Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300
Toll Free: 1-888-507-0817

 

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Irrevocability Clause - Resolving the Ambiguity

April 8, 2016 - Updated: April 8, 2016

Irrevocability Clause –Ambiguity Resolution

 

One of the very basic steps in the Offer/Acceptance interplay is the irrevocability provision. One would expect absolute certainty here, but do we actually have it?

 

Irrevocability Provision

 

This is the standard clause used in the OREA standard Form (2016 version):

 

 

1. IRREVOCABILITY: This offer shall be irrevocable by ................................(Seller/Buyer)..................................... until .............. a.m./p.m. on the .............. day of ................................................................... 20 ........., after which time, if not accepted, this offer shall be null and void and the deposit shall be returned to the Buyer in full without interest.

 

This provision has been used for years and seems straightforward enough.

 

Review

 

It is an Offer.

By Whom?

Until When?

What are the Consequences?

 

It is an Offer.

 

The first statement identifies the document as an Offer. The title is IRREVOCABILITY. So, you might expect that it would indeed be irrevocable, but is it?

 

No, it’s not irrevocable at all. And, just because it says that it’s “irrevocable” doesn’t make it irrevocable.

 

To find the answer to that question, we have to look for a “seal”. There is no consideration for the irrevocability promise, so that would not be enforceable. The irrevocability provision is simply a gift. It is not a contractual obligation. At this point, we don’t have a contract.

 

The “seal” would do it. If there is a “seal” that would replace the need for consideration and make the promise binding.

 

You will see that there is a black dot beside the location on the document where the signatures are to be placed. Under the black dot is the word “seal”. The intention with the OREA document is that the black dot is in fact to be a “legal seal”. That should be explained by the respective real estate agents to each of the signing parties. They need to know and understand the implications.

 

If the seal were obliterated or marked off, or the words “no seal” were added, then the Offeree must accept the Offer before communication of the fact that the Offer has been revoked. Acceptance after that point, would be too late.

 

By Whom?

 

There is a line to select either the Seller or the Buyer. In most cases, the Offer will be initiated by the prospective Buyer. So, the line should be completed by inserting “Buyer”. If it said the name of the Buyer, that would be sufficient too.

 

On a Counter-Offer the word “Buyer” should be struck out and the word “Seller” inserted.

 

A common mistake, is that this word remains unchanged. Everything else is amended appropriately and initialed but through oversight, “Buyer” still remains in the Seller’s Counter-Offer. This is not fatal. It’s irregular and it’s improper, and it will not get you good marks on an exam, but most Judges will ignore this oversight.

 

The problem is the 5th or 6th signback! While the first Offer required no initials, the first Counter-Offer did. And, the 6th signback has initials from two parties times six. That’s 12 sets of initials! Unless one is using 7 different pens, no one will be able to figure this out. The first page will simply be a complete mess.

 

There is an obligation under the Code of Ethics to produce clear and legible Agreements. Even if all 10 pages of the document are clear and legible, this very basic formulation of the contract would not be. So, that’s risky. There’s just not enough room. Consequently, you should be using a new copy at this point.

 

Until When?

 

This is the spot where we run into some ambiguity. The document says:

 

until ........ a.m./p.m. on the ....... day of ........................ 20 ....,”

 

This part of the clause calls for the insertion of the time, selection of “a.m. or p.m.” and the insertion of the day, month and year. Time and date are to be taken from the location of the property which is the subject matter of the transaction. The peculiar word here is “until”. Just exactly what does that mean?

 

Let’s say the clause was completed as follows:

 

“until 8:00 p.m. on the 9th day of April 2016,”

 

There is no problem with the day, the month and the year. There could potentially be a problem with the time.

 

Here, we have two choices for the deadline:

 

1)    7:59 pm,

2)    8:00 pm.

 

Would an Offer accepted at 8:00 pm already have expired? It’s possible. You might ordinarily think that this would be a very, very rare set of circumstances. However, “8:00 pm” in our example is frequently selected.

 

Assume that one of the parties has second thoughts and wants out of the deal. Will this be enough? It will have to be early on, without any condonation or confirmation of the Agreement and it will have to be the Offeror stating that the Offer had expired and was not open for acceptance at that time.

 

The first place to search for this should be Google. That website seems to know everything. While all the online dictionaries either avoid the question or leave the matter ambiguous, the number one ranked website for that question is found here:

 

http://www.quickanddirtytips.com/education/grammar/does-until-include-the-date

 

It may not be scholarly. I was hoping for a definitive dissertion by an English Professor from Oxford University, however, Google provided a different resource on this point. Ultimately, the conclusion was this statement concerning “time” is somewhat ambiguous.

 

This leaves open for a Court decision in the future as to whether “8:00 pm” would in fact be one minute too late.

 

Suggested Alternatives

 

To be absolutely clear, say something such as,

 

1)    “up until and including 8:00 pm”, or

2)     “no later than 8:00 pm.”

 

In one of the Schedules to the Agreement, you could cover off this issue by stating:

 

“UNTIL” as used in the irrevocability provision shall mean “up to and including the specified time”.

 

This way, you catch that extra minute by adding absolute certainty!

 

What are the Consequences?

 

There are two results:

 

1)    Acceptance, and

2)    Expiration.

 

Acceptance: If the Offer is accepted within the irrevocable period, we have a contract. It is a legally binding Agreement between the parties. There should be no mistake about that. Unfortunately, some people will conclude that if there are conditions, then, there’s no deal until it firms up. This is a mistaken belief. It’s not true.

 

The contract (even with terms specified as conditions) commenced upon acceptance.

 

Expiration: This part of the clause reads as:

 

“after which time, if not accepted, this offer shall be null and void and the deposit shall be returned to the Buyer in full without interest.”

 

There are a few matters to note here. It is the Offer which became “null and void”. There never was a contract. The deposit is to be returned 1) in full, and 2) without interest.

 

In most situations, the deposit would not be cashed. Sometimes, there are exceptions, particularly in longer term commercial transactions. There may be a “non-refundable payment” in the form of a deposit, which is to be retained by the Seller, even if the Offer does not result in a contract. In that case, this provision would require amendment. Additionally, there may be issues about interest on the deposit. This clause says “no interest”. As long as that is the intention, then no changes need be made. For residential transactions, this matter should not be an issue.

 

Bidding Wars

 

If you are the Seller and you just held a bidding war, be on the safe side and accept the best Offer by 7:59 pm. Why run the risk!

 

The successful bidder may soon think of himself as the “successful loser”. He just outbid everyone else! No other person on the planet thinks your property is worth as much as he thinks it is. Neither do you, you just sold it. The appraiser agreed with the two people who did a little more homework and tied for second place. They think the property is worth $100,000.00 less.

 

Do, you think that your Buyer may have second thoughts? Do you think he may now believe that he overpaid? Do you think he may ask his lawyer if there is any way out of this deal? Do you think that if he still likes the place he might want to renegotiate the deal, by paying a little less?

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

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