If you鈥檙e in the process of buying a home but have lost income due to COVID-19, don鈥檛 assume that you鈥檒l be able to get out of your signed purchase contract, a leading real estate lawyer has warned.
Home buyers who have paid their deposit and signed a purchase contract, who may now want to get out of the purchase since the pandemic hit, do not have a standard 鈥淔orce majeure鈥� or 鈥淎ct of God鈥� clause that will let them walk away, said Richard Bell of Bell Alliance in Vancouver. Such a clause would need to have been specifically written into the purchase contract to be applicable, which is unlikely, he said.
What鈥檚 more, if the buyer walks away from a purchase contract, even if they have lost their job and can no longer afford the home, they could be liable for much more than simply losing their deposit.
鈥淚f a buyer loses their job 鈥� well, that could happen any time,鈥� Bell told Glacier Media Real Estate March 30. 鈥淚f they can鈥檛 complete the deal, they become liable for at least the deposit. But there could be a further, knock-on liability, if the seller then resells for less than the original amount. The buyer who caused the original deal to collapse could also be liable for the difference.鈥�
Bell added, 鈥淭hen the question becomes, if the collapse of the original deal causes a series of deals in a chain to collapse, how remote is the original buyer鈥檚 liability? How many links in that chain is the buyer liable for? That鈥檚 when you get into a legal battle.鈥�
A purchase contract can, however, be rendered void under the doctrine of 鈥渇rustration鈥� whereby the deal can鈥檛 go ahead and collapses under extraordinary circumstances, through no fault of either party. However, this requires the explicit agreement of both parties to the contract, explained Bell.
For example, a buyer may not want to go ahead with a home purchase due to lost income, and the vendor may equally not want to sell anymore because they can no longer afford to upsize, also due to lost income. Under such circumstances, the buyer and seller can come to an agreement whereby the contract is cancelled and the buyer鈥檚 deposit returned.
Cold feet a symptom of COVID-19
麻豆传媒映画realtor Kevin Skipworth of Dexter Realty is seeing a lot of nervousness among buyers who have signed purchase contracts. He told Glacier Media Real Estate March 31 that he had one buyer with cold feet because of the COVID-19 pandemic and associated concerns about the economy, but after discussion with their conveyancing lawyers, the deal finally went ahead.
鈥淭here鈥檚 really nothing in the contract that allows for a buyer to walk away from a transaction because of the virus pandemic, but that doesn鈥檛 stop anybody from trying. For us as realtors, it鈥檚 not our place to try to negotiate out of a contract, that鈥檚 where legal advice is the first place to go.
He agrees with Bell that there can be much pricier ramifications than merely a lost deposit. 鈥淓verybody seems to think you can walk away and just lose your deposit and that will be fine, but that鈥檚 not the case. Sellers can go after you for damages, and more.鈥�
Bell said he is seeing some collapsed home purchases at his law firm, but this is not currently his key concern in terms of real estate conveyancing. He pointed to rules of social distancing and quarantining making it virtually impossible to comply with legal requirements that home buyers and mortgage consumers be present in person to sign contracts, along with their government ID.
鈥淚t鈥檚 a major roadblock to closing home purchases right now,鈥� said Bell. 鈥淒ifferent lenders require different things. But some are literally requiring that we go round to quarantined clients鈥� homes and have them show their ID to us through the window. It鈥檚 ridiculous. Hopefully it will change before long, so we can do it by video. We鈥檙e trying to get this up the chain of command.鈥�
鈥楩orce majeure鈥� in construction
One sector that may have some luck in claiming 鈥渇orce majeure鈥� when failing to complete a contract due to COVID-19 is the construction industry, where sites have had to close due to the outbreak 鈥� depending on such a clause being in the contract.
Whether or not a judge under Canadian common law would grant 鈥渇orce majeure鈥� varies greatly from case to case, said Sahil Shoor, a Waterloo, Ontario-based civil litigator for Gowling WLG, in a legal bulletin to the construction sector on March 20.
That is because while some contracts include 鈥渇orce majeure鈥� clauses that clearly states diseases, plagues, epidemics or quarantine restrictions as applicable conditions (beyond the typical 鈥渁cts of God鈥� events such as natural disasters, fires, floods and wars), other make no such distinctions. Some other contracts yet, Shoor said, may not have a 鈥渇orce majeure鈥� clause at all, further complicating the issue in court.
鈥淚n order to successfully rely on a force majeure clause, the relying party [contractor] has the burden of establishing Force Majeure Event and proving that the Force Majeure Event has effectively prevented the party from fulfilling its obligations under the construction contract,鈥� Shoor said in the bulletin, adding the court will assess the merits of the case based on whether the COVIC-19 outbreak qualifies as a force majeure, whether the risk of not being able to complete the contract was 鈥渇oreseeable and able to be mitigated,鈥� as well was whether it was really impossible to complete the contract.
In cases where there is no clear description of an epidemic or disease as force majeure, a judge will often hinge decisions on the availability of an 鈥渁lternative method of performance鈥� 鈥� even if the alternative is significantly more expensive for the contractor applying for relief.
鈥淎s an example, are the party鈥檚 employees ill due to the virus and unable to work, or simply afraid to work and choosing not to attend?鈥� Shoor said, adding that cases without a force majeure clause will follow similar lines of legal logic under the doctrine of frustration.
鈥� With files from Business in Vancouver
