Purpose of Condition Not Exercised - Sale Agreement Not Validly Terminated

In KNRS Acquisitions Inc. v. Fariad, the court was asked to determine whether a seller had been unreasonable in relying on a “conditional-on-approval” clause to avoid completing a property sale.

The seller had agreed to sell his 12-unit, three-storey apartment building to the buyer. The Agreement contained a clause stating the offer was conditional on its terms being approved by the seller’s solicitor, and required the seller to give the buyer written notice in that event. The seller later claimed that this “Solicitor’s Approval” clause was added because, although he was the sole registered owner, his mother and brother had a beneficial interest in the property as well, and the brother was refusing to sell. The intent of the clause, according to the seller, was to allow them each a chance to get legal advice on whether a sale could be forced in the face of the brother’s opposition.

Tragically, the seller’s cousin was murdered in Afghanistan, and the seller’s mother immediately flew there to be with family. The seller’s brother joined eventually. According to the seller, this made it impossible for him, his mother, and his brother to have the communication with a lawyer as the Solicitor’s Approval clause envisioned. He relied on this event to avoid the deal.

The intended buyer sued, and the court was asked to determine whether the Agreement was nonetheless enforceable.

The court found it was. First, it noted that both buyer and seller had a legal duty to act reasonably, honestly, and in good faith, adding that “moral blameworthiness or family dynamics do not factor into the test.”

Next, the court had to evaluate whether the seller had acted in good faith in relying on the Solicitor’s Approval clause in view of its particular wording. The only considerations for the court were whether: (1) the termination of the Agreement was achieved in keeping with its provisions, and (2) the seller had acted reasonably overall, in light of the family tragedy.

The evidence showed that soon after the cousin’s murder, the seller spoke with the brother, who confirmed his position on not wanting to sell the property was unchanged. It was at this point that the seller advised his real estate agent by text message that he considered the Agreement was at an end. This proved that the trigger for cancelling the deal was the brother’s non-consent, nothing more. This flew in the face of the requirement on the seller’s part to exercise the clause reasonably, and in good faith.

Indeed, the seller conceded in his evidence that without his brother’s consent – which was not forthcoming – he was not prepared to close. This meant that the reason for repudiating the deal had nothing to do with getting the approval of a lawyer, and there was no evidence that either the mother or the brother ever consulted one.

The court added that the wording of the Solicitor’s Approval clause was unambiguous on its face, and contained no mention of the mother, the brother, or their consent. The circumstances surrounding the seller’s personal family tragedies could not overwhelm its clear wording. Since the seller had not terminated the deal in accordance with the clause (i.e. solicitor approval), the court concluded that the agreement remained valid. See: KNRS Acquisitions Inc. v. Fariad, 2018 ONSC 5019 (CanLII).