Cross-out the Waiver Option in a Financing Condition (Best Practices)

There are many real estate practitioners who seem to think that the Notice of Fulfillment Form and the Waiver Form are quite different.

Let’s look at an example.

Financing Clause

The Buyer includes a provision to make the Agreement conditional upon him finding a mortgage.

If the Buyer simply completes a Waiver, then, this firms up the deal, but if you are the Seller, you still don’t know whether or not the Buyer actually obtained the mortgage, or not.

Assuming instead, you receive a Notice of Fulfillment. In most cases, not only is the Buyer saying that he is firming up the deal, but he is also communicating the fact that “he has the mortgage”. (I should point out, that this particular conclusion is not universally accepted).

So, if you are the Seller you would likely prefer to receive a NOF over a Waiver.

Conditions

You have to remember that there are two types of conditions. Any condition, other than a True Condition Precedent could be written as either:

1. A condition precedent, or
2. A condition subsequent.

A True Condition Precedent involves the decision, consent or action by a third party. This is a requirement and is beyond the control of the parties. A mortgage assumption approval by a bank, a lease assumption by a Landlord or the municipal consent to severance of a property would all be examples. In such cases, a Notice of Fulfillment is required because a Waiver won’t do.

With a condition precedent related to financing, the deal is “off”, unless the Buyer firms up.

With a condition subsequent, related to financing, the deal is “on”, unless the Buyer decides not to proceed.

You can appreciate that the condition subsequent is somewhat risky because the deal is firmed up simply by the passage of time. This could happen by accident.

Communication

You will appreciate that there is usually no communication about the actual securing of the mortgage in the case of a Waiver, or in the case of a Condition Subsequent.

Contract Terms

So, if you want to know, for sure, then:

1. Write the financing clause as a Condition Precedent,
2. Eliminate the Waiver choice,
3. Confirm that the Notice of Fulfillment will mean that the mortgage has, in fact, been obtained.

This would be helpful for a Seller to know early, and this would apply to any condition which would materially affect the Seller’s situation.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com