Let’s assume that a Buyer submits an Offer conditional upon:
- Financing, and
- Home Inspection.
In both conditions, the clauses say “satisfactory to the Buyer in the Buyer’s sole and unfettered discretion”.
What does this mean? Could the Buyer simply change his mind, having suffered Buyer’s remorse or in those few days located a better property?
Old Answer – Prior to 14 November 2014
Yes, the Buyer could just walk away.
New Answer – After 14 November 2014
No, the Buyer is stuck with the deal. The Buyer really has to be in a position where financing cannot be arranged or there’s something very serious that came up in the home inspection.
So, what happened on 14 November 2014?
The Supreme Court of Canada released its decision in Bhasin v. Hrynew.
The Court added the concept of good faith and honest performance to every contract in Canada.
Now, all contracts include:
1) an obligation of good faith contractual performance, and
2) a duty to act honestly in the performance of contractual obligations.
So, good faith and honesty are in, and absolute, sole, unfettered discretion is out. No one is allowed to act unreasonably or capriciously, anymore.
The legal test changed from subjective to objective. The Courts don’t care what the actual Buyer thought. The question is what would a reasonable person in the Buyer’s position have done in the circumstances? So, that really means that absolute and unfettered discretion is out. It’s still there when you are negotiating, but, it’s gone once you have a contract.
Would a reasonable person have walked away based on the home inspection report? It had better be something serious, important , significant and material. Needing a home handyman for a few hours wouldn’t be enough.
Naturally, each case would have to be looked at independently.
When it comes to financing, the Buyer had better be able to demonstrate that he did everything that a reasonable person who wanted to close the deal would have done. That means apply, answer the questions, fill out the forms, seek another lender, and if you are short overall, offer to provide a second mortgage for the differential upon the same terms as the first to the Seller. Then, of course, if none of that works, he can walk away.
Nobody has to do any mind reading! What the Buyer’s thoughts were don’t matter. That was the old subjective test.
Brian Madigan LL.B., Broker