Coronavirus clauses create loopholes in contracts
Four confusing and dangerous COVID-19 clauses have been offered for real estate professionals to consider using in purchase agreements.
The Ontario Real Estate Association (OREA), an advocacy group for Ontario’s 70,000 realtors, publishes the standard purchase and sale forms used by all real estate agents in the province.
OREA’s four new “state of emergency” clauses are posted on its members-only website to “assist” parties to real estate contracts in coping with the ongoing pandemic.
Katarina MarkovinovicPraljak, OREA’s media relations chief, emailed me last week to confirm that its stateof-emergency clauses were created and vetted by the organization’s legal counsel and staff.
The OREA clauses are similar to the ones distributed by some law firms and real estate brokerages — which I wrote about last month, and which were cautioned against in an ebulletin from Sidney Troister, a partner at Toronto’s Torkin Manes LLP.
Troister is a director of the Law Society of Ontario and is widely respected as being one of Ontario’s leading real estate lawyers.
The main clause states that if the buyer or seller is unable to complete the transaction because the bank, or institutional lender of either party, or the land registry office has temporarily ceased operations, then the closing is extended to two working days after restoration of services.
And if the delay exceeds a stated number of days, then either party may terminate the transaction.
In many years of practising real estate law, I can honestly state that this OREA clause is the worst real estate clause I have ever seen. It is vague regarding the meaning of “temporarily cease operations.” As well, it is certain that neither the banks, nor the land registry offices, nor any institutional lenders will be closing during the pandemic.
Even if that were to happen, trying to revive a postponed transaction within two days in the COVID-19 environment is highly unrealistic.
But the real kicker in that clause is the option it gives to either side to terminate the transaction.
It would frustrate their expectations of closing the transaction, deprive the agents of their commission, and inevitably lead to litigation.
Two more clauses on the OREA website allow for electronic signatures on “any other documents” and “any closing documents” respecting the transaction.
For agreements of purchase and sale, this is unnecessary because it is already provided for by statute. But closing documents — including deeds, mortgages and affidavits — cannot be signed by electronic signatures.
So-called “wet” or ink signatures are still required by banks, real estate lawyers and the Law Society, even if they are scanned or faxed.
When asked for further comment, OREA’s MarkovinovicPraljak said the standard forms team would be reviewing my feedback, that the clauses are template tools to assist members, and that they are encouraged to seek brokerage and legal advice prior to using them.
In many years of practising real estate law, I can honestly state that this OREA clause is the worst real estate clause I have ever seen