“The responsibility of a real estate litigation lawyer”, says Vancouver real estate legal specialist, Arsen Krekovic, “is to guide our clients through various aspects of real estate transactions. Contract amendments is one topic that arises.” In this post, we address some common questions and concerns related to amending a real estate deal. While this post shares information you may find useful, note that if you are currently involved in a real estate transaction that hinges on amendments you should seek legal advice. Proposing substantial changes or if a party threatens not to fulfill the contract unless an amendment is made requires proper legal advice.
What you need to understand in proposing or accepting Vancouver real estate transaction amendments
Amendments and enforceability
Under BC law, contracts for the purchase and sale of real estate must be in writing to be enforceable.
While written contracts provide certainty regarding the agreed-upon terms, it is possible to change those terms with the agreement of all parties involved. However, amendments must also be in writing and signed by all parties to be effective. Until an amendment is finalized and agreed upon, the original terms of the contract will remain enforceable.
Timing of real estate transaction amendments
Amendments can be made before or after subjects are removed, and the process of amending is the same in both cases.
Practical differences, however, exist between the two periods. Before subject removal, the party entitled to declare fulfillment or waive subjects has more leverage in proposing amendments that may affect the contract. This is an important consideration, especially in the absence of a backup offer.
More amendment topics that are common
Several common issues can lead to contract amendments.
One such issue is a buyer seeking a price reduction due to property inspection findings. If a subject-to-inspection clause is in place and concerns arise about the property’s quality or construction, buyers may negotiate a price reduction cautiously to avoid collapsing the deal. Contract dates, such as closing or possession dates, and deposit due dates can also be amended by agreement. The parties should confirm that time is still of the essence and that all other terms of the contract remain unchanged when altering contract dates.
****Sometimes a seller may want to revoke a deal. Read our summary of a 2015 case in BC that had legal and heavy financial costs to the party that went beyond amendments to dissolution in the summary below this post. ****
Included or excluded Items!
The inclusion or exclusion of certain items in the contract is another area that may require amendment.
While best practice suggests discussing these items before making or accepting an offer, parties can still agree to include or exclude an item through a written amendment if they wish to make changes later on.
Risks you may encounter to enforceability
To ensure the enforceability of an amendment, each party should provide some value or benefit to the other party.
This is known as “consideration.” The value exchanged does not have to be significant, but it must exist for the amendment to be enforceable. Seeking legal advice is essential when considering amendments to meet the requirement of consideration.
Seeking legal advice to mitigate potential consequences
While attempting to renegotiate a contract does not generally risk the enforceability of the original agreement, proposing an amendment may reopen the contract, allowing either party to potentially walk away.
It is crucial, therefore, to recommend that clients seek legal advice before proposing substantial changes or claiming they will only complete the contract with an amendment. Threatening not to fulfill the contract may be seen as a breach, which could jeopardize its enforceability.
The legal team at Hoogbruin & Co. advises reaching out to their real estate litigation counsel to fully understand contract amendments in real estate transactions in British Columbia. There are proper procedures that need to be followed and only seeking legal advice will ensure that proper consideration is provided so that the parties can make mutually agreed-upon changes to the contract.
Act cautiously and seek legal guidance to protect the interests of all parties involved.
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****CASE SUMMARY****
BC Couple Ordered to Pay $320,000 for Cancelling Home Sale as Market Rose
In 2015, a BC couple faced the consequences of backing out of a home sale as the real estate market began to rise. The Purewals initially agreed to sell their 8,000 square-foot home in Surrey for $2.7 million. However, they tried to cancel the sale as the market started swinging upward.
The BC Supreme Court ruled that the Purewals breached the contract and ordered them to pay the buyer, Wokun Zhao, the increased value of the home, which amounted to over $300,000. Zhao, who worked in China and was seeking a home in the Lower Mainland to immigrate with his family, had negotiated the sale with the Purewals for $2.78 million, with a closing date set for March 28, 2016.
Almost immediately after signing the deal, the Purewals had second thoughts. They even attempted to get Zhao to cancel the deal, going as far as chasing him and his realtor off the property during an inspection. As the real estate market continued to grow, the Purewals couldn’t find a similar home for less than $3 million.
In January, the Purewals tried to renegotiate the sale for $3 million, but Zhao declined. When the closing date passed, the Purewals refused to give up the title, prompting Zhao to take them to court.
The court found that the Purewals hadn’t properly ended the contract, and it remained in place despite their failure to complete the deal. The home was valued at $3.1 million as of the 2016 closing date, leading the court to order the Purewals to pay Zhao $326,875, covering the $320,000 difference in value, as well as other costs associated with the failed deal.
Following the failed agreement, Zhao purchased a smaller home for $2.2 million in another area of the city. Although it didn’t have the exact features he was initially looking for, Zhao settled for the three-bedroom, 2,400 square-foot property. The current listing price for that home is $2.9 million.
This case serves as a real-life example of the potential financial consequences of cancelling a home sale in BC, especially when the market is on the rise. It emphasizes the importance of carefully considering contractual obligations and seeking legal advice before making any decisions that could lead to breach of contract or financial liabilities.