Home Buyers - Beware of Broken Promises

(updated November 2007)

by Lianne Macdonald & Del Elgersma

One of the most exciting decisions we make involves the purchase of a new home. While the experience can be exhilarating, finding the perfect home can be challenging even for a sophisticated buyer. We find a home we like, but often with a few small problems. For example, the landscaping is not quite finished, or there is a large pile of rubble that should be removed from the yard. Do we go ahead, or not?

To induce a buyer to sign a Contract of Purchase and Sale, a seller may be prepared to take care of minor problems with the property. A clause will be added to the Contract of Purchase and Sale indicating that before the completion date (the day the Buyer must pay the purchase price), the seller will correct the problem. In this situation, the buyer needs to beware of his or her legal rights or responsibilities if the seller does not fulfill the promise.

The standard form of Contract of Purchase and Sale provides that there are no promises or agreements other than those written in the Contract of Purchase and Sale, but that those promises and agreements that are written in the Contract of Purchase and Sale will survive the completion of the sale. In the case of a seller who breaks a promise to fix something, the second part of this clause is helpful for a buyer. The clause means the seller is legally bound to correct the problem even after the completion date. If the seller does not, the buyer can sue for damages in Small Claims Court or, if the loss exceeds $25,000, in Supreme Court. But court proceedings are time consuming, slow, and costly. Even if the buyer gets a judgment against the seller, it may be difficult to recover the money.

To avoid the need to take a seller to court, buyers should have their realtor include a clause in the Contract of Purchase and Sale that allows the buyer:

• to inspect the property before the completion date to make sure that the problem has been corrected, and
• to hold back an amount equal to the cost to fix the problem if the seller has not fixed it by the completion date.

A buyer is generally not entitled to cancel the Contract of Purchase of Sale if a seller breaks a promise to correct a problem and, unless the Contract contains such a remedy, a buyer cannot demand that the purchase price be reduced, or that a sum of money be held back from the seller.

If you are buying or selling real estate and have questions about your contract, give us a call.