Preparing Clients for a Deal Falling Apart

by Kristian Tzenov, RECA Regulatory Compliance Advisor, Real Estate Brokers

Real estate sales activity in Alberta remains relatively strong; however, we are seeing a slight dampening of market conditions compared to the high activity levels seen in the spring.

While still considered a seller’s market, the adjustment in market activity has allowed for more flexibility for buyers, which has increased the likelihood of collapsed transactions occurring. Often these situations occur in instances where purchasers feel they may overpay for a property.

Licensees know it’s not uncommon for real estate deals to fall through, but for your clients it could come as a shock when it happens and could come with consequences if a client doesn’t fulfill their contractual obligations. This is why the client contract review process is so important. Licensees need to ensure clients’ best interests are protected beforehand and clients need to fully understand the ramifications of backing out of an offer to purchase.

Prior to signing a purchase contract, it is a licensee’s responsibility to explain to their clients:

• the consequences of failing to act in good faith when satisfying conditions,even if the conditions are unilateral
• their obligations if the purchasecollapses after all conditions arewaived (e.g., deposit is forfeited,compensating the seller for their loss)
• the language used in the terms oftrust (if the terms do not align withtheir client’s needs, then they cantry to negotiate them with the other party)
• that the trustee must follow the termsstipulated in the contract
• that they can (and should) obtain legaladvice if the terms of trust are unclear

To mitigate any potential disputes and legal battles, licensees should draft clear and explicit conditions and review the implications and obligations that may occur with their client, should a condition not be satisfied. Careful consideration should be given to any language in the terms of trust that could be misinterpreted and later challenged. A detailed dispute resolution process should also be outlined. Licensees should consult the advice of their broker or legal counsel if they are uncertain of this process.

Brokerages who act as trustees have their own set of obligations and are advised to be acquainted with the process of using section 43 of the Trustee Act, as well the Information Bulletin on Trust Money Disputes and Disbursements.

There are many legitimate reasons deals may fail but buyers need to be warned that there can be serious consequences when walking away from a real estate deal. To mitigate conflict and protect your client’s best interests should a deal fall apart, licensees should ensure all parties involved are aware of their obligations and the corresponding consequences should they fail to meet them, prior to a contract being signed. If clients are unsure of the purchase, they should not move forward with an offer.

If you have any questions, please email ktzenov@reca.ca.