Schedule “B” Missteps
Schedule B is an extra schedule of terms and provisions included in an Agreement of Purchase and Sale by a Listing Brokerage.
It’s not mandatory.
A Listing Brokerage will often include this Schedule as a downloadable document on the MLS system.
The Buyer’s agent should read the document very carefully. If there is a schedule then it overrules and takes precedence over anything contained in the pre-printed part of the Offer.
The Forms are continuously updated by the Ontario Real Estate Association (OREA) so as to ensure that they are not out of date and don’t conflict.
Sometimes, it’s fine, and sometimes it’s just a disaster. It is the Listing Brokerage here which is usually in charge. An individual agent can probably intervene and ensure that it suits a particular Seller’s listing.
Often, the document is prepared, additional clauses are added, more clauses are added, no one checks for compliance or conflict with the Agreement itself, and the results can be rather disastrous.
Here’s a clause which I came across recently. It’s actually in common usage:
“In the event a certified cheque or bank draft deposit has not been provided “upon acceptance”, the buyer agrees to provide the listing Brokerage with a Certified Cheque or Bank Draft payable to ABC Realty, Brokerage within 1 BANKING DAY of the time registered of the Confirmation of Execution in the Agreement of Purchase.”
Well, what do you think of that? Seems a little strange!
No requirement for Certified Cheque
First, there was no requirement for a certified cheque in the standard form Agreement of Purchase and Sale. It would have been possible to have made this a requirement and that would have been the first step. But, that was missed.
There is no such thing as a certified cheque or bank draft deposit. The deposit might be paid by “certified cheque or bank draft”. But, that’s not the name of the deposit.
Provided Upon Acceptance
The clause says “in the event that a certified cheque or bank draft deposit has not been provided…”. Well, that should be most of the time. There was no requirement for that in the Agreement. So, are we now “in breach” or have we been provided with an indulgence or an alternative of some kind? This is not clear.
Upon Acceptance refers to within 24 hours; that means 23:59:59 hours. In fact, 24 hours would be one second too late.
Even though there was no requirement contained in the Agreement to pay the deposit by certified cheque or bank draft, the Buyer who paid by his own cheque or money order, or e-transfer, is requested to “pay again” Wouldn’t once be enough? Not according to this clause.
1 Banking Day
Assuming that the concept of “banking day” was properly defined in the Agreement in the same Schedule B, we have an extension of the time limit.
Let’s look as an example. Assume that the Offer was accepted at 4:00 pm on the Thursday before Good Friday. The deposit was due to be delivered on Good Friday by 3:59:59 pm, otherwise, the Buyer would be in breach. This clause appears to ignore the breach and provide an extension until Monday. Banking Days run full days, so that would be 11:59:59 pm on the following Monday.
Law of Deposits
Someone drafting this clause couldn’t really have a proper understanding of the law related to deposits. The Buyer would otherwise have been in breach by 4:00 pm on Good Friday and in a position to accept with impunity any second Offer over the weekend. In addition, the first Buyer would still be obligated to pay the deposit, (whatever amount that was) paid or not, as well as any losses the Seller might incur.
This substantial grace period was likely unintended by the Listing Brokerage. The Listing Brokerage is supposed to be protecting the Seller not taking away their rights under the standard Form Agreement.
There is no time registered. There never has been a time registered. No form of time registration has ever taken place. However, there is a time set out or stated, or included or specified etc. in the Agreement and apparently that’s the start of the 1 Banking Day. Registration is simply not a process in real estate transactions.
Confirmation of Execution
This is May 2019. The last time that a Confirmation of Execution appeared in a real estate transaction (properly, that is without error) would have been in 2007. That’s 12 years ago. There’s been plenty of time to update this clause to refer to the currently used Confirmation of Acceptance.
8 Basic Errors
These 8 basic errors in one simple clause do not speak well of the person who drafted Schedule “B”.
Whose Fault is it?
That’s difficult to say. There’s lots of blame to be shared around the table. This clause was poorly drafted and contained only 7 errors when it was first drafted over 12 years ago or more.
The problem was that it was never checked or reviewed by anybody. So, 12 years later, it’s still in use.
It was uploaded to the MLS system. It would be extremely doubtful that the Listing agent would ever have reviewed this document with the Seller. However, if you propose to use such a clause, you should have the Seller’s informed consent. Run it by them, run it by their lawyer and get approval of the wording before it’s uplifted to the internet.
This means certainly that the Listing agent is responsible for reading it, and understanding it. That’s unlikely, because it doesn’t make any sense. It’s also a clue that possibly some other clauses in this Schedule “B” might be suspect too.
Well, that’s good, but how did the Schedule arrive as part of the Agreement? It was downloaded, not read, printed off and attached to the Offer. So, it’s the Buyer’s agent’s fault here. You really can’t blame anyone else. It won’t be read to the Buyer, and the Buyer will likely be told that it’s “standard”.
The Seller’s agent will see Schedule “B” and simply say: “yes, that’s outrdocument..”. It won’t be explained to the Seller.
Naturally, later on, both agents will take the position that their respective clients knew and understood what they were signing. The concept of “informed consent” would not be discussed. Let’s blame the two parties who signed the Agreement: the Buyer and the Seller.
Real Estate Litigation
It will be difficult to have either agent explain this clause to a Court. However, it would be “fun”, since the clause makes no sense. The risk however befalls the Seller and the benefits befall the Buyer.
So, it’s really only likely that the Seller will be suing the Listing Brokerage and the Listing Sales Representative in this case.
Collateral Evidence of a Breach of Professional Standards
Let’s say that nothing happened. There is a lawsuit about something but it’s completely unrelated to this clause. The Buyer delivered a certified cheque for the deposit with the Offer. So, this clause really has no particular application to the case.
An Expert Witness offering testimony in Court will likely use the 8 errors as evidence of the fact that there was a breach of professional standards. It didn’t result in a loss, but let’s also go through the entire transaction and find as many transgressions as possible. What we might have is lots of additional errors. That amounts to “shoddy workmanship” and leads a Judge to make a decision on the relevant issues. The ones which were relevant were less clear, but all this shoddy workmanship piles up.
Brian Madigan LL.B., Broker