Good Faith Contract Performance


A buyer has an accepted offer, conditional on inspection. He’s happy with the inspection, only a few minor issues. He is considering walking away even though he loves the house, because his adult kids don’t like the house based on the pictures (they live out of Province and haven’t seen it). Can he walk and get his deposit back?


There is no obligation to “negotiate” in good faith, but once you have a contract, you are obligated to “perform” in good faith. In the Bhasin case, the test went from subjective to objective. So, the way to get around Bhasin is to include a subjective test. That’s not the way that the OREA clause is worded, so in this case, there’s no free walk away.

The good faith and honesty test in Canada is now based upon the absolute and unfettered discretion of a reasonable person not the actual Buyer in the transaction.

You cannot add a condition and then sit back and do nothing because you changed your mind. The courts will want to know what actions you took, what process. Doing nothing is not an option.

If you have a financing condition you better look for a mortgage and if you are turned down, you better look somewhere else, and finally, before you get to “walk away” you had better check as to whether the Seller would provide that mortgage to you.

If the Seller says “no”, and you want your deposit back, you need to prove that you exhausted your ability to secure financing. If you can say “I did my best”, then you get your deposit back, if you say “I changed my mind”, then you’re in trouble.

An option to purchase is still fine. It’s sensible. It’s legal. It’s enforceable. But, a financing or inspection condition is not an option to purchase, although some people would like to think that it is.

Brian Madigan LL.B., Broker

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