Forest fire season has officially arrived in the Okanagan. The smoke in the air is a good reminder of the importance of turning your mind to the possibility of delays in closing real estate transactions as a result of nearby natural disasters such as forest fires and floods.

Most insurance companies will not bind an insurance policy if there is a natural disaster within a certain proximity of the subject property. If the lender requires proof of insurance prior to advancing mortgage proceeds, which is generally the case, a nearby natural disaster is likely to cause a delay in completing the real estate transaction.

If the real estate transaction is a refinance, there is usually relatively little harm caused by a delay in closing.  If the real estate transaction is a purchase, the purchaser would be in breach of the contract of purchase and sale unless they have alternate funds available to complete the transaction on the scheduled completion date. If the real estate transaction is a sale and the seller is relying on sale proceeds to purchase a different property, the seller would be in breach of the contract of purchase and sale for the property that they are purchasing with the sale proceeds unless the seller has alternate funds available to complete their purchase on the scheduled completion date.

If a purchaser or seller becomes aware that they will not be ready, willing and able to complete their purchase on the scheduled completion date, it is prudent to seek an extension. Of course, there is a risk that the other party may not grant the extension in which case the party in breach may be legally responsible for damages (losses) suffered by the other party as a result of the purchaser’s breach of the contract of purchase and sale.

The best practice to protect yourself and/or your clients is to expressly include an automatic extension of the completion, possession and adjustment dates in the event that the purchaser is unable to secure fire/property insurance as a result of a current forest fire, flood or similar natural disaster in the contract of purchase and sale. For example:

The Buyer and Seller mutually agree to extend the Completion, Possession and Adjustment dates by thirty (30) days respectively should fire/property insurance not be available to the Buyer on the Completion Date, as a result of any current forest fire, flood or similar natural disaster alerts, warnings or evacuation orders in the Okanagan.  The Buyer shall use all commercially reasonable efforts to obtain fire/property insurance promptly after acceptance of this Contract of Purchase and Sale.  Should fire/property insurance become available during the thirty (30) day extension, the Buyer and Seller agree to complete the transaction forthwith and in any event within seven (7) days of the fire/property insurance becoming available.  No further extensions will be granted without the written consent of the Seller.  The Buyer and the Seller confirm that, in the event that an extension is effected pursuant to this clause, this Contract shall remain firm and binding and time shall remain of the essence during the above extension period.

This type of provision is worth its weight in gold during the spring and summer months in the Okanagan, but is prudent to include in real estate contracts throughout the entire year.

If you have any questions with respect to the above, please feel free to contact one of our lawyers practicing in the area of real estate law.

Author: Danielle (Dani) Brito

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: