We regularly see real estate contracts that impose obligations on the seller of the property to complete some work prior to the closing date (generally at the seller’s expense).  Sometimes these issues arise from the buyer’s initial viewing of the property and, in other cases, it arises as a result of the buyer’s home inspection.  In either case, we often get asked questions about these types of terms and what they ultimately mean for a buyer if the seller does not do what they agreed to do.

Unless specifically contemplated in the contract, there is no right for a pre-closing inspection in British Columbia to see whether the work has been completed.  As the buyer takes possession (in the majority of cases) after the seller has received the sale proceeds and the property has been transferred which means they frequently do not know whether the required work has been completed until they own the property and have paid for it.  One recommendation to assist with this situation is to include a provision obligating the seller to provide a copy of the receipt and evidence of payment prior to the closing date.  At a minimum, this provides the buyer with some comfort that the work has been done (although it is of course not perfect). To aid in this, the more specific the documented agreement between the buyer and seller can be, the better for both parties as it would assist if there was a disagreement between the parties about what work should have been done.

The more pressing question we sometimes get is “what happens if the seller doesn’t do what they said they would do?”.  At the end of the day, the seller’s contractual agreement to do the work is just that – it is a contract between the parties regarding that term.  In most cases, this means that the buyer’s remedy is the same as it would be for any other breach of contract. The general rule is that a buyer cannot refuse to complete on the purchase if the terms have not been met unless the matter is fundamental to the contract between the parties.  Of course, this is not often an ideal situation for the buyer as they would be required to complete on their purchase and then seek recourse after closing (which often is time intensive and can be expensive).

Two other approaches of minimizing the risk of the seller not fulfilling their obligations under the contract are:

1. the buyer and the seller mutually agreeing to a reduction of the purchase price with the buyer taking on responsibility to do the work themselves. This is a fairly simple solution in many cases particularly if the buyer can get a reasonably close estimate on the cost of the work needed. Further, it also gives the buyer control over the work on their new property and avoids the complications discussed above. One thing to keep in mind is that the buyer’s lender should be aware of this change as it may impact the financing being arranged on the home ; or
2. setting up a holdback for funds to ensure the work is completed and, if it is not, the buyer has access to the seller’s money to do it following closing. While each situation is different and all options should be considered, there can be some challenges with the inclusion of a holdback.  First of all, the parties may not be in a position to accurately determine the cost of the work agreed to be done and the holdback would need to specify a very specific amount.  In addition, the terms surrounding the holdback itself must be very specific including who is holding the funds, for how long, what is required to release them, by whom and what happens in the event of a dispute.  In many cases, these provisions indicate that the lawyer will be the one to hold the funds.  If that’s the case, the lawyer who will be charged with doing so should be provided with the holdback language in advance to review and provide comments on as the release of funds held can be difficult without specific language.

As this can be a tricky area that is very dependent on the specific circumstances, we recommend that the various options be considered and the buyer seek advice from their lawyer as to the proposed arrangement.  Of course the seller should ensure they are comfortable with the arrangement as well and seek advice if appropriate.

Please do not hesitate to contact one of our lawyers practicing in the area of real estate law at 250-448-2637 if you have any questions regarding the above or any other real estate matter.

Author: Una Gabie

This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637 or any of our lawyers practicing in the area of real estate law at the following: