Understanding the Residential Purchase Contract – Clause 2 – time (and functionality) is of the essence!

This is a post in a series of posts discussing the Residential Purchase Contract in Alberta. Stay tuned for more posts touching on each section moving forward! Check out our previous post on the topic here! Today we’ll be discussing clause 2.

When buying or selling a property in Alberta, and in most provinces, the buying and selling process is governed by the Residential Purchase Contract, or a similar document by another name, depending on the province you are located in. Here in Alberta, the Alberta Real Estate Association (AREA) creates the base contract for purchase and sale, and is a standard form contract more often than not.

Within the Residential Purchase Contract, there are a few key clauses that are important to note, and that can dramatically affect a real estate deal, including having hidden costs for an unaware or inexperienced buyer, and there are ways to sell a property and save some money upon the sale.

Today’s clause that we will be touching on in more depth is clause 2, which although being six lines, sets out a number of key elements of the agreement between the buyer and the seller.

Clause 2.1 is very short, sweet and to the point: it lays out the purchase price of the property. 2.2 confirms that this includes any GST costs, so that there’s no hidden 5% price bump at the last minute.

Clause 2.3 is where things get more interesting! One piece of information that a lot of first time buyers or sellers forget about is a practical piece of information; when, as in what time of day, does possession actually take place? 9 AM, the start of the work day? 5 PM, the end of the work day? Midnight?

Clause 2.3 explicitly notes that possession is to take place at 12 PM, which is the roughly estimated time that lawyers believe we’ll be in a position to have the property change hands and we’ll have crossed all our t’s and dotted our i’s, and therefore you can move in! This clause, though being very explicit, has caused possession timelines in the past to become difficult or unmanageable, when a seller has not realized, or been told, that they need to be out of the property by 12 noon. That leads us to clause 2.4…

Clause 2.4 indicates that “The seller represents and warrants that on Completion Day, the Property will be in substantially the same condition as when this contract was accepted and the attached and unattached goods will be in normal working order”. There’s a couple of key phrases in there that we’re going to break down.

“substantially the same condition as when this contract was accepted”. The date the contract was accepted is the date that the sellers signed off on actually selling the property, after receiving the offer to purchase. We as lawyers interpret this slightly more loosely, and bring that date back to when the initial walkthrough of the property was completed (if one was completed), and if one was not completed, the information that was available at the time the offer was made.

In other words (and this genuinely happened to one of my clients!), if there is a hole in the drywall in the master bedroom closet, and it was ‘covered up’ by a pile of laundry or a laundry bin at the time of the walkthrough and was therefore not spotted, then that hole is there as part of the condition of the home.

I, as your lawyer, do not have a leg to stand on to argue otherwise, unless it was being intentionally hidden. There is a series of cases that suggest that if the hole in this example could be found by simply moving an item, or completing relatively minimal due diligence on site during the walkthrough or inspection, then you cannot later claim damages for a lack of inspection or care during said inspection. However – and there’s always a caveat as lawyers – the larger the damage and the more concealed it was, the more likely I can make an argument to get you some damages covered by the seller.

“The attached and unattached goods will be in normal working order”. This is the second part of this clause that trips people up. If your dishwasher breaks while selling a property after the offer is made but before possession takes place (another genuine example that happened to a previous client!), and you don’t fix the dishwasher, then you are in substantial breach of the purchase contract.

At that point, either the lawyers are able to come to an agreement regarding holding back some funds from the sale until the dishwasher is fixed on the sellers dime, or the sellers provide some funds to the buyer, to compensate them for the work that is expected to be completed, or the item that is replaced. In other words, make sure your appliances work and that nothing is broken when you hand over keys!

In short, understanding your Residential Purchase Contract is key, and clause 2, while being short and to the point, sets out some remarkably important terms. Using an experienced realtor, and an experienced lawyer, can make the difference between a smooth and simple real estate transaction, and a hassle that continues for a while! We will have a number of further segments on this topic, for other important clauses!

Tune in next time for more tips on buying or selling real estate, from Greg von Euw with Alloy LLP!