When Deals Don’t Happen! The Ins and Outs of Releases

Date: May 5th, 2016
By: Ron Thibeault

Unfortunately, we are in the type of market where transactions sometimes fall apart. There are various reasons for this but in most cases it is where 1 party or the other is at fault. That being the case, we think it is vital for you to understand the implications of this to you and your clients and how to handle this situation.

The first issue that comes to mind is how to handle the situation where there is a rumour or it is determined that the Buyer or Seller will not close. Step 1 is to immediately refer your clients to their lawyer (have them find an experienced real estate lawyer if they haven’t already done so). Do not take any steps until this has been done and your clients have obtained legal advice. Steps you have your clients take may ultimate doom a specific remedy that they might be entitled to.

There have been a number of occasions where a well-timed and drafted letter to the other party saves that transaction by spelling out the consequences of a breach of contract. In other cases, it helps strengthen the case for your client for future claims if necessary. This is why you must ensure that they have obtained legal advice so that you can act appropriately.

The next vital question is how to protect your commissions. In cases where it is the Buyer not closing on a firm transaction, the rules are clear cut and spelled out in the Listing Contract. What though if it is the Seller that is unable to close on a firm transaction? In those cases it is vital that you immediately contact your Broker to determine whether a Caveat can be registered. The registration of a Caveat is 1 way to try and protect commission but is not as foolproof as it sounds.

One of the factors that can cause a Seller to be unable to close is where there are insufficient funds to pay the existing registrations and the lenders are unwilling to negotiate. In those cases your caveat will have little or not value should the property wind up in foreclosure as your caveat will simply be wiped from title.

The key point here is to remember, when acting for a Seller, to confirm prior to the Listing that there are sufficient funds to complete the deal and if there aren’t, then the issue must be addressed prior to any Offers being accepted. If you are presenting an Offer on behalf of your Buyer client you have to review title to confirm that there are sufficient funds to close failing which you may be setting your client up for failure as well as putting your commissions at risk. If there is any question as to the sufficiency of funds, the transaction should be conditional on the confirmation to ensure that there are no surprises close to the Completion Day.

The next question pertains to your client in a failed transaction situation and how to address their concerns. If your client is not at fault for the failure to close you have to be cognizant of the fact that they may have additional rights you are not aware of. Simply put, you are folly to try and advise them as to their rights and obligations. It is in the best interests of the party at fault to try and secure a release of liability; this is not necessarily the case for the non-offending party. There are a number of claims that have been advanced against Realtors giving, or being determined to have given, legal advice as to the implications of signing a Release.

Ultimately, releases have long term consequences that may not be clear for a variety of reasons not the least of which is your clients potentially foregoing any future claims. There are occasions where your clients will not know all of the consequences of a failed transaction so it is vital that this fact is brought to their attention. Getting them to the right advice is crucial.

Ron Thibeault