Real Estate transactions in Ontario are usually dependant upon one or more conditions, one of which is commonly a home inspection condition. This means that if the buyer finds serious issues with the seller’s property, they may be entitled to walk away from the purchase. Surprisingly, while this condition is found in the majority of residential real estate transactions, buyers and sellers often don’t fully understand what it means and what their rights are.
Generally speaking, buyers are expected to act honestly, reasonably, and in good faith when looking to satisfy any condition, including a home inspection condition. The Ontario Court of Appeal has reiterated this point and Marshall v. Bernard Place Corp, 2002 provides some insight on this topic.
To begin, the home inspection clause was as follows:
“This agreement is conditional upon the inspection of the property by a home inspector of the purchaser’s choice and expense, and receipt of a report satisfactory to him, in his sole and absolute discretion.”
This is what happened: The buyer received the report and wasn’t pleased. After saying he was unsatisfied, he asked the seller for the deposit back. The seller felt that the buyer’s decision was unreasonable, as an objective look at the report revealed there were only very minor issues with the home, and therefore didn’t want to return the deposit. The court agreed with the buyer, saying that the words “sole and absolute discretion” meant the buyer was allowed to take a subjective view as opposed to an objective one to the home inspection report.
The Meaning of “Sole and Absolute Discretion”
Essentially, the language “sole and absolute discretion” was interpreted in a way that was favourable to the buyer. While buyers are expected to act reasonably, this wording allowed a buyer to walk away from a deal if they weren’t satisfied for any reason; even if that reason wouldn’t be considered reasonable by the average person.
If You’re a Seller ….
Since this 2002 decision, sellers generally prefer to avoid the wording above, which allows buyers to act unreasonably, or include additional wording that if the amount to correct all deficiencies is less than $1,000, the seller has the right to correct the deficiencies and the buyer is still required to close the deal.
If You’re a Buyer ….
Alternatively, if you’re a buyer and the seller makes revisions to your home inspection condition clause, it’s imperative you review these changes with your real estate lawyer. As demonstrated above, the slightest change in wording can impact your rights and entire transaction greatly.
Something worth noting as well is that if a buyer hires an unqualified home inspector, or skips the home inspection entirely, their actions may be considered unreasonable or made in bad faith, which could make cancelling the purchase difficult, unless the home inspection condition allowed for the buyer to act unreasonably..
Hopefully this article gives you some insight into how a single clause in your agreement of purchase and sale can be interpreted in a number of different ways, having a significant impact on your closing. Always ensure that you are working with a strong team of real estate and legal professionals so that small details like these are on your radar.