On March 11th, 2020, the World Health Organization declared the recent outbreak of Coronavirus (COVID-19) across the world as a pandemic. Many workplaces have rushed to shift their employees to commence work on a remote basis. The real estate industry has already felt the impact from COVID-19 but lawyers continue to offer legal services to their clients.
House Purchase before COVID-19
The Financial Post recently wrote an article on the purchase of homes before and after the COVID-19 outbreak which can be found here: https://business.financialpost.com/real-estate/mortgages/if-you-bought-a-house-before-the-coronavirus-crisis-hit-dont-expect-force-majeure-to-save-you.
The article discusses what happens to buyers seeking to rescind their agreement of purchase and sale (‘APS’) if the market cools (i.e. the price of properties drops drastically). The parties are also bound by the terms of a contract when the value of a property drastically rises in value, as confirmed by the Court of Appeal for Ontario in Paterson v Stilton.
As alluded to in the Financial Post article above, standard real estate transactions do not include force majeure clauses in the APS. Those entering into an APS after the outbreak of COVID-19 should expect their realtor to place a force majeure provision or similar clause to protect against any future closures of land registry offices or financial institutions.
Without such a provision, the parties to an APS, both the buyer and seller, are bound by the terms of the contract itself. If you fail to close the transaction as contemplated in the APS, the consequences can be dire (loss of deposit and potential court action by the opposing party to the contract).
Frustration of Contract
An open question in the current legal environment is whether COVID-19’s repercussions on lending and other aspects of the purchase and sale of real estate could render a contract “frustrated”.
The Supreme Court of Canada, in Naylor v Ellis-Don, found that a contract is frustrated when, due to a supervening event for which no provision was made by the parties, the performance of the contract becomes radically different from that which was undertaken. This essentially means that it has become impossible for the obligations under the contract to be performed. Increased difficulty or cost is generally not enough to render an obligation impossible.
There is currently very little case law on whether or not a pandemic outbreak would frustrate a contract. Absent a force majeure clause specifically contemplating a pandemic (or whatever peril there may be), it will be up to the courts to decide whether a buyer or seller could be excused from their obligations under a contract due to COVID-19 related issues.
Open for Business
Many law firms, like Mills and Mills LLP, are still open for business. The Government of Ontario has deemed real estate business to be an essential service. Our law firm is prepared to assist those who plan to buy, sell, or refinance their home during the COVID-19 outbreak, whilst practicing social distancing. This will be accomplished by using technological measures such as videoconferencing to interact with their clients. Real estate lawyers can utilize applications such as Zoom, Skype and WhatsApp to review and explain legal documents to their clients, along with verifying identity and acting as commissioners of oath.