of the parcels, let's call it Cheap-acre, a below market price. There were two contracts, one for each parcel, and both were made conditional on the sale of the other. So far, so good. In the course of negotiation, the Purchaser amended the contract to make it possible to close on Cheap-acre alone. This was not brought to the attention of the Vendor, who apparently missed the change when it signed the contract.

You can imagine what happens next. The Vendor figures out what has happened and is not happy about it. But what happens after that is not so predictable: When the Purchaser gives notice that it is waiving its conditions, it does so by fax to the Vendor’s solicitor. It also drops off notice at the site on the evening that it is due. But, neither of these mechanisms are contemplated in the contract.  The Notice provision was taken from the standard OREA form, but neither a fax number nor an address for service was given in the contract. That left only “delivered personally” as a possible means of delivering the notice. The court found that this had not been done. Therefore, the Purchaser had not waived and the deal was dead.

The courts did not applaud the Purchaser's behaviour in this case. The lower court described it as “hard and pointed”. But yet the Purchaser's behaviour does not seem to have impacted the decision. Had the notice delivery been properly carried out, there is nothing in the decision to suggest the Purchaser would not have benefitted from the Vendor’s mistake.

So what to take from this? Here are some hard lessons from this case for those who draft or rely on contracts in real estate:

  • The Notice Clause matters. There should always be a way to deliver notice without having to track the other guy down. In Hightower, the Court does not say how far you have to go to deliver personally – what if the other guy goes hiking in Nepal?
  • The OREA form works better if you bother to fill it out. Had the address for service been completed in the OREA form, the Purchaser might have been able to leave the notice at that address and comply with the contract.
  • Read the Contract. It’s tempting to blame the Purchaser for all of this, but a careful review of terms that come back from the other guy is always advisable. “But, Sir, it wasn’t blacklined”, is not an excuse anyone should care to rely on.

At some level, justice was probably done in the Hightower case. “Hard and Pointed” behaviour was not rewarded. But to get there the contract had to be so strictly interpreted that the relatively common means of waiving a notice provision – notice to the other solicitor, was not good enough. If that mistake were made by a more innocent and well-meaning purchaser, the result might seem a little less satisfying. The real lesson here: The words on the paper matter. A lot.

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Keywords

Contracts  |  Notice Clause  |  Notice Provision  |  OREA form

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