Better Offer: Can You Side-Step The First Deal?

What if you get a better house offer after you’ve (sort of) accepted the first offer?

Say you got the house in your divorce and list it for sale in a rising market. You receive an offer of $5.8 million and a deposit of $260,000. You’re not experienced in business matters, so your agent adds a subject condition for your benefit, stating the contract is subject to your legal representative/lawyer’s approval of its terms. With this, the purchase contract is agreed on Saturday, and your agent arranges for you to meet with a lawyer the following Monday.

Meantime, another potential buyer also views your house that Saturday and again Sunday. He makes an offer Monday morning for almost $170,000 more than the price you agreed to in the earlier contract; the deposit is higher too, at $400,000.

Later that Monday, you meet with the lawyer. You show him your earlier contract and the later offer. He goes over and compares some of their key terms for you. Both documents are on the printed standard form used in B.C. for residential deals, so the main differences involve some specifics of the two deals (like the obviously higher price and deposit of the later offer, and that for both, you might end up with just the deposit if the deal collapses).

Shortly after, you counter the second offer for a somewhat higher price. After the second buyer accepts your counter-offer, your agent notifies your first buyer that you won’t be removing the subject condition in the earlier contract.

Now things get nasty. Your first buyer doesn’t accept the cancellation, puts a notice on the title to your house so you can’t complete the later contract, and sues. He wants “specific performance” (i.e. a court order that you must go through with your earlier deal with him). You object, saying you didn’t waive the “lawyer approval” condition put into the contract.

Can you escape the earlier deal?

The BC Supreme Court pointed out that when a real estate contract is made subject to the approval of a third party (e.g., a lawyer), you have to act in good faith, and take reasonable steps to complete the contract; good faith is a general “organizing principle” in the performance of any contract. (For example, a buyer can’t just cancel and walk away from a purchase contract that’s subject to their lawyer’s approval, without even going to see a lawyer.)

Here, there was nothing legally wrong with or invalid about the first purchase contract. The subject condition in that contract was only about the terms and conditions of that contract – the seller didn’t even know a second offer would be coming. Her decision to try and cancel the first contract (after waiting for the later offer to be accepted) wasn’t really about her lawyer’s advice, but rather about getting more money.

So the court decided she couldn’t walk away from the earlier contract and had to go through with it.

This column has been written by Janice Mucalov LL.B as part of “You And The Law”. It provides information only and must not be relied on for legal advice. Names of the parties in reported cases have been changed or removed to protect their identity. Lawyer Janice Mucalov is an award-winning legal writer.

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