If the house value has not gone up or down by the purchase date, and if, for example, another purchaser was found, and no other losses occurred, the vendor (in this hypothetical example) could attempt to claim the deposit funds as “liquidated damages.” This amount is generally negotiable, unless it states clearly in the agreement of purchase and sale that the deposit funds automatically and irrevocably go to the vendor.
Conditional Contract
If the vendor or purchaser has preliminary conditions built into the purchase and sale agreement (“subject to” clauses), and those conditions cannot be met, no valid binding contract exists and neither party is liable to the other.
Void Contracts
A contract is void and unenforceable if the required elements that make up a contract are not present, or if the contract is prohibited by statute (e.g., municipal, provincial, or federal law).
The most important document you will sign will be the offer to purchase, which if accepted becomes the agreement of purchase and sale. It sets out the terms and conditions between the parties and, as in any contract, it is legally binding if no conditions exist in the contract that have to be met before it comes binding. Of course, there can be verbal contracts, but all contracts dealing with land must be in writing to be enforceable. That includes the purchase and sale agreement or a lease, which of course is also a contract.
Five main elements have to be present in order for a contract to be valid. These are: mutual agreement, legal capacity, exchange of consideration, intention to be bound, and compliance with the law. Another obvious element is that it is clear who the parties are. Sometimes people who are flipping properties put their name and then after that “and/or assignee”, as they wish to assign out the agreement before any conditions are removed, or before the deal closes. This legal terminology is fraught with potential peril, in terms of enforceability if one side or the other wants to get out of the deal. Make sure you get advance advice from a lawyer who specializes in real estate law, to avoid legal hassles.
