Avoid This Common Offer Tactic

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I had an agent call me the other day while they were drafting an offer...

"Hey, my client needs a financing condition. Since it's a condo and we already have a lawyer review condition in place, could we use that to back out if necessary?"

Now, I do know that this is fairly common - using one condition as a shield for others - to make your offer look more attractive.

But there's more risk to this than you may realize.

When a buyer uses a condition to back out of a deal for a completely unrelated reason, they breach their common law duty of honest performance under the contract.

In the 2014 case Bhasin v Hrynew, the Supreme Court of Canada recognized a common law duty that applies to all contracts - the duty of honest performance.

It requires the parties in a contract, to be honest with each other in relation to the performance of their contractual obligations.

So, even when a condition includes the wording "sole and absolute discretion", that discretion only applies to the honest performance of that actual condition.

It doesn’t serve as a blanket right to back out of the deal.

If the intentions of the Buyer are ever called into question, and a Seller has enough incentive to litigate, a court will look for actual evidence that proves the Buyer used their condition in good faith - and how they came to that decision not to proceed.

A Buyer found misusing a condition would be treated the same as a Breach of Contract - loss of deposit, and the difference in the seller's future sale price, carrying costs and legal costs.

As a Realtor, be extra cautious. When these disputes do arise, Buyers tend to blame their Realtor's advice as a way to offset liability.

This means that advising clients to misuse their conditions can be costly to you too.

So what should you do?

When acting for a Buyer, be careful about the advice you give. Ensure that all conditions the Buyer requires are included in the offer and ensure they are only used for their purpose. If the Buyer does not follow your advice, document that they are proceeding against your advice. Protect yourself for the worst-case scenario.

When acting for a Seller, make the conditions more specific. Financing conditions can be written with objective criteria rather than "satisfactory to the Buyer". Do the same with Status Certificate and Home Inspection conditions. Have clear goals and deal breakers when you have enough deal levereage. Objective Criteria holds the Buyers accountable, and deters non-serious buyers.