FAQ: Purchase Contracts

How does the purchase contract work?

The purchase contract is an agreement between two parties (a buyer and a seller) to purchase a home.  Like any contract, it is a legally binding document that both sides must adhere to once it’s finalized.

Are there any repercussions for breaking the contract?

In a word, yes.  The contract must be final and binding, though; in other words, you are bound to the contract once conditions have been removed.


If you decide to walk away from the contract after condition removal, you will be liable for any damages suffered by the other party as a result.  If the buyer walks away, the seller can claim damages for the lost sale, including any legal fees incurred, any decrease in the sale price for the subsequent sale, and any other costs incurred during the initial proposed transaction.  Likewise, if the seller walks away, the buyer can claim damages such as legal fees and mortgage fees incurred, the inspection fees, and the like.  As such, it is not recommended for either party to arbitrarily walk away from the contract.

What’s the difference between a “condition” and a “term”?

A condition is a clause that must be met prior to the contract becoming final.  Generally speaking, for real estate, the buyers insert conditions for financing (so that they get a mortgage for the purchase) and inspection (so that they can get a professional inspection done on the property).  If the buyers cannot meet either condition, then the deal falls through without penalty to either side.  The conditions are there for the person’s protection.  For example, if the buyer has a financing condition, and if he’s unable to get a mortgage, he walks away without penalty.  The inspection condition is to ensure that the property does not have any problems that could negatively affect the buyer.  If any major problems are discovered during the inspection, the buyer can try to negotiate a reduction in purchase price or to ensure that such problems will be dealt with before closing.


You should not use a condition as an excuse for backing out of the deal due to other unrelated reasons.  If, for example, the buyers’ only condition was for an inspection and they subsequently find out that they cannot, in fact, get financing, the inspection condition should not be used as an excuse.


A term, on the other hand, is a permanent clause of the contract that must be met by either party (or both) prior to possession.  All the numbered points on the contract are terms.  Additional items may be inserted into the contract; on the standard Alberta realtors’ contract, it is under Clause 7.6.  Such additional terms include specific items to be fixed or repaired (“kitchen lighting”), things to be completed before possession (“rough grade”), or unusual circumstances to be clarified (both sides must disclose if they are realtors or related to realtors).  If any of these terms cannot be met by the closing date, the lawyers may institute a “holdback”, which is a sum of money frozen and unreleasable until the offending party has completed the work.  Generally speaking, these terms are to be fulfilled by the seller, so the holdback would be against the seller.

What happens if the transaction is closed late?

Purchaser’s fault: If the transaction closes late on the buyer’s side – for example, if mortgage funds are delivered late, or if the buyer is unable to obtain insurance prior to closing – it’s stipulated in the contract that the buyer pays interest at the rate of ATB Prime Rate + 3%, compounded daily, on the cash to close (that is, the money that is owed to the seller, taking into account any deposits and tax/condo fee adjustments) until the money can be delivered.  This includes any holidays and weekends.  This is regardless of whether or not it’s actually the buyer’s direct fault; even if, for example, the lender makes a mistake and deposits money late, because the error was on the buyer’s side, the buyer must pay the interest.  (The purchaser may be able to claim this back from the lender, but this would be solely between the two parties.)


Vendor’s fault: If the transaction closes late on the seller’s side, however, there is no contractual obligation for the vendor to pay any penalties.  The main reasons for a delay on the vendor’s end would be the inability to provide documents on time or the inability to complete a term of the contract prior to possession.  Again, because there’s nothing in the contract forcing the seller to pay a penalty, there will most likely be no compensation to the buyer for the delays unless a) the seller is willing to do so, and b) there were significant damages caused to the buyer by the delay that should be compensated for.


In either case, the transaction may simply be delayed, or alternatively, if the buyer requires possession, keys may be released to the purchaser on a “tenancy-at-will” basis.  Please note, however, that the vendor has to agree to the key release, and there is no guarantee the seller will be able, or willing, to release keys.

I heard my realtor talk about “tenancy-at-will”. What is it?

Tenancy-at-will is the basis on which keys are released to the buyer prior to the money being delivered, if the money cannot be transferred to the seller’s lawyer on the day of closing.  Generally speaking, the buyer must have met all requirements required by the lender and under the contract.


This includes bringing in the shortfall (the full amount of funds required from the buyer, excluding the mortgage advance), having insurance on the property, and meeting all mortgage conditions.  Normally, the only outstanding issue permissible is registration (putting the property into your name) or mortgage funding.


As stated earlier, should the fault be on the buyer’s end, the buyer is forced to pay late interest, which on the typical real estate agent contract is ATB Prime + 3%.  Should it be on the seller’s end, or should the fault lie with both parties, then the interest is normally reduced to the buyer’s mortgage amount at his mortgage rate.  In certain circumstances, the seller may agree to waive late interest completely.  This may be when the issue is completely the seller’s fault, or if the seller and/or the solicitor handled the issue poorly, or if the seller and solicitor simply agree to waive it.


Please keep in mind that for tenancy-at-will, the choice of key release lies generally with the seller , and that contractually, the late interest rate is at Prime + 3%.  The Alberta Real Estate Association contract (used by realtors) was modified in 2013 to allow for a reduction of interest when it is the seller’s side that causes the delay, and it now requires the vendor to release keys in certain circumstances.  Regardless, you should speak to your lawyer about this because key release is not guaranteed.

What is “Buyer beware”? Is there any recourse if I, as a buyer, discover problems after possession?

“Buyer beware” means exactly that – buyer, beware.  In Alberta, there is no duty to disclose, which means that no matter the history of the home, the seller does not have to disclose anything.  This is in contrast to other provinces which have a checklist that the sellers must complete with the contract.


Keep in mind that on the standard contract, the seller represents that:

  •       S/he has the legal right to sell the property;
  •       The land and buildings comply with current bylaws;
  •       There are no encroachments (or if there are, encroachment agreements are registered on the land title); and
  •       As far as the seller is aware, there is nothing on the property that would make the property possibly dangerous or unfit for habitation.


Please note that there is nothing requiring the seller to disclose any repairs or issues that were fixed (or left unfixed) on the property, nor does he have to inform of any unusual events on the property (for example, previous insect infestations that have since been dealt with or any previous owners passing away on the property).  Also, with the last point, the key point is “as far as the seller is aware”.  This means that if any harmful materials are discovered on the premises, unless the buyer can prove that the seller knew of this beforehand, the seller has no liability for the issue.


Finally, this also means that any and all problems with the property become the purchaser’s responsibility upon possession, unless the vendor is contractually obligated to rectify the issue.  For example, if the roof starts leaking a week after possession, the seller bears no responsibility, as the seller has absolutely no obligation to disclose that this roof is prone to leaking.


The one exception to “Buyer beware” is in cases of fraud.  If there is an issue with the property that the seller must have known, and if there is proof that the seller lied about the issue directly or clearly misrepresented something, the buyer has the right to file a claim against the seller if he wishes to proceed with the same.  For example, suppose the buyer e-mails the seller to see if the roof was ever repaired, and the seller states that it was untouched.  If the buyer discovers a leak after a rain storm, and if the buyer also discovered that there was a crudely filled-in hole in the roof, the buyer may have a claim against the seller.  However, the buyer would also have to prove that these repairs were done recently and not by any older owner (prior to the seller owning the property).  For any such claims, it is always recommended that you speak to a litigation lawyer for advice.


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