When parties negotiate and draft agreements of purchase and sale for real property, the provisions relating to how conditions may be waived (including what constitutes effective notice of waiver) are not usually treated as highpriority items. Before examining these seemingly minor details, most parties prefer to deal with the substance of the conditions, such as the scope and length of the due diligence period, or whether the agreement will be conditional on development approvals or new leases.
Even after the parties agree on the substantive matters relating to the conditions, it may be important to focus on what the agreement says about how conditions may be waived once the decision has been made to waive or invoke them. Agreements should be drafted to avoid ambiguities and disputes arising from conflicting interpretations, so that the intentions of the party for whose benefit a condition was inserted are not frustrated. At minimum, a party does not want to spend the last day of a conditional period deciding how to properly notify the other party. In addition, nobody wants to expend time and costs after the last day of a conditional period tied up in a dispute about the status of the transaction because the parties disagree on whether the conditions were properly waived.
The recent Ontario case of McKee v. Montemarano1 provides a helpful reminder that it is important to consider and clarify these details when preparing the contract (or as soon as possible afterwards), in order to avoid possible problems down the road. The case follows a line of decisions where purchasers claiming to have waived conditions find themselves in court with vendors who believe they can treat the deals as having been terminated. Illustrations include cases where conditions were purportedly waived by notice over the telephone, by notices handed to security guards, and in several cases, by notices left with real estate agents who did not have authority to receive them on behalf of vendors.
In the McKee case, there was a provision in Schedule “A” to the agreement of purchase and sale stating that “[u]nless the buyer gives notice in writing delivered to the Seller” by a specified time that the due diligence condition has been fulfilled, the agreement shall be null and void. The Schedule “A” provision went on to say that the condition may be waived by the buyer “by notice in writing delivered to the Seller within the time period stated herein.” The pre‐printed portion of the agreement contained a general notice clause which allowed for notice to be hand delivered to the address of the seller set out in the agreement or faxed to the seller, and further identified the “Listing Broker” and the “Cooperating Broker” as agents of seller and Buyer, respectively, for notice purposes, although the court found that these terms were not accurately used in the documentation, noting that a single firm was broker‐agent for both parties.
The evidence indicated that the buyer left a copy of his written notice of waiver at the seller’s front door (although he did not call the seller or knock on the door to ensure that seller would be there to receive it) and the buyer had also given a copy to his own real estate agent, who was with the same firm as the seller’s agent.
The trial judge found, inter alia, that the specific clause in Schedule “A” required that notice of waiver be brought to the seller’s personal attention and held that the agreement of purchase and sale, therefore, became null and void after no effective notice was delivered by the buyer prior to the deadline. The buyer appealed and the Court of Appeal agreed with the trial judge, citing the following reasons:
- The Schedule “A” provision contained a specific notice requirement that was negotiated and prepared by the parties.
- The plain language of Schedule “A” contemplated the actual delivery of waiver notice to the seller and there was no mention in Schedule “A” of the possibility of delivery to agents or to the seller’s address, nor was there any reference in Schedule “A” to the general notice clause.
- The context or circumstances surrounding the making of the agreement strongly suggested that the parties intended that any waiver notice must be brought to the seller’s personal attention. The trial judge had found that in all matters of substance relating to the formation of the agreement, the parties dealt with each other directly and “the parties themselves drove the deal throughout formation, including Schedule “A””.
- Schedule “A” was also prepared by the buyer’s solicitor who “must be taken to have been aware of the different forms of notice provisions set out in the agreement”.
The Court of Appeal disagreed with the buyer’s argument that the dual agency role of the real estate firm allowed the effective delivery of the notice to be accomplished by the buyer delivering it to his own broker. Ultimately, the Court of Appeal focused on the words “delivered to the Seller” in Schedule “A” and agreed with the trial judge that notice of the waiver was only sufficient if brought to the seller’s personal attention.
In light of McKee v. Montemarano and earlier cases dealing with these issues, parties would be well‐advised to consider the following: Notice or No Notice? At the outset, one needs to determine whether an affirmative step is required to waive a condition, or to put it another way: “what happens if nothing happens?” If an agreement is conditional until a specified time and the purchaser does nothing, will this mean that she has waived the condition? Or does the agreement automatically terminate? Alternatively, is the purchaser required to give notice that the condition is not waived or satisfied and, in the absence of such notice, the transaction will go firm?
Consider Your Verbs (and Delivery Methods): In the McKee case, the court was required to interpret the meaning of the phrase “delivered to the seller” in the context of the transaction. Ideally, parties to an agreement of purchase and sale will turn their minds to the issue and agree up front as to what will constitute effective notice, and the details can be included in the contract. For example, commercial agreements will now often include a provision that notices given to the parties’ solicitors will be effective, and general notice clauses will typically describe the acceptable methods of delivery. However, in the McKee case, the general notice clause was overridden by the specific provision in Schedule “A” (the McKee agreement also included a provision that the added provisions, such as Schedule “A”, supersede the pre‐set portions, like the general notice clause in the event of any conflict or discrepancy). Given the possibility that a fax machine may be off‐line or a party might not be available to receive personal delivery on the last day of a condition period, it is always helpful to obtain acknowledgement of receipt, if available, or to specifically confirm the form of evidence that will be sufficient for the sender to prove that notice was given.
Real Estate Agents: It may not be safe to assume that notice to a real estate agent is effective for waiving a condition after the agreement of purchase and sale has been signed. If parties want their agents to have authority for this purpose, this should be clearly expressed. The trial judge in McKee reviewed the case law on the issue and noted that an agent’s authority to receive notice may arise from an express contract or from a course of conduct, or by the authority that a third party reasonably believes is invested in the broker, but the results of the cases will depend on the specific facts.
Write for Clarification: One can make efforts to avoid these situations through careful drafting but there may still be issues. For example, conditional dates might be defined as 30 days after a particular event, the date of which is not obvious. Or, we may need to review terms like “delivered to the seller”, which will mean different things in different contexts. In any such case, it would be prudent to write a letter in advance of the deadline in an attempt to clarify potentially ambiguous terms and, if possible, obtain confirmation from the other party (“Yes, notice by fax to my lawyer at the following fax number is acceptable…”). Exchanging letters like this in advance of the deadline date would seem to be in the interest of all parties, as they have an opportunity to confirm their own intentions and expectations, rather than leaving an opening for future disputes. This course of action may be useful in other ways: if no reply is received to a reasonable request for clarification, this could be a warning that the other party may intend to use any ambiguity to its advantage, and steps could be taken to prepare for this.
As cases like McKee v. Montemarano illustrate, a failure to comply with notice and waiver requirements can have significant consequences. These provisions might seem like simple boilerplate clauses, but they should always be reviewed and confirmed or else parties may find themselves dealing with unintended results, which could include inadvertently committing to an unwanted transaction or terminating a good deal.