1. Subject clauses: a tricky subject
Today we’ll look at how to prevent some common things can go wrong when you draft subject clauses, and how to prevent them.

2. Licensees are expected to be able to draft legally enforceable contracts

3. Contracts that are inaccurate, confusing or unenforceable may lead to a claim

4. Subject clauses are intended to be a “condition precedent” to the parties respective obligations to complete the contract
Licensees should pay close attention to the way subject clauses are drafted.

5. Entirely subjective subject clauses depend entirely on the personal view of the individual who decides it
Warning….this clause may not create a binding agreement

6. An example of a poorly worded clause: “subject to purchaser’s review of all leases, contracts, plans and surveys and the state of title to the Lands, and any existing easement agreements, such review to be to the sole satisfaction of the Purchaser.”
What’s wrong with this clause?
The BC Supreme Court in Kitsilano Enterprises Ltd. v. G & A Developments Ltd. (1990) found this clause resulted in the contract been unenforceable.
In order to be enforceable as a subject clause, the wording should have included reference to objective criteria on which the buyer’s review of the records could be assessed.

7. A clause that is clear, precise and objective is a true condition precedent

8. Example: “subject to John Smith being elected as Mayor in the municipal election of January 20, 2018.”
In this scenario, there is a binding contract but no obligation on either party to perform until the condition precedent is fulfilled.
If the condition precedent is not fulfilled, then the contract is at an end and both parties may walk away from the agreement.

9. The most common subject clauses are partly subjective and partly objective

10. Example: “subject to the seller obtaining third reading approval for rezoning to commercial use by May 1, 2014”
This clause is dependent on the subjective action of the seller in applying for zoning approval and the objective action of the municipality in granting approval. In this case, the law implies an additional term that the parties will take all reasonable steps to cause the subject condition to be fulfilled.
Where the subject condition is partly subjective and partly objective, the parties are bound to the agreement but have no obligation to perform until the subject condition is fulfilled or waived.

11. When drafting subject clauses: Provide objective criteria
Use plain language
If unsure, ask for advice
Plain language should be used which makes it clear that the subject clause is intended to be a condition precedent to the obligation to complete
and
provide objective criteria on which to assess whether the condition has been fulfilled.
If you’re not sure if your wording is going to stand up to a test, get some help from your managing broker.

12. For additional information on drafting subject clauses and advising clients, review the Professional Standards Manual section “Subject Clauses – General Information”

13. Whenever possible, use the. standard subject clause
Whenever possible, use the standard subject clause wording provided in the Professional Standards Manual.
These clauses were written by lawyers to be legally binding and have stood the tests of the courts. Use their expertise.

14. Courts have ruled that there is an implied duty of good faith in the performance of a contract.

15. If your client does not want to remove a subject clause for reasons other than that expressly stated in it, recommend they get legal advice.
Sometimes a party doesn’t want to remove a subject clause for a reason completely unrelated to the actual reason the clause is there. Here are two examples from recent court cases:
The contract contained a subject to obtaining financing clause but the buyer didn’t want to complete because he decided the house had bad luck. The Court found in favour of the seller.
2. The contract was subject to a lawyer’s review but the sellers tried to get out of the sale because they had received a higher offer in the meantime. The court found in favour of the buyer.
Explain the good faith requirements for removing subject conditions to your client and advise them to get legal advice.

16. Put your advice in writing.
Ensure there is a record of your advice – repeat it in an and keep a copy, or write it in your file notes. This protects you in case there is ever a dispute.

17. Good resources:
Your managing broker
Risk Report, May 2014
Risk Report, December 2017
Professional Standards Manual

18. Questions?
Thank you.
Does anyone have any examples or tips they’d like to add?
Are there any questions about anything covered in the presentation?
Thanks for your attention!