A buyer submits an offer with a financing condition that must be satisfied by 5:00 PM on March 15th. On March 14th at 3:00 PM, the buyer's mortgage application is denied. What should the buyer do?
Correct Answer
B) Immediately notify the seller in writing that the condition cannot be satisfied
When a buyer knows a condition cannot be satisfied before the deadline, they should promptly notify the seller in writing to terminate the contract. This demonstrates good faith and allows both parties to move forward rather than waiting unnecessarily for the deadline to expire.
Why This Is the Correct Answer
Option B is correct because it reflects the principle of good faith dealing required in real estate contracts. When a buyer knows with certainty that a condition cannot be satisfied, they must promptly notify the seller in writing. This allows both parties to terminate the agreement and pursue other opportunities rather than waiting unnecessarily for the deadline. This obligation is supported by common law principles of good faith and fair dealing that govern contractual relationships in Canadian real estate transactions.
Why the Other Options Are Wrong
Option A: Wait until the condition deadline expires to automatically void the contract
Waiting until the deadline expires is poor practice and violates good faith dealing principles. While the contract would technically expire, this approach unnecessarily delays both parties from pursuing other opportunities when the outcome is already known. It demonstrates unprofessional conduct and could potentially expose the buyer to claims of bad faith dealing.
Option C: Submit a new offer with different financing terms
Submitting a new offer doesn't address the current contract situation and could create confusion about which agreement is in effect. The buyer must first properly terminate the existing contract by notifying the seller that the condition cannot be satisfied before pursuing new arrangements.
Option D: Request a 30-day extension to find alternative financing
The buyer cannot unilaterally request an extension when they already know the condition cannot be satisfied. Extensions require mutual agreement, and requesting one when financing has been definitively denied would not demonstrate good faith dealing with the seller.
Deep Analysis of This Contracts & Agreements Question
This question tests understanding of condition fulfillment obligations and good faith dealing in real estate contracts. When a buyer knows definitively that a condition cannot be satisfied before the deadline, they have a duty to promptly notify the seller rather than allowing the contract to remain in limbo. This principle stems from the doctrine of good faith in contractual dealings, which requires parties to act honestly and reasonably. The scenario demonstrates a common situation where mortgage pre-approval doesn't guarantee final approval, and buyers must understand their obligations when financing falls through. This concept is crucial because it affects both parties' ability to pursue other opportunities and demonstrates professional conduct expected in real estate transactions.
Background Knowledge for Contracts & Agreements
Real estate purchase agreements contain conditions that must be satisfied by specific deadlines. Common conditions include financing, inspection, and title searches. When a condition cannot be satisfied, the affected party must provide written notice to terminate the contract. This obligation stems from good faith dealing principles in contract law. The duty to act in good faith requires parties to be honest, reasonable, and not deliberately obstruct the other party's performance. Failure to promptly notify when a condition cannot be met may constitute breach of good faith dealing.
Memory Technique
The KNOW RuleKNOW = Keep Notifying Other When conditions can't be met. Think of it like calling to cancel dinner plans as soon as you know you can't make it - don't wait until the last minute when everyone is already at the restaurant waiting for you.
When you see condition deadline questions, remember KNOW. If the party already knows the condition can't be satisfied, they must immediately notify the other party in writing, not wait for the deadline to expire.
Exam Tip for Contracts & Agreements
Look for scenarios where someone already knows a condition can't be met before the deadline. The answer will always involve immediate written notification to the other party, not waiting for automatic expiry.
Real World Application in Contracts & Agreements
A buyer gets pre-approved for a mortgage and submits an offer with a financing condition deadline of Friday at 5 PM. On Thursday morning, their lender calls to say the application is denied due to a credit issue discovered during underwriting. Rather than hoping for a miracle or waiting until Friday evening, the buyer's agent immediately drafts a notice to the seller's agent stating the financing condition cannot be satisfied, allowing the seller to immediately re-list the property and consider other offers.
Common Mistakes to Avoid on Contracts & Agreements Questions
- •Waiting for the deadline to expire instead of providing immediate notice
- •Thinking extensions can be requested unilaterally when conditions can't be met
- •Believing automatic expiry is preferable to written notification
Key Terms
More Contracts & Agreements Questions
What is the primary purpose of an Agreement of Purchase and Sale (APS) in a real estate transaction?
In a listing agreement, what does the term 'holdover period' refer to?
Which of the following is NOT typically considered an essential element for a valid contract under Canadian common law?
When can a conditional offer become unconditional in a real estate transaction?
A buyer submits an offer with a financing condition that expires at 11:59 PM on Friday. The buyer's mortgage application is approved at 10:30 AM on Saturday. What is the legal status of the offer?
- → In Ontario, what is the significance of the 'irrevocable' period in an Agreement of Purchase and Sale?
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- → A buyer's agent discovers that their client has been declared bankrupt but has not disclosed this information. The client wants to submit an offer on a property. What should the agent do?
- → What is the primary purpose of an Agreement of Purchase and Sale in a real estate transaction?
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A buyer submits an offer with a financing condition that must be satisfied by 5:00 PM on March 15th. At 6:00 PM on March 15th, the buyer's agent calls to say the financing has been approved. What is the legal status of this offer?
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A buyer submits an offer with a financing condition that must be satisfied within 5 business days. On day 4, the buyer's mortgage application is approved but they want better terms. What can the buyer legally do?