Make obligations clear in delayed-sale transactions

Joyce Blond Frank B.A., B.C.L., LL.M.

October, 2010

Sometimes an arrangement is made to sell a property at a future time while permitting the prospective purchaser to live there and pay rent during the intervening period. There also may be other conditions to be fulfilled during that period.

We know that “sale” is defined as a contract by which a seller transfers ownership of a property to a buyer for a price the latter promises to pay. The principal obligation of the seller is to put the buyer in possession of the property; the principal obligation of the buyer is to pay the purchase price.

When either fails to carry out his obligation, the contract is no longer considered to be valid. Or is it? What happens when obligations undertaken during the intervening period are not carried out and one or the other of the parties still wants the sale to go through?

Mr. A signed a contract with Mr. B offering to purchase Mr. B’s house at the end of one year for a set price. Meanwhile, Mr. B would live in the house and a monthly rental as well as all expenses regarding the house would be calculated and paid at the time of the transfer of ownership of the house, to take place a year later. The seller would gather documentary evidence of the household expenses and provide them to the purchaser’s notary.

When the year was up, the seller still had not provided the required documents and because the buyer did not know how much he had to pay, he could not arrange the necessary financing. Sixteen months from the agreed date of purchase went by before the seller provided the buyer with the necessary information. The buyer was only then able to arrange for financing. At this point, the seller no longer wished to sell. He said that the agreement had been broken, that he was no longer prepared to turn over ownership of the property to the buyer who owed him 28 months worth of rent and household expenses. The buyer went to court to force the sale.

The court held that as long as the buyer was ready to pay the sale price as well as the other amounts that had been agreed upon, the seller could not invoke the delay because he himself had not fulfilled his obligations by failing to provide the buyer with the documents required for establishing the expenses within the allotted time delay.

The judgment of the court was to suspend the transfer of ownership for 30 days, during which time the buyer was to provide all amounts owing, namely, the sale price, rent and expenses, failing which the seller would remain owner of the pro- perty. If the buyer paid, he would become owner.

In another case where the interim obligation of the future buyer was to pay rent, the rent was paid but not the interest owing on delayed rental payments. Again, the court gave 30 days for the interest to be paid, at which time the sale would go through. Both cases followed an earlier Court of Appeal judgment in which the judges based themselves on principles of equity, which hold that those who come before the court to enforce their rights must act in good faith and exercise their legal rights in good faith.

This earlier judgment pertained specifically to those types of cases mentioned above, namely, where the sale of a property is to take place after a period of time during which either or both the seller and buyer undertake to perform specific obligations. As a result of this judgment, the courts will order a sale to go through even where those obligations have not been carried out to the letter.

A contract of sale creates obligations for both parties and one cannot force the other to carry out his without carrying out his own. However, contracts must also be subjected to a greater principle, which is that of honouring one’s word and carrying out one’s obligations in good faith. The rights of the parties are not to be thwarted by obsolete formalism, but the court must ensure that the parties to a binding offer perform their respective obligations.

The buyer must show his intent and capacity to pay the price when he applies to the court to force a sale and the seller must not be in bad faith by finding excuses to avoid transferring the property.

It is a matter of justice that purchasers in good faith should not be prevented by obsolete rules or verbal gymnastics from proceeding against sellers who refuse to proceed with a sale without valid reason. Neither should sellers who are in good faith be obliged to do battle with buyers who are unwilling or unable to pay.

To ensure that the buyer did pay and that the seller did not refuse unreasonably to proceed with the sale, the buyer was given 30 days to deposit all the money owing, failing which he would be presumed to have renounced his claim to the pro- perty.

Once the money was deposited, the judgment would avail as title to the property. This is the basis upon which the more recent judgments have been rendered.

In the case of sales that include a period of delay before the transfer of property, justice has prevailed and a contracting party cannot refuse to respect his obligations on a simple pretext or try to avoid the consequences of the sale contract by relying on unfounded excuses.

Joyce Blond Frank will attend an Information Day for Seniors sponsored by the Council on Aging, November 4, 10am to 4pm at 1444 Union Ave. across from The Bay. McGill metro.