In most cases, the Agreement of Purchase and Sale for a resale residential property is prepared by the real estate agent. Most of the clauses contained in the schedules to the Agreement have become very standard. However, both purchasers and vendors do not always understand the meaning or effect of these clauses. Below are some typical clauses that can create confusion.
Agreements are usually conditional on financing. The financing clause usually says that the Agreement is conditional upon the buyer obtaining satisfactory financing in the "buyer's sole and absolute discretion".
This clause would appear to give the buyer a wide discretion to back out of the transaction if satisfactory financing could not be arranged. Keep in mind, however, that the courts will often say that the parties to the Agreement must act reasonably and in good faith. If the buyer has not done so, it could potentially face some risks if the vendor insisted that the purchaser complete the transaction.
Another important area of the Agreement that needs to be considered is the chattels and fixtures clause. Generally, a chattel is a moveable item like appliances whereas a fixture is an item that is affixed or attached to the property. Sometimes there is a misunderstanding as to what is included in or excluded from the purchase price of the property.
To avoid this, realtors need to be very careful to identify exactly what is included and or excluded from the purchase price in the Agreement.
Many Agreements will contain warranties or representations. These are normally given by the vendor. For instance, the vendor may provide a warranty regarding the chattels and fixtures being in good working order on closing. In some cases, the warranty or representation will include the words "this warranty shall survive and not merge on the completion of this transaction". What does this mean? A vendor who gives this warranty may be liable to the purchaser after closing. If the purchaser, after closing, discovers that the dishwasher is not working, it could take the position that the vendor is responsible for the cost of the repairs based on the warranty that was given in the Agreement. For this reason, vendors should avoid giving such a warranty whereas the purchaser should likely try to obtain this.
Another confusing area of the Agreement is the survey clause, in particular the difference between an existing survey and an up-to-date survey. Careful consideration should be given to the language in the survey clause because if the Agreement provides for an up-to-date survey and the vendor only has an existing survey or no survey, the vendor may be obligated to obtain a new survey at its expense.
Therefore, if you are the listing agent acting for the vendor, you should ensure that the survey clause in the Agreement only obligates your client to provide an existing survey, if available. If you are acting for the purchaser, you should try to obtain an up-to-date survey.
While it is unlikely that the vendor will provide this, keep in mind that you have an obligation to act in the best interests of your client.
As this article shows, realtors must take great care in drafting the appropriate clauses in the Agreement. Consider who you representing and how you can best protect them. It is important to remember that if there are any disputes between the parties, reference will always be made to the Agreement and the specific wording of the clause in question. This will often determine the various rights and obligations and liability of the parties.
By Lorne Shuman