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handing over keys

Tendering, in real estate practice, is a strategy real estate lawyers can use to demonstrate a client’s willingness and readiness to close a transaction in circumstances where there may be doubts about the other party’s ability or willingness to close on time. done properly, tendering can help to preserve a client’s rights in the event of a breach. done wrong, it can backfire.

The following is an adaptation of a longer article written by Sidney Troister, LSM. The full article, “the Reality of Tendering: Why Real Estate Lawyers Give Fuel For Litigators to Sue Them”, includes summaries of the relevant cases in the area and is available at www.practicepro.ca/tendering.

Tendering is all about proving, in the event of a failure to close, who as between the parties was in breach and who was not in breach of the agreement. Much has been written on the mechanics of the perfect tender.

Safeguarding the transaction: the new school rules (sort of)

Thirty or forty years ago, courts favoured strict contract compliance. More recently, courts have looked beyond the technical and have examined what was really occurring in the deal – including motives, good faith, and intention – and have begun looking at tenders not as proof positive of ability to close but as evidence of intention. While the mechanics of tendering have become less important when the big picture is reviewed, it is always better to be perfect and beyond reproach than to have to rely on any law that excuses imperfection.

Tendering has become a bit more complicated with the electronic system. Lawyers cannot be as hands-off with an electronic closing and the couriering of cheques and keys as with a deal that closes in the traditional way. To demonstrate that you have the cheque, keys, or the executed discharge or acknowledgement and direction to register (when you have no intention of letting go of them) you must attend in person to meet the other side. Telling someone that the money is in your trust account is an invitation to criticism.

The traditional practice of bringing a witness to a tender has become somewhat of an anachronism. Witnesses were once used because the tendering lawyer would also likely be the litigator, making it improper for him or her to be counsel and a witness in the same case. Practice specialization (except
in remote areas) has made this conflict increasingly unlikely.

The lawyer tendering without a witness must take notes of what was delivered, what was said and what was exchanged. Use a closing checklist and note deficiencies in any documents at the time. Identify to the other side what is asked for and not delivered.

Safeguarding the transaction: the unspoken side issue

When the circumstances and details of a tender become the subject of litigation, there is often a sidebar issue of solicitor negligence. An opponent may allege a defective tender, or failure by the opposing lawyer to either insist on performance or successfully avoid it.

In other cases, a buyer client wanting out of the deal may fall back on a lawyer’s inability to show readiness to close; or a seller may accuse his or her lawyer of letting the defaulting buyer off the hook, either by failing to have a mortgage discharge (or some other document) available, or by taking some step that prejudices the client.

Safeguarding yourself when things are going south

Rule 1: Communicate carefully with opponents and avoid posturing. Beware the implications of declaring an anticipatory breach: if you’re wrong, you may put your own client in breach. Know that by insisting on strict compliance with the agreement, you will also be required to strictly comply.

In Kwon v. Cooper, [1996] O.J. No. 181, the purchaser advised the vendor’s lawyer that he had no money. The vendor’s lawyer communicated an intention to stand on the strict terms of the agreement, and required closing on the original date, threatening to sue for damages if the deal did not close. On the closing date, the vendor did not have a discharge of the mortgage. Having insisted on strict compliance, the vendor was precluded from appointing a new day for closing after the defective tender. The purchaser who could not close got his deposit back.

Rule 2: Know when trouble is coming: the overly technical requisition letter; last minute requests for unreasonable things; cleaning debris; rumours of environmental hazards and therefore environmental clearances; corporate minutes; declarations; etc.

Rule 3: Communicate with your client when you sense trouble is coming. Explain what is being asked of your side, explain what will be needed to tender properly (funds, signed documents, discharges, cleanup, etc.) and explain the potential consequences of not satisfying the other side’s requests.

If there is a private mortgage requiring discharge, explain that you cannot guarantee the cooperation of the private lender to provide an escrowed discharge. Explain that the deal may not close regardless of what you do to appease the other side. Never tell your client that he is assured of either keeping the deposit or getting the deposit back, or that he is entitled to damages for the other party’s breach. Recommend bridge financing if a new purchase is at stake.

Rule 4: Never advise a client that the failure of the parties to tender terminates the agreement; it does not. Avoid any step that could lead to an unintended breach and repudiation after the closing date.

Rule 5: If in doubt about strategy, get help and get it early: consult seasoned real estate lawyers and real estate litigators.

Categories: Real Estate