Scotty Grubb from Prestigious Properties is our
speaker at the meeting on Tuesday, August 25, 2009.
Scotty is a Senior Business Development Professional who has played key roles
in the financing and operations of numerous public and private companies over
the past 30 years. He completed his engineering education in Scotland before
immigrating to Canada in 1968, where he became involved in a series of
successful business development enterprises. His stellar reputation as a
manager and financier have helped him raise in excess of $45 million, with over
$25 million raised since joining Prestigious Properties in the fall of 2006. He
is happily married with two adult sons and lives in West Vancouver, B.C.
Given the financial storm of late, and perhaps more to come, Scotty will
explain why and how Multi Family Real Estate is a safe harbour for investing
and why hard assets should be part of your long term investment strategy.
Join us for the after-meeting meeting at Red's down the hall.
7 - 9 pm
Comfort Inn (formerly Holiday Inn)
3200 Blanchard St.
Victoria
$15 at the door (no charge for annual mbrs)
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Lance Cook says:
I wanted to dig a little deeper into the conversation I had with
the lawyer at last weeks investor club meeting. Again I apologize for asking a
lot of questions at the meeting it was not my intention to hog the floor time.
BUT...
This is a long time existing legal issue that has NEVER been
resolved. The answer below is what I was looking for. I got this answer from
Brock Emberton. If you would like to publish this issue let me get Brock's
opinion, maybe you could identify that this is his answer followed by his
contact info,
At the end of the day, I believe we should all be writing detailed
conditions (objective conditions) not subjective conditions such as what is
going on.
Lance asked:
Hi Brock, I was at a real estate investor meeting and this issue
popped up, can you give me your point of view?
There was a precedent case set many years ago (I think it was early
90s) A realtor wrote an offer for a purchase on a home and had a clause like
"subject to satisfactory building inspection or financing" does not
matter the point was they had the term satisfactory in the clause leaving
the buyer an easy out.
The seller got a better offer (sound familiar in an up market) and
asked their lawyer to get them out of the 1st deal. here is how they got out.
In a real estate contract if I agree to pay you $400,000 for your
home and you agree to give me title, we both have "consideration" and
it is binding on both of us. If the buyer inserts a clause that the court deems
whimsical (meaning the buyer can get out of the deal very easy) then there is
no legal consideration for the seller and then the seller can cancel the
contract (and take the higher 2nd offer)
The realtor then was sued by his buyer because they lost the home
and had expenses (appraisal and building inspection) the Realtor's defense was
"I don't work for you I have a fiduciary responsibility to the seller they
are my client you are just a customer. The court ruled in favour of the buyer
and stated" The buyer depended on the professional skills of the Realtor
to write a binding offer and they did not"
The realtor lost his commission and was successfully sued by the
buyer, both of these were precedent cases, so you cant blame the Realtor.
When I was a Realtor, we were told to do either or both of these
1) Write subject to clauses that are not whimsical and have enough
detail that the buyer can not walk away for any reason. Example
Finance clause should have some detail on the mortgage and
inspection clauses should be: Subject to the buyer obtaining a building
inspection at their cost and the inspection showing no immediate repairs
necessary greater than $1000.
2) Write a clause: in consideration of the seller accepting this
offer the buyer will pay a non refundable fee of $10.00
My question is: We see a lot of whimsical clauses such as
satisfactory financing and building inspections. Is the danger of having the
seller revoke the contract (due to a lack of consideration) to the 1st buyer no
longer an issue? In a rising market should buyers and sellers be aware of this
potential risk?
Brocks opinion:
Hi Lance,
Yes it seems this topic arises from time to time. The technical
side of this is the difference between objective conditions and subjective
conditions. In order to create a proper conditional contract the subject tos
must be objective, that is, they must be dependent on a 3rd party to
do or not do something or some certain or ascertainable event to occur or not
occur. For example a clause that says the transaction is subject to financing
in the amount of $x at y interest rate with payments of $z for a term of 5
years amortized over 35 years is an objective condition whereas a subject to
that says subject to satisfactory financing is a subjective condition. The
reason it is a subjective condition is that it depends totally on the whim of
the buyer as to what is or is not satisfactory while in objective condition
there is a clear set of criteria that must be achieved in order for the
condition to be satisfied. The clause in your e-mail about inspections is
another example of an objective condition.
Where the difference becomes crucial is in the situation you
outlined where the seller wants out of the deal. If the conditions are
objective then both the buyer and seller are committed to the deal until the
condition is either satisfied or not. Neither one of them has the right to just
up and walk away from the deal. On the other hand if the condition is
subjective then the Courts have held that such a deal is merely an offer which
the seller can simply walk away from at any time before the so called condition
is removed.
I recall there was a time severally years ago where we were told by
the Law Society to make sure we drafted objective conditions if we wanted to
make sure the seller couldn't walk away from the deal. The Real Estate Council
probably said the same to the realtors. Unfortunately old habits die hard and
after the initial rush to draft perfect conditions we all fell back into the
habit of drafting the quick easy conditions we had all grown used to using.
This occurred largely because most deals went though without a hitch despite
the bad wording of the conditions. Another thing that leads to using the quick
easy conditions is that a clause was added to the Real Estate Board's standard
contract that says the seller and the buyer agree the contract is executed under
seal and neither party will withdraw from the contract while the buyer is
endeavouring to satisfy the conditions (if you look at an update version of the
Board's contract you will see the clause just before the clause where the buyer
signs the contract). This clause is supposed to prevent the seller from walking
away even though the condition(s) may indeed be subjective. The clause however
has never been tested in Court so we really don't know whether it is actually
enforceable but it gives just enough comfort so that we can go back to drafting
sloppy conditions and apparently get away with it.
Brock Emberton
Brock T. Emberton Law Corporation
Barrister, Solicitor, Notary Public
#317 - 877 Goldstream Avenue
Victoria, BC V9B 2X8
Tel: (250) 391-7777
Fax: (250) 474-0802
Email: brock.emberton@embertonlaw.com
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