Getting Around the Bhasin Decision
From time to time, it’s necessary to submit an Offer which is truly “conditional” and that condition is really to be based upon the Buyer’s own whimsical and capricious decision-making process.
It’s “open-ended” for the Buyer and it’s “risky for the Seller. However, sometimes, it’s a “go-ahead”, so the question really is what would you actually say?
Remote, Vacant Land Purchase Consideration
John wants to buy some vacant land, three hours north of Toronto where he lives, but, he doesn’t want to buy it sight unseen and be stuck with it, nor does he wish a 6 hour return trip to view it. The Seller is in agreement to strike a deal with John on price and terms subject only to John having a chance to look at the property afterwards. If he doesn’t like it for some reason, then the deal is off.
The Supreme Court of Canada stated in Bhasin v. Hrynew on 14 November 2014, that there was a duty of “good faith contractual performance in all contracts”. Essentially, that changed the test when a conditional clause was reviewed by the Courts from subjective to objective.
The wording which is commonly included is that the particular item, whatever it may be (inspection, financing etc.) is satisfactory to the Buyer in the Buyer’s sole, absolute and unfettered discretion.
Consider a home inspection clause and a faulty GFI outlet. How do you deal with the issue of “absolute discretion? It used to be assessed on a subjective basis and now (after Bhasin) it will be determined on an objective basis. So, Bob the Buyer has this clause and suddenly changes his mind. He points to the GFI and says “that’s enough for me”.
On a subjective basis, we just look to Bob.
But, on an objective basis we have a slightly different question: “what would a reasonable person in Bob’s position do in all of the circumstances?”
It’s here, that we would ordinarily conclude: “one GFI on a million dollar property, that doesn’t make sense!”
Similarly, with a financing condition, Bob must demonstrate that he sought financing, completed the required application, considered alternatives, including a VTB.
So, we really need a solution for John that will work in light of the Bhasin decision.
“John Smith, the proposed Buyer, has not had an opportunity to inspect the property, and consequently, this Offer is conditional upon such examination by John Smith, as follows:
- This condition is to be assessed on a subjective basis rather than an objective basis,
- This is a condition which may in fact reduce this agreement to an option to purchase,
The property is to meet the personal standards of John Smith, and be satisfactory to him, in his discretion, such discretion to be determined subjectively in respect to John Smith’s personal preferences.
Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the 14th day of November, 2018, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction.
The Seller agrees to co-operate in providing access to the property for the purpose of this inspection and examination. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.”
Courts will still permit the Buyer’s unfettered and absolute discretion. We just have to say so. Here, the parties agreed to that and it makes sense in the context of the deal. Effectively, John had an open-ended deal to buy the property for a certain period of time and a completely free “walk-away” which was acceptable to the Seller.
Courts will enforce that. They just need to know that the parties agreed to that provision.
Brian Madigan LL.B., Broker