When is a Condition a True Condition Precedent?
| March 19, 2013
In a recent court case, the Court of Appeal of Alberta sided with a developer concerning whether or not a clause in a purchase agreement constituted a “true condition precedent.”
A clause is a true condition precedent if the satisfaction of the condition within the clause is dependent on a future uncertain event, the happening of which depends entirely on the will of a third party. For example, a clause stating that a buyer’s offer is conditional on the buyer acquiring a neighbouring piece of property would be a true condition precedent, as the act of buying that neighbouring property is entirely dependent upon the will of a third party, in this case the owner of the neighbouring property. Conditions that are deemed to be a true condition precedent usually benefit both parties, and cannot be waived by one of the parties to the contract. The condition is dependent on the third party event occuring.
The facts of the case are as follows:
- The buyer purchased a condo unit on April 19, 2007, paying a large deposit.
- The agreement had no fixed completion date.
- The agreement was made subject to the condition that: “The Developer shall register the Phased Condominium Plan creating the units shown on Schedule 1 on or before September 20, 2008.”
- The developer registered the Phased Condominium Plan on May 6, 2009.
- On August 18, 2009, the buyer was given notice of a possession date of October 22, 2009.
- In early October 2009, by way of letter, the buyer referred to concerns he expressed to the developer in late September 2009 about the proposed October 22, 2009 possession date (concerns related to adequate completion) and proposed that the developer delay possession at least three months.
- On November 23, 2009, the buyer, through his lawyer, informed the developer that he would not complete the purchase due to a material change in his financial circumstances.
- The developer notified the buyer that he had terminated the contract and therefore they would be keeping the deposit made on the property.
- The buyer protested and along with the developer sought summary judgement from a Master (a judge outside of a courtroom setting).
- The buyer claimed the developer had in fact voided the agreement when it failed to register the Phased Condominium Plan on or before September 20, 2008. The buyer claimed this clause was a “true condition precedent.”
- The Master granted judgement in favour of the developer on the basis that the clause was NOT a true condition precedent.
- The buyer appealed to the Court of Queen’s Bench.
- The appeal court acted in favour of the developer, confirming that the clause was NOT a true condition precedent.
The court’s decision is based on the fact that according to the wording of the clause in the contract, there is no suggestion that the involvement of an uncontrolled third party could frustrate the ability of either the developer or the buyer to complete the agreement. There is an implied third party involved in the registration of the condo plan (the Land Titles Office), but the Master judged the possibility of the Land Titles Office refusing to register the plan to be “remote.” The Master and the Court also found that the breaching of this clause was something that could have been easily dealt with at the time of the breach if the buyer made a timely objection.
What do you think? Should the buyer be entitled to the return of his deposit?