In some cases, sellers may wish to hedge their bets by accepting a conditional offer that contains a term allowing them to continue to market the property for sale until the deal is firm. Such terms are a matter of negotiation between the buyer and seller, but the seller must comply with any obligations to allow the first buyer the opportunity to complete the purchase.

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Grayson v. Creasy involved a failed real estate transaction in Peterborough, Ont. between the applicant buyers and the respondent sellers, which contained a term allowing the sellers to continue to market the property.

In January 2021, the applicants saw that the respondents’ home was for sale. They were looking for a larger home to accommodate their growing family and the property met their wish list. It was a larger house in the same neighbourhood and school district, and even had a backyard pool.

On January 26, 2021, the applicants made an offer to purchase the property for $530,000. The parties entered into an Agreement of Purchase and Sale (APS) with a closing date of March 19, 2021.

At the time the APS was entered into, a lawyer represented the applicants. The respondents relied upon their Realtor for assistance.

The standard Ontario Real Estate Association form of APS was used with three additional conditions. The first condition gave the applicants the option of voiding the APS if they were unable to obtain mortgage financing. The second condition gave the applicants the option of voiding the APS if they were unable to obtain a satisfactory air quality test.

The third condition, which the court described as an “escape clause,” permitted the respondents to continue marketing the property for sale after signing the APS, pursuant to the following term:

“Provided further that the Sellers may continue to offer the property for sale and, in the event that the Seller receives another Offer satisfactory to the Seller, the Seller may so notify the Buyer in writing by delivery to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedules thereto. The Buyer shall have 24 hours from the giving of such notice to waive this condition by notice in writing delivered to the seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedules thereto, failing which this Offer shall be null and void, and the Buyer’s deposit shall be returned in full without deduction.

Essentially, the escape clause allowed the respondents to continue to look for a better offer, on terms set out therein, until the applicants waived the conditions in the APS.

It turned out that the respondents did indeed receive a second – and significantly better – offer to buy the property for $703,000. What was at issue, however, was whether they had to provide the applicants with the opportunity to complete the transaction.

On February 7, 2021, the respondents entered into an agreement with the second buyer, with a closing date of March 19, 2021. This agreement was conditional on the respondents being released from the APS with the first buyers, the applicants.

On February 8, 2021, at 9 p.m., the respondents sent the applicants an email that stated they were “going with a different offer.” The respondents also forwarded their Realtor’s email, in which the Realtor advised that they were “obligated to provide notice informing him/them they have 24 hrs notice from not [sic] to remove condition and firm or walk away from the deal.”

Appended to the Realtor’s email was a “Notice to Remove Condition(s)” which advised the applicants that they had until 8 p.m. on February 9, 2021 to remove “Any and All Conditions”.

The applicants were in fact willing to waive the conditions if another buyer made a better offer to purchase. To ensure there was no margin for error, the applicants signed an advance copy of the Notice of Fulfillment of the mortgage financing and air quality test conditions. The applicants served the Notice of Fulfillment on the respondents’ Realtor via email at 4:52 p.m.

Given their concerns about the second offer, the applicants followed up with the respondents directly via email several times to confirm they had received the Notice of Fulfillment. The applicants’ lawyer sent another email that evening asking that the respondents confirm receipt. No response was received to these queries.

After the 24-hour window expired, the respondents told the applicants that the APS was null and void because they had only waived the mortgage and air quality conditions. In the respondents’ view, because the applicants had failed to waive the escape clause, they were free to proceed with the sale of the property to the second purchaser, which they did.

Litigation ensued. While the applicants allowed the respondents to complete the sale to the second buyer, they claimed damages as a result of the respondents’ breach of the APS. The matter was heard by way of application in October 2021.

In the Reasons for Decision, the court noted that at first blush, one might be inclined to agree with the respondents’ position, since the applicants had waived the mortgage and air quality conditions but not the escape clause. However, the court determined that this view could not be sustained once one looked beyond the wording of the escape clause and “applied common sense”.

In that regard, the escape clause was included for the benefit of the respondents. Its purpose was to allow them to continue marketing the property and, if they received a better offer, it forced the applicants to firm up their conditional offer within 24 hours of being notified, failing which the respondents could go with the new offer.

In the court’s view, once the respondents triggered the escape clause, if the applicants waived the mortgage and air quality conditions within 24 hours, the APS became firm and binding on both parties. The purpose of the escape clause was to force the applicants’ hand and its purpose was fulfilled once the other two conditions were fulfilled. The respondents agreed to the original offer, then “lit the fuse” when they received a better offer. The applicants, however, were not required to expressly waive the escape clause, nor were they required to agree to pay the amount offered by the second buyer.

In the court’s view, the respondents’ interpretation of the contract was untenable and there was no difficulty in concluding that they breached the APS.

Given that the applicants lost the benefit of the performance of the APS, they were entitled to damages. The court determined that damages should be assessed as of March 19, 2021, which was the original closing date set out in the APS.

As the second buyer offered to pay $173,000 more for the property on February 7, 2021, the court determined this figure to be the proper starting point for the measure of damages. Had the APS not been breached, the applicants would have paid $530,000 for a home that was apparently worth $703,000.

The court was not satisfied, however, that there was sufficient evidence in the record regarding the applicants’ duty to mitigate their damages. Disappointed buyers seeking damages are “required to mitigate by making diligent efforts to find a substitute property”: Southcott Estates Inc. v. Toronto Catholic District School Board at para 30.

On the issue of mitigation, the applicants claimed that they had not been able to find another property that offered the same value. There was no documentation to support this assertion, however, and the court was left with a number of questions regarding mitigation, including whether the applicants eventually sold their home to purchase another property, and whether their home appreciated in value during the interim.

As a result, the court directed that a reference be conducted for the sole purpose of calculating the applicants’ damages.

The case demonstrates that an accepted offer may contain an escape clause that allows a seller the opportunity to look for another offer, which may be useful if there is a concern that the first offer contains conditions that may not be fulfilled by the buyer. Sellers must carefully adhere to the requirements of such terms, however, or they may face an action for specific performance to complete the first agreement and/or damages.

12 COMMENTS

  1. What a stupid wording!

    The buyers had two conditions that left the agreement open to it being rescinded, upon removing those they were committed to a firm deal.

    The escape clause was a seller controlled condition until it was triggered which could not then be waived precisely because it was triggered, it then had to be fulfilled by a subsequent action which could only be that the buyers remove their two conditions as that’s all they controlled.

    If the buyer’s lawyer saw that clause they should be reprimanded as should the seller’s agent for incompetence.

  2. That’s a head scratcher. The lawyer for the Buyer wrote the conditions as condition subsequent, so they don’t need waivers of NOF’s when they are satisfied. The deal goes though unless it is terminated.

    The realtor for the Seller (I assume) used the second part of what is usually a first refusal clause for the sale of a buyer’s property, but changed it to just a seller’s escape clause. However, there was no “condition” attached to it, but it was something in the favor of the Seller. The wording that the Buyer had to waive “this” condition makes no sense. If anyone was to waive something in favor of the Seller, it should be the Seller.

    Then the Buyer uses 2 NOF’s to show that his conditions have been satisfied. It doesn’t make sense in a condition subsequent – Waivers would be best in that case.

    Maybe there are a few extra details missing from the case.

  3. As a retired Realtor, I am so happy that I do not have to deal with this kind of nonsense.
    Buyer and Seller agreed to an APS with a condition requiring the Buyer, in the event of Seller receiving a better offer, to provide to the Seller “…a waiver…by notice in writing, delivered to the Seller…” (witin 24 hours etc.etc.).
    According to Mr. James Cook in his article, the Buyer was acting on the advice of his solicitor.
    I cannot believe that any self respecting Realtor operating on his own account would fail to provide paperwork sufficient to satisfy all the outstanding conditions of the APS. It was a simple matter of writing it out and having it duly signed and delivered within the required time frame.
    No Court Case would have resulted, and the Buyers would have had their house.

    As to the decision, I see it as making a mockery of Contract Law and opening up a field day for lawyers and the like.

    Retirement never looked so good….

    • I’ve been in the business for decades as well and I am shock with what goes on. Everyone is an expert and very few know really what they are doing. Integrity and professionalism is out the window and nobody wants to get off their ass. Enjoy your Retirement Larry!

      • Yours is the best answer. Our industry has no profession standard and brokers no longer train new agents. They through them to the wolves and collect their fees. Absolutely no accountability.
        It is so frustrating dealing with sales reps. Most have no idea what they are doing.
        And teams are the best example.
        This should have never been allowed. Who’s the trainer and boss now #@$%^%$#@&%$????

  4. I’m surprised that an Escape clause was even inserted. Usually, you see this when the buyer has a home to sell, and it’s attached to the SBP condition. It’s an Escape ‘clause’, not a condition, so does not need to be waived or fulfilled. What needs fulfilling is the condition it’s attached to. It ends up being a very loose clause in an APS. The way it’s worded is to remove ‘this’ condition, which would be the SBP only. I noticed this years and years ago. Realtors would remove the SBP, but the financing and usually home inspection conditions were still in place within the offer. Technically, that bought them a few more days to sell the Buyers home until those conditions expired. And of course, you end up with a dead deal eventually. This is why the Escape clause needs to be re-worded to remove ‘all conditions’. This is really what the Seller wants here. The Escape clause is then attached to all the conditions, not just one.

    In this article, the clause is inserted with the intent of removing all the conditions, although it says just ‘this’ condition. Either way, the Buyer fulfilled their conditions in a timely manner.

    Again, I’m not sure why the clause was inserted at all. The Seller agrees to a financing condition, but wants an Escape clause? For what reason? To find another Buyer who has the same financing condition in their offer? This Seller could only be interested in a firm offer from a 2nd party. As it turns out, he got one, but I would never have allowed my Buyer to agree to the Escape clause in the first place. None of this would ever have happened if that clause was omitted. The Buyer would be in the home that they loved, and without litigation, stress, hassle, etc.

  5. Other way around; the sellers (respondent) were represented by a sales representative. The buyers (applicant) were represented by a lawyer. I agree that had the wording read ‘remove all conditions’ it would have helped however the escape clause is included for the benefit of the seller and is a clause – not a condition. The sellers completed that clause – triggering the buyers to firm up or walk away. They did, and effectively completed the APS.

    My pushback on this is the wording of the boilerplate clause to begin with. There is no inclusion of the option to use a Notice of Fulfillment (NOF) – only a Waiver, yet the NOF is often used.

      • Is there a possibility of a crossover of condition precedent vis condition subsequent or semantics of our English language?

        Maybe a grade one student would have thought for sake of simplicity, to number the conditions (1), (2) (3) ??? to draw attention that each clause needed to stand on its own two legs? To make it all easier for the lawyers to understand English legalese (just in case English maybe wasn’t first language).

        Carolyne L

        Sent from my iPhone

  6. Had the escape clause read remove all conditions as opposed to this condition then a different outcome would have resulted. I believe that the vendor using a lawyer as opposed to a realtor may have caused this problem. The realtor that wrote this offer knew the ambiguity of the clause and how it is used would favour their purchaser. I believe the lawyer erred on this in explaining to their clients what they were accepting.

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