March 7, 2021
With more people than ever staying in and working from home, Northern Ontario has experienced a boom in residential real estate transactions. Thanks to online services and websites, such as ifindtbay.ca, that directly connects potential homebuyers to a seller, buying and selling a home has never been more user friendly. Gone are the days of oral agreements and handshakes, here to stay are email chains.
Concernedly however, this shift further into the virtual world brings with it questions of one’s liability when negotiating online. Traditionally, homebuyers and sellers have collectively held the understanding that nothing is concrete until both parties sign formal documents prepared by their real estate broker or lawyer, but this understanding may not hold true for agreements made over email or other online communications. The Statute of Frauds protects individuals from being legally bound by oral agreements and handshakes, but this protection may not extend to email or virtual agreements. This article serves as a word of caution for those communicating with potential homebuyers or sellers that your emails may be more legally binding than you may think.
In the British Columbia Court of Appeal 2015 decision of Vancouver Canucks Limited Partnership v Canon Canada Inc., the Court upheld that the parties had reached a final agreement on all essential terms of a Sponsorship Agreement through an exchange of emails and thus found that there was a binding contract – even though no formal contract was ever signed. The court found that, because the parties had an intention to create a binding contract, the drafting of a formal contract was not stated to a condition precedent, and there was agreement on all essential terms, the Sponsorship Agreement was enforced.
Closer to home, the Ontario Superior Court of Justice in Ruparell v J.H. Cochrane Investments Inc. et al. adopted such principles established in the Vancouver Canucks case and upheld the claim that emailed negotiations for the purchase of shares in a Mercedes Benz dealership and the land the dealership was situated upon constituted a binding and enforceable contract. The parties conducted negotiations by telephone, emails, and via a term sheet that was edited and passed back and forth through email. No formal agreement was ever drafted to formalize the contract, but a voicemail left by the Plaintiff agreed to the last terms sent via email. After the Plaintiff’s acceptance, the Defendants received a better offer from a third party and attempted to renege on the agreement.
Although nothing was signed and no formal contract was drafted, the court held that there was a binding agreement between the parties because the email negotiations met the three part test of Vancouver Canucks v Canon. The Defendants were liable for significant damages to the Plaintiff.
Therefore, one should be aware that an email or other virtual written exchange can create a legally binding contract if the following three elements are met:
- there is intention to be bound;
- drafting of a formal contract is not a condition precedent; and
- all essential terms have been agreed upon.
However, when purchasing property or real estate, there are heavy burdens that need to be discharged before a binding contract can be enforced by the courts.
Section 1 of the Statute of Frauds establishes that any transaction or agreement dealing with land and real property needs to be in writing and signed by the parties in order to be actionable. Meaning that an agreement or contract must be in writing and signed for a court to enforce it.
Importantly, the agreement or contract does not need to be physically printed on paper. Section 19(3) of the Ontario Electronic Commerce Act (“ECA”) states that a contract is not invalid or unenforceable by reason only of being in electronic form. Courts have additionally deemed electronic documents, such as email exchanges, meet the written requirement under the Statute of Frauds.
The Statute of Frauds also requires that a document dealing with title to land contain a signature in order to be valid and enforceable. Ontario courts have deemed that electronic signatures that have the integrity of a password (i.e. email account with identifying signature at the bottom) fit within these parameters so long as it has the full typed version of the sender’s name, title, and name of any corporation they represent if applicable (Hurst Real Estate Services Inc. v Great Lands Corporation, 2018 ONSC 4824 at paragraph 66, affirmed on appeal, 2020 ONCA 109 at paragraph 20).
So the question remains, as to what would happen in the all too common case that a potential homebuyer is surfing the web, finds their dream home, and proceeds to personally message the seller with an offer?
If after a few emails exchanged back and forth, the parties come to an agreement on price, establish when they would like to close the deal, know the property they are purchasing, and if the full names of the parties are included in the email signature, this may establish all the necessary terms required for a contract. If the seller purports to accept those terms established, all of the necessary elements are present to create a binding Agreement of Purchase and Sale. Save for specific instances contemplated within the written Agreement, the parties are bound by the terms of the Agreement, unless they mutually agree to terminate.
If it is later discovered that the deal agreed upon is not the most favourable, or that you have agreed to some unsavory terms, you might be out of luck and stuck to the agreed terms. If you attempt to renege, the other party may be entitled to enforce the agreement through commencement of a legal action, which can run a hefty sum.
Therefore, when communicating directly to a potential homebuyer or seller online, it is best to err on the side of caution when agreeing to terms set out in writing. Remember to read everything carefully and consider the impacts before sending a “sounds good, thanks” in response.
In order to protect yourself from inadvertently entering into a binding contract or agreeing to terms that you did not intend to, we recommend to follow these practices when negotiating online:
- Always clearly state that your “agreement” is conditional on the formation of a formal contract containing all the agreed terms and conditions;
- State that such agreement will not be agreed upon until you have the chance to review the terms and speak with your lawyer;
- State within your email that your negotiations are not meant to be construed as a contract and are “non-binding”.
The prevalence of business being conducted online will only continue to increase and therefore it is prudent that you remain aware and vigilant of what precisely you are agreeing to or promising in all emails. When in doubt, seek the advice of a real estate lawyer or broker. Weilers is always happy to meet and discuss any concerns you may have as they relate to real estate, contracts, technology, or any other area of law.