September 15th 2020
LEGAL UPDATE
It is typical when making an offer for purchase of real estate to include a period of time where your offer is ‘irrevocable’. What this means is that a purchaser leaves their offer open for acceptance by the seller for a set amount of time – sometimes as short as 24 hours. If the seller fails to accept within that time, the offer becomes null and void. A purchaser would then be free to make an offer for another property without the risk of having two 
accepted contracts. There are a few reasons why irrevocability periods are standard in real estate. It shows a purchaser is motivated. If the offer is accepted without revision it becomes a binding contract, although there may be further conditions within the offer such as those regarding financing. A seller can also make a counter-offer that is open for acceptance during an irrevocability period. There may be competing offers for a property and an irrevocability period is useful for giving structure to negotiations in the fast-paced and competitive real estate market.
Perhaps surprisingly given their prevalence, irrevocability clauses do not fit comfortably in the history of contract law. The problem is there has been no exchange of value or compensation between the parties – what is called ‘
consideration’ – for the promise not to withdraw or amend an offer. In the case of Forest Hill Homes (Cornell Rouge) Limited v. Wei, 2020 ONSC 5060, the question of irrevocability was a central issue. There, the defendant, Ms. Wei, entered a contract for the purchase of a new build home. She made an initial deposit of $20,000 and signed a contract which read “this offer cannot be revoked… for ten days”. Ms. Wei told the Court that two days after signing the offer, she asked a representative for the builder whether she could withdraw her offer. She swore to the court that the representative told her the offer was already accepted. In fact, the offer was only accepted by the builder the day after her inquiry.
Ms. Wei’s argument was that if she had been told the offer was not yet accepted, she might have had an opportunity to ask for her deposit back. Instead, she made four more deposits totalling over $100,000, then failed to close the contract. Her lawyer relied on case law which found that irrevocability terms in pre-contractual negotiations are generally not enforceable, meaning until there is acceptance, an offer can be withdrawn. In this case, the judge found the irrevocability clause was binding. Importantly, the judge (1) did not accept that the builder ever conversed with the plaintiff regarding her ability to withdraw the offer (2) determined that the seller immediately removed the property on receipt of the offer rather than continuing to accept competing offers that would drive up the price (3) determined that the buyer was educated enough to understand the nature of the real estate market and the standard irrevocability provisions (4) found that Ms. Wei made all further deposits without ever discussing the withdrawal of her offer with the builder through a lawyer. She was ordered to pay the defendant $179,599.94, plus costs and interest on the judgment.
Although Forest Hill leaves open that irrevocability provisions may, in certain situations, be unenforceable, their commonplace use in real estate is generally accepted for the following reason. Consideration for a contract can be exchanged by granting the other party something of value, or by undertaking a detriment. If you are a seller and are entertaining an offer, you should be able to arrange for a review of the offer with your agent and take the time for all parties to sign. The detriment undertaken by you as a negotiating party is a transactional cost where you might have passed over other offers with expiring irrevocability periods. If timelines were not enforceable and a deal could be called off any time before acceptance, regardless of what was stated in the offer, then parties and their agents would find there existed much more risk to them in their dealings. Irrevocability is therefore a tool that structures transactions in real estate by providing predictability.
If you are considering purchasing or selling real estate, be sure to contact a trusted real estate professional early in the process so that you can learn about your rights and obligations. Liddiard Law is there to assist you with any transactions you might be considering, so do not hesitate to contact me. Michael Liddiard, BA MA JD