New Real Estate Agreement of Purchase and Sale Clauses in a COVID-19 World



More than one of us may feel like the Fresh Prince of Bel-Air at the moment – like our life got flipped-turned upside down – since the declaration by the WHO on March 11, 2020 that COVID-19 was a pandemic.  Since then, all levels of governments, and all governing bodies have been attempting to make sense of, and find a way to continue, with aspects of life that cannot be put on hold.

One such part of life is the purchase and sale of real property in Ontario.  The Ontario Real Estate Association (“OREA”) has vetted new clauses to be used in Agreements of Purchase and Sale.  

Without providing any legal advice, only information, here are some thoughts regarding the clauses as vetted by OREA.  

Clause #1

The Buyer and Seller agree and acknowledge that in the event that the Buyer or Seller to the Agreement becomes the subject of a mandatory COVID-19 virus quarantine at the time of performance hereunder that results in the parties’ inability to complete the transaction as scheduled, the closing shall be automatically extended at the request of either affected party for a period of seventeen (17) calendar days (or, if that date falls on a non-business day, then to the nearest business day thereafter), unless the parties otherwise mutually agree to extend the Completion Date further. If this clause is invoked, the Buyer and Seller shall continue to act in good faith and use their reasonable best efforts to ensure the completion of the transaction occurs on as timely a basis as possible, and will not use this as a means to delay closing in anticipation of any such quarantine or closures, or for reasons unrelated to COVID-19. Time shall remain of the essence for any extended closing date as a result of this clause.

Thoughts

Clause #1 seems ripe for litigation.  A few questions to ask yourself:

  • What is a “mandatory COVID-19 virus quarantine”?
  • Mandated by whom?  The provincial government? The federal government? The Buyer or Seller’s employer? The Buyer of Seller’s doctor? 
  • What proof of a party’s mandatory COVID-19 quarantine will be sufficient to invoke this clause?  At the moment no proof is required. Should one party’s say so be sufficient? What if someone comes down with a bad cold?  Could the party that is under the weather invoice this clause?
  • What is the definition of the “time of performance”?  on the closing date? On the date the documentation needs to be signed?
  • What is the definition of “inability to complete the transaction”?
  • What steps would a Buyer and Seller have to take for them to be considered to be acting in good faith?
  • The wording of “and will not use this as a means to delay closing in anticipation of any such quarantine or closures” is ambiguous.  To what “closures” are being referred to here?  
  • “as a result of this clause” is ambiguous, do they mean as a result of the invocation of this clause?
  • What happens in the case where the non-delaying party has another transaction relying upon the close of this transaction?
  • Who will be responsible for any additional costs for the non-ill party directly resulting from the forced extension of the instant transaction?  Who will pay for the interest on the bridge loan that may be required, the hotel for the party that has to move out because their lease was up and they expected to move into the property, insurance, storage fees for furniture already out of the previous residence, etc.   The way this clause is drafted – both parties are liable for their own damages.  
  • Other than a party being incapacitated by COVID-19 – there is no reason all documentation cannot be executed in self-isolation with a virtual meetings.  Closings can be completed electronically with lawyers and funds can be wired. Both parties can be in their own home and still prepare all matters to close the transaction.

Clause #2

Buyer and Seller acknowledge that due to measures taken by the Provincial Government in response to the current COVID-19 pandemic, there could possibly be a delay at land registration that would affect the actual registration date from the date herein contemplated. In such event, the Buyer and Seller hereby agree to extend the completion date of this transaction until the next possible date following the scheduled date of completion that registration could actually be affected, with no additional charges being made to the Buyer. Notwithstanding the foregoing, in the event the Buyer’s title Insurer has provided “gap coverage” to the Buyer, and all closing funds have been paid to the Seller’s Solicitor in trust, keys may be released (possession transferred) to the Buyer with title transfer and registration to take place at a later date. In such circumstances all expenses and risk related to the property shall be the responsibility of the Buyer from the date of such escrow closing.

Thoughts

  • What delay is sufficient to trigger this clause?  Was the delay causes because one party sent all documentation and keys to the other 5 mins before the end of day?
  • Why should the Buyer have no more charges due to an unforeseen event?  
  • If a Buyer were to go into possession, but not have title (as contemplated by this clause) the Buyer would not have an “insurable interest” and would be unable to obtain insurance on the property.  The Seller would have to continue the insurance they have on the property as if they were a “Landlord”. Coupled with the fact this Clause states the Buyer would have no more charges, the Seller would be liable for paying the insurance on a Property they are no longer in.  Who will be paid out if something were to go wrong with the Property? Would the insurance even cover it as there are non-owners living there? Would the Seller have to obtain additional or different insurance?  
  • If the Seller has a mortgage on title, will you need to get the lender’s consent to the Seller essentially giving up possession (i.e. The banks security)? What if the Buyer wants to renovate? Would he be prevented from doing renovations until title is transferred? 

Clause #3

Buyer and Seller agree that if (i) Buyer’s bank and/or mortgage lender or (ii) the applicable Land Registry Office, temporarily ceases operations, such that either party is frustrated from completing this transaction for reasons wholly outside the control of that party, then the closing date shall be automatically extended to the date that is two (2) business days following the resumption of the interrupted bank or land registry services (or sooner if the parties agree), provided that if such delay exceeds __________________(____) days from the original closing date, either party may terminate this Agreement upon notice in writing to the other party or their solicitors, whereupon this Agreement shall become null and void and the Deposit shall be returned to the Buyer forthwith, without penalty or deduction, and both Buyer and Seller agree to deliver a Mutual Release in such event.

Thoughts

  • What is the definition of “temporarily ceases operations”?  
  • Frustration of the contract is defined in common law and includes an enforceable permanent event, what is the “frustrated” referring to in this clause? Using the word frustration in this clause for a “temporary” issue is ambiguous at best.
  • Does this clause give either party a “get out of jail free card”, able to deem the transaction void?
  • What happens in the case where a Buyer was relying upon a third party – non-bank shady lender for their funds?  Why should they be able to walk away from this agreement by invoking this clause stating their mortgage lender temporarily ceased their operations?  
  • Essentially this clause makes a firm agreement – conditional.  It would impact financing and could lead to costs or damages that are not anticipated or estimated going forward.

Clause #4

The parties agree that the keys to the property shall be left in a lock box at the property and the code to the same is to be provided to the Buyer’s lawyer in escrow pending closing of this transaction.

Clause #5

Upon completion the Seller shall provide any keys to the property by leaving them in a lockbox or other secured device on the property accessible to the Buyer. Provided further that upon completion the Seller’s lawyer shall provide to the Buyer’s lawyer the device code required to access the said lockbox or other secured device.

The parties hereto consent and agree to the use of electronic signature pursuant to the Electronic Commerce Act 2000, S.O. 2000, c17 as amended from time to time, with respect to this Agreement and any other documents respecting this transaction.

Clause #6

The Parties acknowledge and agree that all closing documentation can be signed electronically and forwarded by email or fax in accordance with the Electronic Commerce Act, 2000, S.O.2000, c.17

Thoughts on lockboxes

  • Why use a lock box when you can courier the keys and documentation over to the other party’s counsel?
  • Who pays for the lock box? 
  • Who gets to keep the lock box?  

Thoughts on electronic signatures

  • At one-point s. 31(1)(4) of the Electronic Commerce Act did not apply to “documents that create or transfer interest in land and require registration to be effective against third parties” – but that section was repealed in 2013. 
  • In fact, most title instruments, including Transfers/Deeds are in fact signed electronically (through the Teraview system and a lawyer’s electronic signature through that system).
  • However, many lenders require “wet signature” and many real estate solicitors do not want closing documents signed using electronic signature, particularly statutory declarations.

In conclusion, I would be wary of using these clauses as drafted.  All real estate parties should obtain legal advice before signing any Agreement of Purchase and Sale that contained these clauses.  Our lawyers are happy to assist you in attempting to navigate the purchase and sale of properties during this time.