Navigating the complexities of a real estate transaction is not always easy. Recognizing when a contract is legally binding is critical to identifying your legal obligations and avoiding a legal proceeding.
In this Briefing, we go over key things to review when determining when a legally binding contract has been formed.
Key Elements of Contract Formation
At the outset, its important to identify the five essential components that must be satisfied when a contract is formed:
1. Consensus: The Parties must have reached agreement to the key terms of a contract.
2. Consideration & Payment: There must be some commitment (usually a financial payment) exchanged.
3. Capacity. Each party must be legally capable of entering into the agreement.
4. Public Policy. Both the agreement and the underlying goods exchanged must be legal and not against public policy. By way of example, a contract to perform a crime is not a legal contract.
5. Intention. Both parties must intend to have entered into a contract.
As long as one of these elements is missing, there is no valid contract in existence. In other words, there is likely no contract formed if there is no agreement on
- what is being purchased
- for what price and
- when payments are in fact due, .
Key Dates in the Standard Real Estate Agreement
The vast majority of real estate transactions first set out in one of several standard forms provided by the Ontario Real Estate Association. With each form varying depending on what is being bought and the structure of the transaction, here are some important things to look out for when reviewing your agreement:
- Irrevocability. Once an offer has been communicated to the other side, the offer cannot be revoked for a stated date. If the offer has not been accepted by this date, the offer is automatically revoked and the Purchaser is entitled to the return of the deposit.
- Title Search: Once the offer is accepted, the Purchaser has until the Requisition Date to examine title and review work orders.
- Conditional Period. Parties can agree to have the agreement being conditional on other provisions.
While every transaction is different, legal agreements are likely legally binding if all conditions in the transaction have been waived. It’s for this reason that the interests of the purchaser are generally advanced by including more conditions to the execution of the contract. Conversely, the Seller seeks to have fewer conditions to the Purchase Agreement so that there are less barriers to closing the transaction.
Experienced Real Estate Lawyers
Understanding your legal obligations as either purchaser or vendor in your real estate purchase is critical to avoiding expensive lawsuits.
If you have questions about your real estate purchase and sale agreement or are looking to close a real estate transaction, please contact our staff. We would be pleased to serve you.