Contracts of Purchase and Sale: Removing Subjects
Most people familiar with the purchase and sale of real property are familiar with subject to clauses, the full legal significance of such clauses can be a source of confusion. The misunderstanding of the legal meaning of subject to clauses was at the heart of the litigation in Dhaliwal v Binepal, 2018 BCSC 1061 (CanLII).
In Dhaliwal, the purchasers had negotiated the purchase of a home in Cloverdale. The purchasers’ offer included a number of subject to conditions which were required to be removed by December 22, 2015. One of the subject to clauses was for the purchasers to obtain financing obtain financing. While the purchasers were able to obtain financing prior to the end of December 22, 2015, they requested a one or two day extension in order to obtain written and not just oral confirmation of their financing.
The purchasers properly drafted the subject to clauses to be to their benefit. As such, upon the removal of the subject to clauses, their offer would result in a firm and binding contract; however, until that time, their offer did not require any performance by the vendors. In the face of potentially running out of time to remove subject and out of an abundance of caution, the purchasers signed both an agreement to extend the subject removal date by one day as well as a removal of the subject to clauses (including financing) and set the realtor to the task of closing the deal.
Despite knowing the purchasers were intent on closing the purchase and had only hours left to remove subjects, the vendors ceased communications with their realtor which, effectively, left the purchasers with the option of removing subjects or having the deal collapsing. The purchasers’ realtor eventually advised the vendors’ realtor that, as the extension was not being granted, subjects would be removed. A late evening meeting was arranged for the purchasers’ realtor to drop of the removal of the subject clauses in person.
The legal effect of the removal of the subject to clauses shortly before the end of December 22 was that the purchasers offer was no longer conditional and the offer became a firm and binding contract. Accordingly, the next morning, the purchasers’ realtor dropped off the contractually required deposit.
The vendors, upon learning that subject to clauses had been removed, refused to close and, instead, alleged that there had been conspiracy and deceit on the part of the realtors to preserve the commissions. The Court viewed the vendors attempts to maintain their theory of conspiracy as essentially grasping at straws and baseless. As the vendors nonetheless maintained this baseless position and refused to close, the purchasers sued for specific performance of their contract (the court forcing the vendors to sell).
The Court found that the vendors, upon deciding not to respond to the request for an extension, had assumed, incorrectly, that the deal had collapsed. Despite both sets of realtors agreeing that the purchase contract because unconditional and enforceable with delivery of the subject removal clause, the vendors insisted on continuing to allege a conspiracy by the realtors to defraud the vendors and preserve the realtors’ commissions.
The Court observed that the choice to remove the subject to clauses rested with the purchasers, not the vendors, and, as such, the purchasers were able to unilaterally created a binding contract by removing subjects. The vendors attempted to maintain that their defence, in part, on the basis that they felt they had been given conflicting explanations about what occurred with the subject to removal. The Court gave no weight to the vendors attempts to prove the realtors to be deceitful or that their position was supportable on their alleged confusion.
The Court rejected the vendors’ defences and found the subject property to be so unique and well-suited for the purchasers’ needs that it granted the purchasers specific performance and ordered the vendors to convey the property to the purchasers for the negotiated purchase price. The Court further ordered that the vendors pay the purchasers’ carrying costs, expenses and rent incurred between the time of closing and the time of judgment as well as the purchasers’ court costs.
Dhaliwal is illustrative of the legal effect of subject to clauses; properly drafted clauses generally hold a contract in suspense until they are satisfied or removed and notice of same is provided to the opposite party(s). Subject to clauses generally are drafted to be in the favour of one party and, as such, may be satisfied or waived unilaterally by that party. The party who is not the beneficiary of a subject to clause is obliged to perform the contract if the subject to is satisfied or waived in the time frame stipulated in an offer and exposes themselves to Court-ordered relief and censure for refusing to do so.