A buyer's offer includes the condition 'subject to buyer arranging satisfactory financing at prevailing rates.' The buyer is pre-approved for a mortgage at 5.5% but wants to remove the condition because rates have increased to 6.2%. The buyer's agent advises this violates the 'satisfactory financing' requirement. Is this advice correct?

Q: What is the correct answer to: A buyer's offer includes the condition 'subject to buyer arranging satisfactory financing at prevailing rates.' The buyer is pre-approved for a mortgage at 5.5% but wants to remove the condition because rates have increased to 6.2%. The buyer's agent advises this violates the 'satisfactory financing' requirement. Is this advice correct?

The correct answer is No, because 'satisfactory financing' and 'prevailing rates' are subjective standards determined by the buyer. Option B is correct because 'satisfactory financing' and 'prevailing rates' are subjective conditions that give the buyer discretion to determine acceptability. Canadian courts consistently interpret such subjective language as being for the sole benefit of the buyer, allowing them to decide what constitutes 'satisfactory' based on their personal circumstances, risk tolerance, and financial situation. The buyer has the right to determine if 6.2% rates meet their definition of 'satisfactory,' regardless of pre-approval at 5.5%.

Q: What background knowledge is needed for this Contracts & Agreements question?

Subjective conditions in real estate contracts are terms that allow one party (usually the buyer) to determine satisfaction based on their personal judgment rather than objective criteria. Common examples include 'satisfactory financing,' 'satisfactory inspection,' or 'satisfactory to buyer.' Courts interpret these as conditions precedent that benefit the named party exclusively. The beneficiary must act in good faith but has broad discretion in determining satisfaction. This principle is established in Canadian case law and protects parties from being forced into unwanted transactions when subjective language is used.

Q: What is a good way to remember the answer to this Contracts & Agreements question?

Remember 'SUBJECTIVE': Subject to buyer = Buyer's choice. When you see subjective language like 'satisfactory' or 'acceptable to buyer,' think of it as giving that party a 'get out of jail free' card - they decide what satisfies them, not the market or other objective standards. When you see contract questions with words like 'satisfactory,' 'acceptable,' or 'to buyer's satisfaction,' immediately identify this as subjective language giving discretion to the named party. Look for the answer that emphasizes the party's right to decide, not objective market standards.

Q: What exam tip applies to this Contracts & Agreements question?

Look for subjective language like 'satisfactory' or 'acceptable to buyer.' These give the named party discretion to determine satisfaction based on personal judgment, not objective market standards or predetermined thresholds.

Q: How does this Contracts & Agreements concept apply in real world practice?

A buyer includes a condition 'subject to satisfactory home inspection.' Even if the inspector finds only minor cosmetic issues that most buyers would accept, this buyer can still remove themselves from the deal if they personally find these issues unsatisfactory. The buyer's agent should explain that 'satisfactory' means satisfactory to the buyer personally, not to a reasonable person standard. The buyer has discretion to determine what meets their personal satisfaction level.

Question

Contracts & AgreementsConditionsHARD

A buyer's offer includes the condition 'subject to buyer arranging satisfactory financing at prevailing rates.' The buyer is pre-approved for a mortgage at 5.5% but wants to remove the condition because rates have increased to 6.2%. The buyer's agent advises this violates the 'satisfactory financing' requirement. Is this advice correct?

Answer Options

A

Yes, because 'satisfactory financing' requires rates at or below the pre-approval rate

B

No, because 'satisfactory financing' and 'prevailing rates' are subjective standards determined by the buyer

C

Yes, because an increase of more than 0.5% makes financing legally unsatisfactory

D

No, because the buyer was already pre-approved and rates of 6.2% are still considered prevailing