When entering into an Agreement of Purchase and Sale (“APS”) for a property, buyers and sellers must remain cognizant of the precise language used and conditions they need to follow for an offer to be binding. If they neglect to do so, they run the risk of seeing their purchase or sale voided because they failed to meet certain obligations. This was the case in the recent decision of Feynes v Nellipudi, 2021 ONSC 3913.
On March 23, 2021, the buyers (the Nellipudis) and the sellers (the Feynes) entered into an APS for a $2.5 million property in Coboconk, Ontario. The terms of the APS stated that the buyers would pay a $100,000 deposit to Kawartha Waterfront Realty Inc., the real estate company representing both parties in a multiple representation agency. The APS contained two conditions in favour of the buyers: (1) a satisfactory home inspection and (2) obtaining a mortgage. The APS was conditional until the end of business on April 2, 2021 (10 calendar days). If the 10 calendar days passed without written notice or waiver, the offer was then considered null and void and the deposit would be returned to the buyers.
The buyers paid the real estate company the deposit and the two parties subsequently commenced further email negotiations, which culminated in the buyers sending over an amendment deleting the inspection and mortgage conditions and adding in clauses about furniture removal and work to be completed prior to closing. The amendment was delivered to the sellers on April 2, 2021 and was to be accepted by 11:59pm that day. The sellers refused to sign it.
On April 3, 2021 at 9:01am, the real estate agent (who acted for both the buyer and seller) emailed the sellers telling them the buyers decided not to improve the terms of the APS. Later that day, the sellers entered into a second APS with a different set of buyers, which did not contain any conditions. The sellers then sent a Mutual Release to the buyers so that their deposit could be returned. The buyers refused to sign it. Instead, they maintained that there was a legally enforceable APS and that the unsigned amendment constituted a waiver of the conditions or notification for the purposes of the 10-day period. They also claimed that the sellers violated their duty to act in good faith.
The sellers took the position that the buyers failed to waive or fulfil the conditions within the 10-day period and the APS was therefore null and void as of April 2, 2021. They claimed the proposed amendment was not a waiver or notification of fulfillment because they did not agree to the terms and did not sign it. They also maintained that they not only acted in good faith, but when they did not sign the amendment, the gave the buyers an opportunity to revise the proposed amendment in order to rectify the problem but they did not do so by the following morning. The buyers later registered a Notice of a Purchaser’s Lien on the title of the property.
The court in this case had to address 3 issues: 1) whether there was a valid legally binding APS; 2) whether the Purchaser’s Lien should be discharged and 3) whether the sellers had breached a duty to act in good faith.
Regarding the first issue, Justice Sutherland found that there was a clear, unambiguous, and binding written APS between the parties which was executed and fully accepted on March 23, 2021. There was no question that the two conditions about the home inspection and mortgage were for the benefit of the buyers and were required to be confirmed or waived by April 2, 2021. While there were several emails back and forth between the two parties about additional conditions as part of the APS, none of these emails amounted to a new APS and waived the old one. Justice Sutherland found that the buyers were hedging their bets that the sellers would accept the terms of the proposed amendment as it was set to expire one minute before the expiry of the APS conditions. However, since the sellers did not sign the proposed amendment and the buyers did not provide written notice regarding the conditions of the original APS, it then became null and void.
Justice Sutherland clarified that an agreement requiring the signatures of all parties, such as the amendment, did not constitute a waiver, but instead simply represented an offer to amend the agreement which required the acceptance of all parties concerned. Additionally, the buyers had it within their power to send the required written notification and subsequently request the proposed terms of the amendment. By not proceeding in this manner, the buyers demonstrated they did not want to be bound by the terms of the APS whether the sellers accepted the terms of the proposed amendment or not.
Justice Sutherland further noted that in accordance with precedent, evidence was needed to determine whether the buyers had the intent and ability to close the transaction. They had not provided any evidence in this regard. Taken all together, this meant that the APS was null and void and the buyers no longer had an interest in the property as of April 3, 2021 at 12:00am.
Regarding the second issue, because the buyers no longer had an interest in the property, the Purchaser’s Lien was to be discharged and deleted from the property title. Regarding the third issue, Justice Sutherland found that there was no evidence indicating that the sellers acted dishonestly, and the buyers had the onus of waiving the terms and conditions of the APS but chose not to do so. If the court were to find that the sellers breached their duty of good faith, it would confer an “unbargained benefit” to the sellers outside the terms of the APS. The buyers were unable to purchase the property in the eyes of the court and their $100,000 deposit was returned to them since the APS was null and void.
In sum, attention to and communication regarding the conditions of an APS are of the utmost importance when working with such agreements. Parties need to be mindful of expiration periods for conditional offers and remember that any new agreements or additions they wish to make are signed and agreed upon in writing by both parties. If a seller is not prepared to amend an agreement during the conditional period, the buyer has to decide whether he/she wants to proceed with the agreement (and property) as is and potentially try to negotiate for changes later, all the while being fully aware that the seller may not agree to any further amendments. If that risk is too great for the buyer, he/she may wish to consider walking away from the transaction and getting back their deposit.
Final thought – a proposed amendment deleting conditions in an APS does not constitute waiver of those conditions nor is it notice of fulfilment of the condition(s).
**The author wishes to thank Maya Koparkar (summer student) for assisting with this article**