In a complex transaction, a buyer's solicitor discovers a restrictive covenant that significantly impacts the intended use of the property. The Agreement of Purchase and Sale contains no specific condition regarding restrictive covenants, but includes a standard 'good and marketable title' clause. Can the buyer terminate the agreement?

Q: What is the correct answer to: In a complex transaction, a buyer's solicitor discovers a restrictive covenant that significantly impacts the intended use of the property. The Agreement of Purchase and Sale contains no specific condition regarding restrictive covenants, but includes a standard 'good and marketable title' clause. Can the buyer terminate the agreement?

The correct answer is Yes, if the restrictive covenant materially affects the marketability of title. Option B is correct because the 'good and marketable title' clause creates an obligation for the seller to provide title free from material encumbrances. Under Canadian real estate law, restrictive covenants that significantly impact the property's intended use or marketability constitute a breach of this obligation. The buyer can terminate the agreement if the covenant materially affects the title's marketability, regardless of whether there was a specific condition about restrictive covenants. This protection is inherent in the marketable title requirement.

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

Marketable title refers to title that is free from reasonable doubt and material encumbrances that would affect the property's value or use. Restrictive covenants are legal restrictions on land use that bind current and future owners. The 'good and marketable title' clause is standard in Canadian purchase agreements and requires sellers to provide clear title. Material encumbrances are those that significantly affect the property's marketability, value, or intended use. Under provincial real estate legislation like TRESA (Ontario) and RESA (Alberta), buyers have protection against defective title, and material title defects can provide grounds for agreement termination even without specific conditions.

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

Remember MART: Material + Affects + Restricts + Title. If a restrictive covenant is Material (significant), Affects the property's use, Restricts the buyer's intentions, and impacts Title marketability, then the buyer can terminate under the good and marketable title clause, regardless of specific conditions. When you see questions about restrictive covenants and termination rights, apply the MART test. If the covenant passes all four elements, the buyer likely has grounds to terminate under the marketable title clause, even without specific conditions about covenants.

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

Look for the phrase 'materially affects marketability' in restrictive covenant questions. If a covenant significantly impacts the buyer's intended use or the property's value, the good and marketable title clause typically provides termination rights regardless of specific conditions.

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

A buyer purchases a residential property intending to operate a home-based business. After signing, their lawyer discovers a restrictive covenant prohibiting commercial activities. Despite no specific condition about covenants in the agreement, the buyer can terminate under the 'good and marketable title' clause because the covenant materially affects their intended use and the property's marketability to future buyers with similar business intentions.

Question

Contracts & AgreementsContract_law_fundamentalsHARD

In a complex transaction, a buyer's solicitor discovers a restrictive covenant that significantly impacts the intended use of the property. The Agreement of Purchase and Sale contains no specific condition regarding restrictive covenants, but includes a standard 'good and marketable title' clause. Can the buyer terminate the agreement?

Answer Options

A

No, because there was no specific condition regarding restrictive covenants

B

Yes, if the restrictive covenant materially affects the marketability of title

C

No, because restrictive covenants are always considered acceptable encumbrances

D

Yes, but only if the buyer can prove the seller knew about the covenant