The practice of real estate has changed. It used to be impossible to weasel out of real estate deal. In fact, the Bhasin v. Hrynew case on 14 November 2014 reinforced that there was a good faith obligation of contractual performance. That’s the exact opposite of weaseling out.
If you had conditions like financing or inspection, then the Courts would assess your exercise of your “sole and absolute” on the basis of a reasonable person who wanted to complete the transaction. The test went objective where previously it had been subjective.
However, that was until 1 December 2023, when the new TRESA changes came into effect.
Now, Designated Representation is the norm. It arises in just about every situation. Brokerages would prefer not to be agents, and permit one of their registrants to be the agent.
The standard Form Agreement of Purchase and Sale permitted clients with Brokerage agency contracts to delegate either a fax number or email address as a destination for receipts. (see 3: Notices)
The condition at the outset is the Brokerage agency appointment.
But, what happens if this is not the case? What happens if there is no Brokerage agency appointment?
Simple enough, that particular paragraph no longer applies.
What we need is a Designated Representation Agreement where the Designated Representative is appointed as the agent and owes the fiduciary duties to the client (Seller or Buyer).
The problem was that there was no amended Agreement of Purchase and Sale Form to this effect. Also, there was no clause published which could be added to Form 100, or elsewhere.
That means that most of the time, this issue would simply be overlooked and ignored.
If the negotiating took place at the dining room table over a couple of hours and everyone left with their copy, then, everything would be fine. It would just be like prior to 1 December 2023.
However, if we used electronic negotiating pursuant to the Electronic Commerce Act, then we have a problem.
The Notices paragraph was likely left alone. So, if we used it, and both the Seller and the Buyer had appointed Brokerages as their agents, pursuant to a Brokerage Representation Agreement, then everything is fine.
The difficulty is Designated Representation, and the Notices paragraph never kicked in. That’s likely to arise in 90% of residential transactions where it would apply to at least one of the parties.
No Contract
This is now the fundamental problem. Courts will jump in to assist when it comes to having a contract, but they will stay away from the negotiating. Once you have a contract, then, there’s an obligation of good faith contractual performance, but not until then.
Buyer’s Remorse
There are all kinds of Buyers who have second thoughts. The day after the deal, they wished that they hadn’t bought. What do they often do? They fail to show up with the deposit and send over a mutual release for signature.
If the deposit has been paid, then they advise that they cannot get financing even without checking, assuming that there is a financing condition in place.
If there’s a home inspection condition, they will want to terminate for the very smallest of reasons.
Prior to 1 December 2023, Courts would say that the failure to pay the deposit was a breach of contract and that terminating on account of financing or inspection had to be done in good faith. But, that was then!
Now, there’s no contract!
There’s no such thing as a late deposit or non-payment of the deposit. There’s no contract, so there’s no obligation to pay any deposit. And, naturally, if matters were to proceed the exercise of discretion under a financing or inspection provisions wouldn’t matter. There’s no breach. There’s no contract.
This means that the Buyer with Buyer’s remorse can walk away since there is no contract. And, if they included a deposit, they are entitled to have it returned.
So, be careful and protect you clients.
Brian Madigan LL.B., Broker