Agreement of Purchase and Sale - The Good, the Bad and the Ugly.

In this series I intend to bring attention to some emerging trends in clauses found in the infamous Schedule "A” of the Agreement of Purchase and Sale. Depending on what side you are representing as a lawyer Schedule "A" is a place where you find the good, the bad and the ugly clauses often already signed and agreed to by your client prior to any legal consultation.

The Schedule "A" is a part of the Agreement where the Purchaser(s) and Seller(s) break away from the OREA standard form contract and spell out the details of their transaction. It is where ideally the wording used best represents the parties’ needs and expectations for the transaction to complete successfully. Typically, this manifests in additional seller warranties, conditions for buyer’s financing and rights to visit the property and satisfaction thereof.

However, sometimes clauses make their way into the Agreement that tip the scale heavily to one party's favour. This could be for any number of reasons, inattention to detail, aggressive negotiation tactics or an inability to see the consequences through. One such clause taken from a recent Seller's transaction falls squarely within the ugly category:

“The Buyer shall have the right at any time prior to closing, to assign the within Offer to any person, persons or corporation, either existing or to be incorporated, and upon delivery to the Seller of notice of such assignment, together with the assignee’s covenant in favour of the Seller to be bound hereby as Buyer, the Buyer herein before named shall stand released from all further liability hereunder.”

As the Seller’s lawyer, this one is quite concerning. In essence, it means that the Buyer can exit from the agreement before closing with no further liability to the Seller outside the deposit.

A real-life scenario may look like this - the Buyer is unable to secure financing before closing, creates an Ontario Limited corporation (absent of any assets) and assigns the Offer to said corporation leaving the Seller with little to no recourse in terms of recovering damages for breach of contract.

Further, if you are relying on your sales funds to purchase a property you may now be in a position where you are unable to close and liable to the Seller as a Purchaser.

Theoretically a court may pierce/lift the corporate veil to find the director of the corporation liable, or find that the clause was not done in good faith, but you are now in court seeking a judge's order for what was supposed to be a standard real estate closing.

The above is to illustrate in broad terms some risks to consider prior to finalizing your Agreement of Purchase and Sale and is not intended as legal advice. To better understand the options available to you consult with your Toronto Real Estate Lawyer.