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FAQ For Covid-19 and Real Estate

The outbreak of Covid-19 has put tremendous pressure on everyone and has thrown several contracts into uncertainty. If you have a contract to buy or sell property, or if you are thinking of entering into a contract, keep the below points in mind, and reach out to one of the real estate lawyers at Doak Shirreff.

Is My Contract Frustrated?

  • Probably not. Unfortunately, the circumstances for a contract to be ‘frustrated’ are narrow and the law on frustration is not empathetic to what is currently happening to our economy. An example of a contract being frustrated would be if, prior to completion, there was significant and substantial damage to the property by fire. A purchaser’s inability to get financing or a change in economic conditions that results in the acquisition looking less desirable are not grounds for claiming frustration.

Will A Force Majeure Clause Protect Me?

  • Maybe, but probably not. A force majeure clause in a contract will typically say that if there is an unforeseen event, and either party under the contract can’t perform its obligations because of the event, then the contract is automatically extended for a certain period of time. Circumstances that would count as ‘events’ under a force majeure clause could be government shut down, environmental conditions (earthquake or flood), and pandemic. While we are currently living through a pandemic, the legal systems remain in place to allow for a deal to complete (including the ability for individuals in quarantine to sign documentation via video conference) so it would be hard to rely on a force majeure clause. If our Land Title Office fully closed (they are currently working remotely) then a force majeure clause could be relied upon.
  • If you have questions it is imperative you speak with your lawyer as soon as possible.

What If I Am Afraid To Move?

  • Talk to the other party. If neither party has to move on the closing date then you could discuss the seller renting the property back from the purchaser (who would then be the owner/landlord) for a limited period of time, or extending the possession date for the transaction. Remember the completion date and the possession date do not have to be the same, so you could complete the transaction and money and title would change hands, but the purchaser would not take possession until a date down the road.
  • If you consider doing this you must read the next question about tenants and it would be prudent to withhold some rent from your purchase proceeds. Discuss the other implications of this situation with your lawyer before making any decisions.

What Can I Do About My Tenants?

  • The BC Provincial Government has issued a temporary ban on evictions in all but a very select set of circumstances. This means if you are a landlord looking to sell you cannot evict your tenant, and purchasers must be prepared to accept a property subject to any existing tenancies. The tenant may be willing to leave if they have somewhere to go, but until the ban is lifted you cannot evict.
  • This also applies to a purchaser who has allowed a seller to remain at a property after closing. If you have an agreement with a purchaser that they can remain in the property for a period of time following the closing date, and if they are paying you rent, then they will be considered a tenant under the law. This means you, as a landlord, have no basis to evict them until the ban is lifted.

I Am Buying/Selling And The Other Party Just Said They Don’t Want To Complete, What Should I Do?

  • Immediately contact your lawyer and don’t say anything to the other party. There are options available, but the law is exceedingly precise on what steps each party has to take. If you take a misstep then you could forfeit a remedy. It is best to leave it to your lawyer to handle this process.

I Am A Seller, How Can I Protect Myself?

  • Make sure you get a large deposit. This will make it harder for a purchaser to walk away, and if they do walk away you are left with some compensation.
  • Consider if you are able/willing to move under the current circumstances, and if not deal with that in the contract by either negotiating a long closing/possession date or rental terms.
  • If you are a seller and the purchaser does not complete you have additional remedies but you need to speak with your lawyer to learn what the best option is for you.

I Am A Buyer, How Can I Protect Myself?

  • In your offer, give yourself ample time to complete your due diligence into a property (inspection, review of strata minutes, etc.). We are all settling into our new normal, but things are taking longer than they used to, so don’t rush yourself.
  • Make sure you can afford the property after closing. Things are changing rapidly and as a property owner you will now be responsible for mortgage payments, property taxes, etc. There is currently some forgiveness on these points, but it won’t last forever and you need to be confident you can afford what you are buying.
  • Make sure your financing is secure. A lender will always reserve the right to not fund a transaction and although it is very rare that the lender relies upon that right, it can happen. Make sure you have had discussions with your lender and that you feel as confident as you can to proceed.
  • If you are unable to move into the property right after closing make sure you have a ‘Plan B’ in place for your own housing.

What Else Could Happen?

Circumstances continue to evolve rapidly, but if the last two weeks are an indicator of anything it is that the legal mechanisms to buy and sell property will remain in place. Because life is moving quickly the information in this article may also become outdated quickly, so if you have questions reach out to one of Doak Shirreff’s real estate lawyers and we can help.

The foregoing is intended for general information purposes only and should not be construed or relied upon as legal advice. If you require legal advice, please contact the author who would be pleased to discuss the issues above with you in the context of your particular circumstances.

Alison McLeod is a real estate and business lawyer at Doak Shirreff Lawyers LLP. She can be reached at [email protected] or 250.979.2561.