Real Estate Buyers’ Duty of Good Faith

Signing a real estate contract looks easy enough.

It’s the details that trip buyers up. 

For instance, you can’t be sued for trying to buy a home.

But you can be liable if you breach your duty of good faith.

What Acting in Good Faith Means in Real Estate

What is this duty of good faith, anyway? Simply put, it’s defeating the contract through your own inaction, or deceit. 

Believing in the good side

Let’s take an example.

You make an offer to purchase a house. It’s in great shape, white picket fence and all. Your agent suggests you “make it conditional.” They add a few clauses like a satisfactory home inspection by a professional of your choice. Of course, it’s subject to financing. The wording sounds fine to you. 

Hey, you’re no lawyer. 

Drafting an agreement of purchase and sale in Ontario. 

Those home inspectors seem a bit pricey, so you get Uncle Arnold to have a look. He says you should ask for a discount for the cracked plaster and missing pickets. The bank likes the deal, except the price is “over appraisal”. You’ll have to increase your downpayment to get the mortgage.

The realtor’s a bit negative about reducing your offer, but they make enquiries anyway. The seller says no. They’re sure unreasonable. In fact, that townhouse down the street looks pretty interesting. The price is the same, and it is brand new. Maybe you’ll put in an offer.

Watch what you agree to with a good faith deposit. 

Buyer’s Duty of Good Faith Requirements

The completion date is closing in. 

You’ll just cancel the house deal, and ask for your good faith deposit back. The home inspection was unsatisfactory, and financing was unavailable. Besides, you’ve already inked the deal for the townhouse.

Does the seller keep the deposit if a buyer backs out? 

What is this requirement of good faith the seller’s lawyer keeps talking about? Surely the seller can’t keep your deposit, or worse yet, force you to buy the house? 

They could, and they just may do so. Real estate contracts can require “strict performance”, and that means buyers and sellers may have to do exactly what the contract states.

Characteristics of Good Faith Contracts

Your first misstep was not taking the draft agreement of purchase and sale to a real estate lawyer. That committed you to exactly what you put in writing, as soon as the seller signed. 

You still had time after your conditional offer to make amendments, which a lawyer could have advised you on. As it stands, your offer was written in stone. Your duty of good faith held you to honest contractual performance. 

Here’s how.

Honest Performance

Your contract committed you to hiring a professional home inspector. Unless Uncle Arnold is a licensed inspector, a court could find you didn’t live up to your common law duty to act honestly and reasonably. Read Bhasin v Hrynew (paragraphs 33 and 73) for the Supreme Court of Canada’s reasoning. 

Fair Dealing

Your agent left out a key phrase in the home inspection condition: “receipt of a report satisfactory to the buyer, at their sole and absolute discretion”. Legal advice is recommended. 

Dealing it properly and fairly

Making an amendment to the agreement of purchase and sale. 

Including “sole and absolute discretion” would have left it up to you if the home inspection report was satisfactory. You could have declined to waive the home inspection condition when the seller refused to lower the price, and terminated the contract.

Without that phrase, you’re legally obligated to satisfy the “spirit of the bargain”, visible defects and all. Anything less is not fair dealing, and a court could find you acted contrary to the seller’s interests.

Duty of Good Faith

Your lender agreed to financing. You met your buyer’s duty of good faith by finding a lender. On that, you’re on firm legal grounds. But you’d be hard pressed to prove the home was unaffordable. After all, you made an offer on a similar-priced townhouse. 

Even if you genuinely can’t afford a larger down payment, your contract doesn’t allow you to waive the financing condition at your “sole and absolute discretion”. Not finding the perfect downpayment, interest rate, or terms has no legal consequences for the seller. 

That’s strict performance, and duty of good faith for you.

Why You Need a Real Estate Lawyer 

Axess Law’s licensed real estate lawyers ensure your agreement of purchase and sale (Ontario) includes essential clauses that protect your buyer’s right to cancel. We review the fine print in your draft or signed offer, and negotiate with the seller’s lawyer to amend the agreement to give you the right to terminate without financial penalties.

What a real estate lawyer does

Our legal team advises if your contract commits you to carry through on terms and conditions you may not have realized it contained. If a home inspection is unsatisfactory, we connect with the seller’s legal representative to request minor repairs. 

Major deficiencies to a home’s foundation, or expensive repairs beyond your budget can affect a home’s resale value. Axess Law requests a price reduction, if that’s your preference, or informs you if the contract can be cancelled. 

Why do I need a lawyer to discharge a mortgage in Ontario? 

Signing for new financing, and discharging your existing home mortgage at the same time? Axess Law receives your lender’s mortgage directions, and ensures you have clear title to your new home. We search title to the property for financial claims or construction liens that can delay or stop mortgage approval. Your title is confirmed with the local land registry, allowing you to take vacant possession of your new home.

Find your CMHC debt service ratio

Access Lawyers Remotely with Axess Law

Axess Law can finalize your real estate transaction anywhere in Ontario, with our virtual real estate lawyer service. Network via our secure, confidential video conferencing services from a home computer, laptop, tablet, or any compatible mobile device. We witness your signature online, and send you a copy for your records. It’s the quick, convenient way to buy or sell.

How virtual real estate lawyer services work. 

Affordable Real Estate Lawyers, Anywhere You Are 

Access lawyers for less in Greater Toronto Area, Ottawa, or anywhere in Ontario  when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it. 

Make Appointments Online or By Phone

Making appointments takes minutes of your time, with Axess Law’s online booking form. Pick flexible appointment times 7 days a week. We have day or evening appointments, with onsite parking and easy transit access. Dial our 1-877-402-4277 lawyer line, 647-479-0118 in Greater Toronto Area, for personal service, or drop by any Axess Law office.