By Bob Aaron
The organization representing Ontario’s 70,000 Realtors has published four confusing and dangerous COVID-19 clauses for members to consider using in purchase agreements.
The Ontario Real Estate Association (OREA) is an advocacy group for Ontario’s Realtors. It publishes the standard forms used by all real estate agents in the province and has a committee that regularly updates them.
This time, however, OREA has missed the mark.
OREA’s four new “state of emergency” clauses are posted on its members-only website to “assist” parties to real estate contracts in coping with the ongoing pandemic.
Katarina Markovinovic-Praljak, OREA’s media relations chief, emailed me to confirm that its state of emergency clauses were created and vetted by the organization’s legal counsel and staff.
The OREA clauses are similar to the ones distributed by some law firms and real estate brokerages and which I wrote about last month. In an e-bulletin last month, Sidney Troister, a partner at Toronto’s Torkin Manes LLP, cautioned against their use. Troister is a director of the Law Society of Ontario and is widely respected as being one of Ontario’s leading real estate lawyers.
I fully endorse Troister’s criticism of the clauses.
The main clause on OREA’s website states that if the buyer or seller is unable to complete the transaction because the bank or institutional lender of either party or the land registry office has temporarily ceased operations, then the closing is extended to two working days after restoration of services. And if the delay exceeds a stated number of days, then either party may terminate the transaction.
In many years of practising real estate law, I can honestly state that this OREA clause is the worst real estate clause I have ever seen.
The clause is vague as to the meaning of “temporarily cease operations.” As well, it is certain that neither the banks nor the land registry offices nor any institutional lenders will be closing during the pandemic.
Even if that were to happen, trying to revive a postponed transaction within two days in the COVID-19 environment is highly unrealistic.
But the real kicker in that clause is the option it gives to either side to terminate the transaction. This would probably be the exact opposite of what one or more of the parties want. It would frustrate their expectations of closing the transaction, deprive the agents of their commission and inevitably lead to litigation.
In my view, for OREA to publish and appear to endorse a confusing clause allowing termination of a binding agreement is irresponsible in the extreme.
Two more clauses on the OREA website allow for electronic signatures on “any other documents” and “any closing documents” respecting the transaction.
For agreements of purchase and sale, this is unnecessary because it is already provided for by statute, but closing documents including deeds, mortgages and affidavits cannot be signed by electronic signatures. So-called “wet” or ink signatures are still required by banks, real estate lawyers and the Law Society, even if they are scanned or faxed.
In response to my request for comment, all Markovinovic-Praljak would say to me was that OREA’s standard forms team would be reviewing my feedback, that the clauses are template tools to assist members, and that they are encouraged to seek brokerage and legal advice prior to using them.
I’m not the only real estate lawyer who believes that the use of these OREA clauses or similar ones is extremely dangerous and could eventually lead to litigation among the contracting parties and the agents who drafted the agreements.
The COVID clauses do not inspire confidence in OREA’s reputation.