table of contents - british columbia real estate association€¦ · table of contents introduction...

introduction

table of contents

Introduction Day 2 Materials – Offer to Lease 1

Part 1 3

Scene 1 3

Discussion Questions 4

Scene 2 5


Scene 3 7


Group Activity 8

Additional Facts 8

Role-Play with a Partner 9

Part 2 10

Activity 10


Instructor Notes 16

Activity 17

Part 3 19

Activity 19

Case Study 19

Instructor Notes 25

Take Aways 26

Commercial Applied Practice Course Component 2

2 british columbia real estate association

Part 4 27

Activity 27

Scenario 27

Culminating Activities 28

Making a Learning Plan 29

Step 1: Self-Assessment Handout 29

Step 2: Action Plan Hand out 29

introduction

british columbia real estate association 1

Component Two

Day 2 Materials – Offer to Lease

Component Two is designed to give learners an opportunity to practice the drafting of contracts and to review court cases related to contracts. This part of component two focuses on the Offer to Lease and then looks at two cases – one that deals with the drafting of an enforceable contract and the other an assignment of contract. The intention behind giving the learners actual court cases is to demonstrate how important the wording in contracts is to all parties involved. This in-class day is divided into four parts. Part One, presents a fictional scenario and asks the learners to consider their agency and disclosures obligations, and then to draft an Offer to Lease based on the scenario. Small group is used throughout Part One. In Part Two, the learners review court cases that deal directly with drafting contracts and although they do not directly involve an Offer to Lease, the learning is applicable to drafting any contract. This part of the class is primarily instructor-lead and involves lecture and large group discussions. Part Three, asks the learners to individually draft an Offer to Lease using a fictitious facts pattern. Part Four, is a review of core concepts presented throughout the two days and provides the learners an opportunity to assess their overall learning in the Commercial Applied Practice Course.

Upon completion of Component Two, learners will be able to:

◆ Explain the essentials of leasing;

◆ Complete the Offer to Lease standard form; and

◆ Self-assess their understanding of the core competencies of agency, disclosures and contracts

Commercial Applied Practice Course Component 2



Rules of the Exercise1. Your course instructor will divide you into groups of 4-6 people each. Each

group will designate a Recorder who will be responsible for taking written notes, and a Speaker who will be responsible for presenting the group’s responses during the class discussions.

2. This exercise will involve a fictional fact pattern regarding an offer to lease for commercial real estate. The fact pattern will be divided into multiple scenes, each designed to address one or more potential issues arising from principles of agency, disclosure and contracts.

3. Each scene will have a specified duration of time allotted to it. Each group should take the allotted time to read the facts, then discuss and generate answers as a group to the questions presented at the end of each scene.

4. At the end of each scene, the course instructor will lead a class discussion and will call upon the Speaker from one or more groups to present their responses to the discussion questions. All participants will also be encouraged to ask questions and offer their own responses at this time.

5. Your course instructor will then provide instructions to proceed to the next scene after the class discussion for the scene has concluded.

SCENE 1 – MEETING THE CLIENT

Duncan White, a relatively new licensee, is sitting behind his desk on his computer, browsing for information about the new shopping centre that is under construction in the middle of town. Duncan is about to meet a couple of clients interested in leasing some of the new available space in the shopping centre, and is hoping to learn as much about the new development as possible before this meeting. Before he’s able to get any further, however, Paul Smith and Jessica Smith, the clients, arrive. Duncan invites them into his office and asks them to take a seat.

Part 1

Commercial Managing Broker Applied Practice Course Component Two


Duncan learns that Paul is actually Jessica’s son; they’ve recently moved to Canada from Dubai, and are interested in starting up a local business. Since neither Paul nor Jessica are experienced entrepreneurs, they want Duncan to help negotiate and draft an offer to lease premises in the new shopping centre, and to help them negotiate a favourable rental rate. Duncan explains to Paul and Jessica the range of services he’s able to provide, and Paul and Jessica sign an Exclusive Buyer’s Agency Contract with Duncan.

Paul and Jessica then begin to discuss the particulars of the deal they are contemplating. After living in Dubai and spending too many hot days in the sun, Paul and Jessica plan to open up an ice cream parlour in the new shopping centre that is being built. Although not experienced in business matters, Paul and Jessica have received advice from their friends to operate their business through a corporation to limit their personal liability. To this end, Paul and Jessica have incorporated 98765 B.C. Ltd. through which they want to enter into the proposed lease. Paul and Jessica each own 50% of all of the shares of the corporation. Duncan also learns that Jessica is in poor health, and there is a chance that she will have to pull out of the business in a year or two. Fortunately, Jessica’s brother (and Paul’s uncle) is willing to take over her “share” in the potential business venture by buying all of Jessica’s shares in 98765 B.C. Ltd. if Jessica decides in the future to quit the business. Duncan is satisfied that he has learned all he needs to know about Paul and Jessica as tenants, and also about 98765 B.C. Ltd.

DISCUSSION QUESTIONS

1. Does Duncan need to perform any more due diligence with respect to 98765 B.C. Ltd.? Why or why not?

2. Will Paul and Jessica be able to limit their personal liability by entering into the contemplated lease through 98765 B.C. Ltd. as tenant? How should Duncan advise them?

3. Is there a potential issue arising from Jessica’s plan to leave the proposed business in the future by selling her shares in 98765 B.C. Ltd. to her brother? If so, how should Duncan advise her?

Part 1


SCENE 2 – DRAFTING THE OFFER TO LEASE

“What is the name of your business going to be?”, Duncan asks his clients out of curiosity. “We’re not terribly creative with names”, Paul laughs, “we are just going to call it ‘Paul’s Ice Cream Parlour’…although this name might be a bit deceptive since we are also going to sell hot beverages like coffee and hot chocolate, and also baked pastries. My mother loves baking so it’s really a no-brainer to offer that as well to our customers”. “We already have a logo and sign designed”, Jessica says, “the sign is going to be very large with neon tubes highlighting the border. Paul thinks it’s tacky but I think it’s very unique and special”. “That sounds great”, Duncan says, trying to imagine how the sign would look mounted in the brand new shopping centre, “I’m sure it will be very eye-catching”. “That’s one way of putting it”, Paul grumbles, “but my mother spent a lot of time designing this sign so it’s important it goes up. Also, with any luck, any customers looking for ice cream will notice our sign first and come to our store instead of any of the others”. “Actually, if we have any real luck, there won’t be any other ice cream shops that open in this new shopping centre”, Jessica quips, “but it’s really up to chance I guess”.

“Now, let’s talk about the fixtures and equipment you’re going to install in the back of the premises”, Duncan says, “have you already ordered all of this equipment?”. “Yes we have”, Jessica replies, “it’s all ordered, and we’ve actually scheduled it to arrive on July 10, exactly one week before the shopping centre is advertised to be opened on July 17. Hopefully we can get it all installed and set up in that one week.” “I’m sure the installation guys will get it done in a week”, Paul assures her, “I have no doubt that we’re going to able and ready to start business right on opening day”. “I’m actually surprised how soon the shopping centre is going to open”, Jessica says, “the last I saw the construction, it seemed very far from completion. I hope they are going to be able to open on time. It looks like they’ve barely even started on the parking lot!”. “Well, that’s not going to be our problem”, Duncan says, “if we’re going to be paying them rent, they better have the space ready. And while we’re on this topic of rent, we should talk about what you want to put in your offer.” After some discussion, including Duncan sharing the results of his market



research, Paul and Jessica decide to offer $50 per square foot per annum for the first three years of the term, and $65 per square foot per annum for the last two years of the total five year term. “Great”, Duncan says, “I think I have all I need to draft up an initial offer to lease, and I’ll present it to the landlord as soon as possible for his consideration”.


1. When preparing the offer to lease, Duncan writes in “Ice Cream Parlour” for the Permitted Use of the premises. Is this correct? Why or why not?

2. When preparing the offer to lease, Duncan writes in “July 17, 2014” for both the Commencement Date and the Possession/Occupancy date. Is this correct? Why or why not?

3. Do Paul and Jessica have to rely on luck to see if any other ice cream shops open in the new shopping centre? What can Duncan do to assist them in this regard?

4. What are some issues/matters which arose in the discussion between Duncan, Paul and Jessica that are not addressed in the generic offer to lease and that need to be the subject of additional provisions attached by way of separate schedule?

5. Paul and Jessica raised the potential issue of the shopping centre not being completed in time for the July 17 opening date. What can Duncan do to protect Paul and Jessica from this risk?

Part 1


SCENE 3 – REVIEWING THE OFFER TO LEASE

Peter Garcia, the landlord’s broker, gives Duncan a phone call the next day after receiving and reviewing the offer to lease. Unbeknownst Paul and Jessica, Duncan has assisted another client in drafting and negotiating an offer to lease for the same premises, and Peter is surprised that the rent offered by Paul and Jessica is actually lower than the previous offer to lease from the other clients. “There’s a perfectly good reason for that”, Duncan says to Peter, “I’ve actually taken a look at the financial standing of both the other prospective tenant, and also Paul and Jessica here; Paul and Jessica have better credit and will definitely be able to borrow more money. From the landlord’s standpoint, the slight decrease in rent is definitely worth the decrease in risk by going with Paul and Jessica to make sure you get your rent on time. It’s a good deal…and mind you, this is also our final offer with respect to the rental rate which is not negotiable”. Peter agrees that it is a reasonable rental rate, and tells Duncan to expect to receive a signed offer very soon. Duncan immediately calls both Paul and Jessica to tell them the good news. While on Duncan’s call with Paul, Duncan learns that Paul is looking to obtain a business line of credit with a new financial institution, and Paul asks if Duncan normally recommends a particular financial institution to his clients for their business needs. As it turns out, Duncan has a good friend at a large banking institution in town to which Duncan refers all his clients; in return, Duncan always receives a small bonus. Duncan happily passes along the contact information of his friend at the bank, knowing that he’ll soon have a small bonus to put towards paying off his own debt.




1. Did Duncan breach any of his fiduciary duties? If so, what did he do wrong?

2. Did Duncan breach any of his disclosure obligations? If so, what did he do wrong?

group activity

DRAFTING AN ENFORCEABLE OFFER TO LEASE

After the class discussion for the final scene, in small groups, learners draft an appropriate offer to lease to account for all of the facts presented in the scenario in Part 1 as well as referring to the Additional Facts presented below. Learners will use the Offer to Lease form. Once completed, the instructor will reconvene the class to lead a discussion on the completed commercial contracts of purchase and sale.

Additional facts

◆ Duncan White works for Peterman Commercial Realty, 235 Tall Street, Vancouver, BC V9N 7B1. The brokerage phone number is 604-798-1657 and the fax number is 604-781-8413.

◆ Peter Garcia works for Freedom Commercial Realty, 159 Short Street, Vancouver, BC V0A 8N1.

◆ The landlord is Iron Properties Ltd., 101 Mountain Way, Vancouver, BC V7A 7N1. The landlord is a resident of Canada, and can be reached by phone at 604-195-1959 and by fax at 604-595-1858.

◆ Duncan and Jessica’s address is at: 1592 Marine Way, Vancouver, BC V7J 8B1. They can be reached at 604-198-5859.

◆ 98765 B.C. Ltd.’s address is at: 784 Desert Way, Vancouver, BC V9C 1H1. The company’s phone number is 604-198-5859 and fax number is 604-188-7894.

◆ The term of the lease is to be 5 years, with an option to renew for a further period of 5 years. Notice of this renewal is to be provided 6 months before the expiry of the initial lease term.

Part 1


◆ The parties will schedule a viewing and inspection of the premises upon the substantial completion of the shopping centre, including the premises, but in no event will this date be later than the possession/occupancy date.

◆ Basic rent is $50.00 per square foot per annum for the initial term, and the estimated additional rent for 2014 is $1.50 per square foot per month. Additional rent commences on the commencement date. The total rent payments include all rent, property taxes and common area costs. Utilities are separately metered and charged to the tenant directly.

◆ The civic address of the property is: 1529 King Street, Vancouver, BC V9F 4H1. The legal address is Lot 1 Section 2 Block 3 District Lot 45 Plan 798. The Parcel Identifier Number is: 850-585-928. The premises being leased is Unit 60 in the building, and the area of the premises is approximately 2,000 square feet.

◆ A deposit of $10,000.00 will be paid within 48 hours of acceptance of the offer, and will be paid to the landlord.

◆ The landlord’s standard form lease is to be provided within 20 days of acceptance, and the lease is to be reviewed and approved by the tenant within 20 days of receipt from the landlord.

◆ The offer is to remain open until February 28, 2014 at 5:00 p.m.

ROLE-PLAY with a PARTNER

With a partner, present the Offer to Lease and then switch roles. When acting as the landlord and his/her licensee, ask the tenant’s licensee questions about the terms of the contract, the form of agency, the role and obligations of the licensee, and the expectations of the tenant.



activity Learners read Arnold Nemetz Engineering Ltd. v. Tobien and respond to discussion questions. The questions are considered in small groups and then responses are presented to the class. The first part of the Court of Appeal’s judgment, set out below, summarizes the facts and sets out what the trial judge found.

“14 The appellant (seller) owned a certain property in the City of Vancouver, which she operated as a rooming house for some years and upon which she had claimed depreciation from year to year when making her income tax returns.

15 She had listed the property with a realty firm on the basis of an exclusive listing. Before the expiration of that listing she discussed the sale of the property with an agent of the third party, Cedar Realty Ltd., and stipulated that if she sold the property the purchasers would have to agree to demolish the building within six months from the date of purchase. She later listed the property with the third party company through its agent, Steele, who at the time was a new realty agent and relatively inexperienced.

16 Steele was able to interest the respondent company to agree to buy the property in question on the basis of an interim agreement signed by the parties and reading [in part] as follows:

Interim Agreement

Vancouver, B.C. 9-3-1968

Received from Arnold Nemetz Eng.

The Sum of Two hundred dollars

Being deposit on account of proposed purchase price of Lot 6, Block 307, Dist. lot 526, 1844 & 1848 West7th, Vancouver,

For the price or sum of $33,000,

Part 2

Part 2


Payable on the following terms, namely (cash) $9,500

Of which the deposit shall form a part, the balance as follows:

Balance of $23,500 by A/S at 8 1/2% interest P.I. over 10 yrs. with a pay up clause after 5 years. Purchaser to have the right to pay up the balance owing at anytime without notice bonus or penalty. This offer is subject to satisfactory inspection by the purchaser by Tuesday 12 March 1968 midnight. It is understood that the property is zoned RM3 and is 50' × 120' in size.

Subject to building restrictions if any, and free and clear of other encumbrances (saving only reservations in the original grant from the Crown) except as aforesaid.

Balance of the cash payment to be made and the sale completed by 23 April, 1968

Purchaser to have possession of the property and premises on completion of the sale and subject to existing tenancies by 30 April, 1968.

The Purchaser will assume and pay all taxes, rates, local improvements and other charges from, and all adjustments both incoming and outgoing of whatsoever nature will be made as of 30 April, 1968.

17 The respondent paid a deposit of $200 and later tendered an agreement for sale to the appellant which, in part, read as follows:

WHEREAS, the Vendor has agreed to sell to the Purchaser and the Purchaser has agreed to purchase of and from the Vendor the lands and hereditaments hereinafter mentioned, that is to say: — ALL AND SINGULAR that certain parcel or tract of land and premises situate, lying and being in the city of Vancouver, in the Province of British Columbia and being more particularly known and described as:

Lot SIX (6),

Block THREE HUNDRED AND SEVEN (307),

District Lot FIVE HUNDRED AND TWENTY-SIX (526),

Group ONE (1),

New Westminster District,

Plan 590.



TOGETHER with all the privileges and appurtenances thereto belonging at or for the price or sum of - - -THIRTY-THREE THOUSAND - - - Dollars ($33,000.00 - - - ) of lawful money of Canada, payable in manner and on the days and times hereinafter mentioned, that is to say: the sum of - - - NINE THOUSAND FIVE HUNDRED - - - Dollars ($9,500.00 - - - ) on the execution of this Agreement (the receipt whereof is hereby acknowledged by the Vendor), and the balance as follows:

The balance of TWENTY-THREE THOUSAND FIVE HUNDRED DOLLARS ($23,500.00) shall be paid by monthly instalments of TWO HUNDRED AND NINETY DOLLARS ($290.00) commencing on the 1st day of June, 1968, and continuing on the 1st day of each and every month thereafter until the1st day of May, 1973.

Said monthly payments of TWO HUNDRED AND NINETY DOLLARS ($290.00) shall be applied firstly in payment of interest on the unpaid principal at the rate of EIGHT and ONE-HALF per cent. (81/2%) per annum effective from the 1st day of May, 1968, and secondly in the reduction of the principal sum outstanding from time to time.

18 The appellant refused to sign the agreement for sale. She maintained quite consistently that her agreement to sell was subject to a condition that the property be demolished within six months.

19 The respondent sued and asked for specific performance.

20 The learned trial Judge ordered the appellant to pay to the third party a commission by way of damages in the sum of $2,310. The formal judgment sets forth the terms on which specific performance was granted as follows:

THIS COURT DOTH DECLARE that the Agreement dated the 9th day of March, A.D. 1968 in the pleadings mentioned as made between the Plaintiff and Defendant is a binding contract between the Plaintiff and the Defendant for the sale by the Defendant to the plaintiff of all and singular that certain Parcel or tract of land and premises situate in the City of Vancouver, in the Province of British Columbia, and known and de-scribed as:

Lot Six (6), Block Three Hundred and Seven (307), District Lot Five Hundred Twenty-six (526), Group One (1), New Westminster District, Plan 590

for the price or sum of THIRTY-THREE THOUSAND DOLLARS ($33,000.00) payable as follows: NINETHOUSAND FIVE HUNDRED DOLLARS ($9,500.00) cash and the balance of TWENTY-THREE THOUSAND FIVE HUNDRED


DOLLARS ($23,500.00) together with interest at Eight and one-half per cent (8 1/2%) per annum to be paid in monthly instalments of TWO HUNDRED AND NINETY DOLLARS ($290.00) each commencing on the 1st day of June, A.D. 1968 and continuing on the 1st day of each and every month thereafter until the 1st day of May, 1973 when the full balance then remaining due shall be fully paid and satisfied; The Plaintiff as Purchaser to have the right to pay off all or any portion of the balance remaining outstanding from time to time at any time without notice or bonus; the Purchaser to be secured on title by a registered Agreement for Sale containing the aforesaid terms, and that the same shall be specifically performed and carried into effect, and this Court DOTH ORDER AND ADJUDGE the same accordingly.

21 The appellant now appeals against both judgments.”


1. What was the listing price of the property? What was the deposit?

2. How much did the buyer agree to pay on the execution of the agreement?

3. How much was outstanding?

4. Why did the seller refuse to complete?

5. Summarize the trial’s Court’s decision.

6. The appellant (seller) appeals both judgements. Do you agree with the appellant (seller)?

7. If you were the judge, what facts would be most important to you in the appeal?



Continue reading the case. The next part of the Court of Appeal’s judgment deals with the issue of the terms of the agreement for sale.

“2 In my view it is necessary to consider only one of the grounds of appeal presented by appellant's counsel. That ground is that the language used in the written agreement dated 9th March 1968 between the appellant ("the vendor") and the respondent ("the purchaser") is so vague and uncertain as to render the agreement unenforceable. Stated in another way, the question is whether, having regard to any relevant circumstances, the language used is "so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to theparties any particular contractual intention". I take the latter words from the speech of Lord Wright in G. Scammell & Nephew Ltd. v. Ouston, [1941] A.C. 251 at 268, [1941] 1 All E.R. 14.

3 Counsel has not suggested any uncertainty as to the identity of the purchaser and I put that factor aside. The amount of the deferred portion of the purchase price is clear enough. The real problem relates to the manner in which that deferred balance is payable. Can the Court attribute to the parties any particular contractual intention in that regard? The solution resolves itself into a careful consideration of this one sentence in the agreement:

The Balance As Follows:

Balance of $23,500 by A/S at 8 1/2% interest P.I. over 10 yrs. with a pay up clause after 5 years.

4 It is common ground that "A/S" means here agreement of sale and that the letters "P.I." represent principal and interest.

5 I approach the problem having in mind the summary of the relevant authorities made by my brother Bull in Marquest Industries Ltd. v. Willows Poultry Farms Ltd. (1968), 66 W.W.R. 477, 1 D.L.R. (3d) 513 (B.C.C.A.). He said at pp. 481-2: In the first place, consideration must be given to the duty of a court and the rules it should apply, where a claim is made that a portion of a commercial agreement between two contracting parties is void for uncertainty or, to put it another way, is meaningless. The primary rule of construction has been expressed by the maxim, 'ut res magis valeat quam pereat' or as paraphrased in English, 'a deed shall never be void where the words may be applied to any extent to make it good.' The maxim has been basic to such authoritative decisions as G. Scammell & Nephew Ltd. v. Ouston [supra]; Wells v. Blain, 21 Sask. L.R.194, [1927] 1 W.W.R. 223, [1927] 1 D.L.R. 687 (C.A.); Ottawa Electric Co. v. St. Jacques (1901), 31 S.C.R. 636, as well as many others,

Part 2


which establish that every effort should be made by a court to find a meaning, looking at substance and not mere form, and that difficulties in interpretation do not make a clause bad as not being capable of interpretation, so long as a definite meaning can properly be extracted. In other words, every clause in a contract must, if possible, be given effect to. Also, as stated as early in 1868 in Gwyn v. Neath Canal Navigation Co. (1868), L.R. 3 Exch. 209, that if the real intentions of the parties can be collected from the language within the four corners of the instrument, the court must give effect to such intentions by supplying anything necessarily to be inferred and rejecting whatever is repugnant to such real intentions so ascertained.

6 I find assistance also in the frequently-cited words of Lord Wright in Hillas and Co. Ltd. v. Arcos Ltd.(1932), 147 L.T. 503, where, referring to the maxim "verba ita sunt intelligenda ut res magis valeat quam pereat", he said at p. 514:

That maxim, however, does not mean that this court is to make a contract for the parties, or to go outside the words they have used, except in so far as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the court as matter of machinery where the contractual intention is clear but the contract is silent on some detail.

7 Is the interest to be calculated at the rate of 8 1/2 per cent per ten years or per annum or per some other interval? It seems to me that if any effect is to be given to the letters "P.I." I must infer an intention to provide for instalment payments, each of which would include some principal and some interest. This circumstance makes it difficult for me to conclude that the parties intended only one payment to be made, being the total principal,$23,500 plus 8 1/2 per cent of that amount. That interpretation would render the insertion of "over ten years" meaningless. Assuming that I could take notice that in such agreements interest is very commonly calculated on a per annum basis, other difficulties remain.

8 If I disregard the letters "P.I.", in order to conclude that no instalment payments were intended but that a single payment of $23,500, with interest at the rate of 8 1/2 per cent per annum or per other interval is contemplated, I am confronted with the words "with a pay up clause after 5 years". I think it is an inescapable inference from the use of that phrase that some instalment payments were intended, otherwise the words "pay up" are, I think, meaningless. They must relate to a balance payable after some other payment or payments made on account.If the intention were otherwise the very simple statement would be "payable at the end of 5 years".



9 Assuming that I am right in inferring from the document that instalment payments were intended by both parties, I can find nothing in the language used from which I can infer the number of such payments and thus find an intention that they should be made monthly, quarterly, semi-annually, annually, or at any other time interval. If I were to insert an interval, e.g., monthly, I would be making what I might think is a reasonable provision. It would, however, be one to which the parties have not subscribed because it cannot be implied or inferred from the words which they used.

10 Counsel for the respondent urged that the Court should insert or imply a provision for monthly instalments because there is some evidence that during negotiations such instalments were contemplated by the vendor and that after the agreement of 3rd March 1968 was signed, the purchaser indicated his willingness or intention to make instalment payments at monthly intervals. I cannot accept that argument. Even if this circumstance may be regarded as a surrounding circumstance available to assist in interpretation of the words used, and I think that is not so, there is nothing to show that the parties communicated their respective ideas to each other and still less that they agreed.

11 For these reasons I am impelled to the conclusion that the contract is so vague and uncertain as to essential matters that it must be held unenforceable for want of mutuality.

12 Counsel for the third parties conceded, I think correctly, that if there be no enforceable contract between the vendor and the purchaser, his clients are not entitled to recover commission by way of damages or otherwise.

13. It follows I would allow both appeals, set aside the judgments appealed from and dismiss both the respondent's action and the counterclaim made by the third parties against the appellant.”

Instructor Notes

To complement the information provided, the instructor can reference the material contained in the Licensing Course.

A purchaser and vendor signed an interim agreement (contract of purchase and sale) whereby in addition to a cash payment (including deposit), the purchaser was to pay:

“ . . . the balance . . . by A/S at 81/2% interest P.I. over 10 years with a pay up clause after 5 years.”

Part 2


The accepted that “P.I.” meant principal and interest and that “A/S” meant agreement for sale. (However licensees should spell these terms out; courts will not always be so liberal.)

The vendor refused to complete, owing to a disagreement over a minor term of the contract and the purchaser sued for specific performance. The court, finding the contract too vague to be enforceable, rejected the purchaser’s claim and also disallowed the vendor’s agents from collecting commission.

The court initially cited the legal principle that ‘a deed shall never be void where the words may be applied to any extent to make it good.” In other words, while the court will not create a contract, it will try its best to attach meaning to the words in the written agreement. A court is interested in enforcing what it finds to be the mutual intentions of the parties.

In this case, the court was not able to attach any meaning to the written document, focusing mainly on: ◆ There was no way to ascertain on what basis interest was calculated. “P.I.”,

coupled with “over 10 years” implied installments, but was the interest to be calculated per annum? Per 6 months? Some other time period?

◆ Assuming that instalments were intended, there was no way to ascertain whether they were to be paid monthly, annually, bi-annually, or otherwise. Of course a court could insert some reasonable interval but it could not be inferred from the wording and therefore could not reflect any agreement by the parties.

As a final note, the court rejected the purchaser’s agreement that there was some agreeing during negotiations that instalments were to be monthly. Courts are reluctant to allow evidence of negotiations since the parties’ positions often change. The written contract is the ultimate evidence of the parties’ agreement, and a court will look to it for guidance.

activity The Real Estate Council of British Columbia has a process for handling complaints and disciplining licensees. The instructor reviews the process and then learners are asked to respond to the following question: 1. While the role of the licensee is not addressed in the court case, if

a complaint had been brought against Steele, what sections of the Act and/or Council Rules would the Real Estate Council of British Columbia have considered to have been breached in this case?


activity Guided by the instructor, learners read through sections of the case Brio Beverages v. Koala Beverages and consider the questions included within.

Case Study

“[1] Two commercial entities, the defendant Koala Beverages Limited ("Koala") and FBI Brands Ltd. ("FBI"), entered into a distributorship agreement in 1996 under which Koala agreed to distribute and market FBI's products exclusively in western Canada. The agreement was apparently drawn with legal input, and contained the terms one would expect in a distributorship agreement, including covenants for the protection of confidential information. Paragraph 9.1 of the agreement prohibited either party from assigning its rights thereunder; it stated:

The parties covenant and agree that neither party shall, without the prior written consent of the other, (which consent may be arbitrarily withheld), transfer the whole or any part of this Agreement or any of its interest, rights or obligations hereunder.

[2] Notwithstanding this covenant, FBI purported in February 1997 to transfer and assign its rights under the agreement to the plaintiff herein, Brio Beverages (B.C.) Inc. ("Brio") as part of a larger asset sale agreement. (It bears emphasis that the "Purchased Assets" thereunder included not only accrued accounts receivable, but all contracts and other assets owned by FBI relating to its business.) Brio is evidently a direct competitor of Koala's in western Canada. Immediately upon closing, Brio's solicitors wrote to Koala advising that "all of FBI Brand Ltd.'s interests, rights and obligations" under the distribution agreement had been assigned and transferred to Brio. Koala responded that not having consented to the assignment, it did not recognize any contractual obligation to Brio. Brio nevertheless demanded payment of certain sums allegedly owing by Koala under the distributorship agreement. When Koala did not pay, Brio sued for debt in the amount of $363,545.90 and garnished various customers of Koala. The question for the Court below was whether Brio was entitled to sue as thee assignee of the debt, notwithstanding

Part 3



the non-assignment clause. [3] Madam Justice Koenigsberg held that the answer to this question was `no'. She granted Koala's application pursuant to R. 18(6) for summary dismissal of Brio's action. Brio appeals her order on the bases that: (a) the clause did not by its terms preclude assignment of the "fruits" of the contract —Koala's accrued indebtedness to FBI — as opposed to its future rights and obligations thereunder; (b) the clause did not preclude an equitable, as opposed to a statutory or "legal" assignment of Koala's indebtedness to FBI; (c) if it did, the clause amounted to an unreasonable restraint on alienation or competition and was therefore void as against public policy; and (d) as a new issue in this court, Brio argues in the alternative that R. 5(9) in combination with R. 15(5) should have been invoked by the Chambers judge to add or substitute FBI as a plaintiff in this action. This would ensure that, in the words of s. 10 of the Law and Equity Act, R.S.B.C. 1996, c. 253, "all matters in controversy between the parties may be completely and finally determined and all multiplicity of legal proceedings concerning any of those matters may be avoided. "Finally, Brio argues there were triable issues of fact and law which precluded the dismissal of the plaintiff's action in its entirety.

[4] I am of the opinion that none of these grounds of appeal has merit, and that the Chambers judge was correct in her disposition of the action. I will deal with each of the grounds of appeal in the order stated.

(a) Did the non-assignment clause permit FBI to assign its claim for debt, as opposed to its other rights under the contract?

[5] In my view, the wording of the clause is clear — it prohibits the transfer of "the whole or any part of this Agreement or any of [each party's] interest, rights or obligations" thereunder. I see no reason why the prohibition would not extend to the "fruits of the contract" — i.e., amounts that had accrued due to FBI under the distributorship agreement at the time of the purported assignment. In this regard, I note Helstan Securities Ltd. v. Hertfordshire County Council [1978] 3 All E.R. 262 (Q.B.), where the Court rejected the argument that a clause prohibiting the assignment of a building contract "or any part thereof or any benefit or interest therein or thereunder without the written consent" of a city council, did not apply to debts arising from the performance of the contract. Croom-Johnson J. reasoned:

There are certain kinds of choses in action which,for one reason or another, are not assignable and there is no reason why the parties to an agreement may not contract to give its subject-matter the quality of unassignability. In these circumstances, one has to look at the clause itself. The words `benefit or interest therein or thereunder' do cover the debts which result

Part3


from the performance of the contract. I cannot draw the distinction which the plaintiffs' counsel ask me to draw, namely that there is a difference between a right to payment on an engineer's certificate and the resulting debt. If there is such a difference, both are caught by this clause. It is the contract which creates the entitlement to be paid, and that is the benefit or interest under the contract.

I find no ambiguity such as would lead me to consider the background against which the contract was made as an aid to interpretation. If I did, the background would not help the plaintiffs. The clause is obviously there to let the employer retain control of who does the work . . . . The plaintiffs say that. . . a counterclaim may be made against the assignees instead of against the assignors. But the debtors may only use it as a shield by way of set-off and cannot enforce it against the assignees if it is greater than the amount of the debt . . . . And why should they have to make it against people whom they may not want to make it against, in circumstances not of their choosing, when they have contracted that they shall not? [at 265-6]

The wording of the clause in this case is for all intents and purposes identical to that in Helstan.

[6] I also note the comments of Lord Browne-Wilkinson in Linden Gardens Trust Ltd. v. Lenesta Sludge Disposals Ltd. [1993] 3 All E.R. 417 (H.L.), who accepted "at least hypothetically" that there might be a case in which "the contractual prohibitory term is so expressed as to render invalid the assignment of rights to future performance but not so as to render invalid assignments of the fruits of performance." However, his Lordship continued:

These possibilities of confusion (and many others which could be postulated) persuade me that parties who have specifically contracted to prohibit the assignment of the contract cannot have intended to draw a distinction between the right to performance of the contract and the right to the fruits of the contract. In my view they cannot have contemplated a position in which the right to future performance and the right to benefits accrued under the contract should become vested in two separate people. I say again that that result could have been achieved by care and intricate drafting, spelling out the parties' intentions if they had them. But in the absence of such a clearly expressed intention, it would be wrong to attribute such a perverse intention to the parties. In my judgment. cl 17 clearly prohibits the assignment of any benefit of or under the contract..



(b) Does the clause prohibit both "legal" (i.e. statutory) and an equitable assignment?

[7] The answer to this question must be that there is no basis for saying the clause was intended to prohibit only assignments valid at Equity but not those qualifying under s. 36 of the Law and Equity Act. This clause applies to any "transfer". It may be recalled that choses in action were generally not assignable at all at common law. (See Halsbury's Laws of England, 4th ed., Vol. 6, para. 9.) Contractual rights were regarded as "too personal" to assign, and where debts were concerned, it was a criminal offence (maintenance) to buy one. (See O.R. Marshall, The Assignment of Choses in Action (London, 1950) (Ch. II.) As a result, where a legal chose in action was assigned, the assignor had to bring any action on the contract. Equity recognized the assignment of choses in action in many instances, but no case was cited to us where it did so in the face of a clause such as this one. To the contrary, Halsbury,(supra, para. 90) states that "If there is a provision in a contract prohibiting the assignment of the rights arising thereunder, it appears that any purported assignment of such rights will be invalid as regards the other party to the contract." The fact that in British Columbia, s. 36 of the Law and Equity Act makes an assignment of a chose in action "effectual in law" in certain conditions (in terms almost identical to those of s. 136(1) of the English Law of property Act, 1925) does not in my view change this principle and again, setting aside for the moment the issue of public policy and restraints on alienation, counsel for Brio could not cite any authority that suggests otherwise.

(c) Is the prohibition on assignment void for public policy reasons?

[8] Brio argues that generally, restraints on alienation in respect of personal property are invalid, citing Halsbury, v.35, para. 1269) to the effect that "An absolute interest in personalty no less than in realty, once given, cannot be fettered by a gift over on alienation, for the right of alienation is incidental to the beneficial ownership of property." As already noted, however, choses in action were traditionally regarded by the common law as something different from choses in possession, which term would include most personalty as that term is now understood. Courts of law applied a general rule of inalienability that was subject toonly specific exceptions.

[9] As already noted, s. 36 of the Law and Equity Act in British Columbia reverses that rule with respect to absolute assignments in writing. But there is no authority for the proposition that s. 36 applies notwithstanding a contractual prohibition on assignment. Indeed, there is formidable authority

Part3


against such an argument. In Linden Gardens, supra, the House of Lords dealt with the issue squarely in the context of a construction contract. The defendant argued that "it is normally unlawful as being contrary to public policy to seek to render property inalienable. Since contractual rights are a,species of property . . . said that a prohibition against assigning such rights is void as being illegal." The Law Lords rejected this contention, Lord Browne-Wilkinson stating:

This submission faces formidable difficulties both on authority and in principle. . . .

In none of these cases was the public policy argument advanced. But they indicate a long-term acceptance of the validity of such a prohibition which is accepted as part of the law in Chitty on Contracts . . .

In the face of this authority, the House is being invited to change the law by holding that such a prohibition is void as contrary to public policy. For myself I can see no good reason for so doing. Nothing was urged in argument as showing that such a prohibition was contrary to the public interest beyond the fact that such prohibition renders the chose in action inalienable. Certainly in the context of rights over land the law does not favour restrictions on alienability. But even in relation to land law a prohibition against the assignment of a lease is valid. We were not referred to any English case in which the courts have had to consider restrictions on the alienation of tangible personal property, probably because there are few cases in which there would be any desire to restrict such alienation. In the case of real property there is a defined and limited supply of the commodity and it has been held contrary to public policy to restrict the free market. But no such reason can apply to contractual rights: there is no public need for a market in choses in action. A party to a building contract, as I have sought to explain, can have a genuine commercial interest in seeking to ensure that he is in contractual relations only with a person whom he has selected as the other party to the contract. In the circumstances, I can see no policy reason why a contractual prohibition on assignment of contractual rights should be held contrary to public policy.

The other Law Lords agreed with Lord Browne-Wilkinson's speech on this point.

[10] In my view, the same reasoning applies in this case, where there were sound commercial reasons for each party to the distributorship agreement to wish to prohibit competitors from stepping into the shoes of the other contracting party (as occurred here). I do not regard the decision of the Supreme Court of Canada in Edmonton Country Club Ltd. v. Case [1975]



1 S.C.R. 534, nor the dissent of Laskin J. (as he then was) therein, as assisting Brio in any way. That decision upheld a provision in the articles of a company permitting directors to withhold their consent to transfers of shares.

[11] Nor can I agree with Ms. Basham on behalf of Brio that Linden Gardens is distinguishable on the ground that it was not concerned with the validity of an equitable assignment as opposed to a "legal" one. In my view, nothing said by their Lordships in Linden Gardens suggests that it was intended to apply only to assignments that come within the ambit of the English equivalent of s. 36 of the Law and Equity Act and not to those that do not.

[12] Ms. Basham also argued that the House of Lords in Linden Gardens was not concerned with a clause that permitted consent to assignment to be arbitrarily withheld, as does the clause in the case at bar. It is true that a provision to the effect that consent may be arbitrarily or unreasonably withheld would be of concern in the context of a restraint on the exercise of one's livelihood or liberty to carry on a particular business. In that context, a court will consider whether the restraint in question is reasonable and may, if the geographical or temporal restraint is unreasonable, edit out the offending portions of the clause in question, saving the balance: see Can. Amer. Fin. Corp. (Can.) Ltd. v. King (1989) 36 B.C.L.R. (2d) 257 (B.C.C.A.). But again Ms. Basham had no precedent for extending that policy to a commercial agreement such as that in the case at bar, negotiated by two sophisticated parties. Certainly in an exclusive distributorship agreement, one expects many terms that to some extent or another restrain one's freedom to transact business in a particular way. In return, one receives certain benefits — the opportunity to have one's product marketed by a particular firm, for example.There are strong incentives for both parties to ensure competitors do not acquire confidential information about the business or otherwise abuse the relationship. The nonassignment clause is one commonly-used means of regulating the normal commercial relations between the parties and as Lord Pearce noted in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1968] A.C. 269 (H.L.), the court will not apply a public policy-based test of reasonableness upon a "mere agreement for the promotion of trade and not an agreement in restraint of it." (at 327)

[13] It is true that clause 9.1 purports to permit either party to withhold its consent to assignment arbitrarily. I am not aware, however, of any general requirement of "reasonableness" in commercial contracts — courts of law would no doubt be flooded with applications to rewrite contracts if that were the case. (See Esso Petroleum, at 328, 332-3.) In any event, the entire

Part3


question is academic, since neither FBI nor Brio sought Koala's consent to the assignment before or after FBI purported to sell its assets to Brio.

{paragraphs 14 -16 have been intentionally omitted from the classroom materials.

Do triable issues remain?

[17] I am not persuaded that there remain triable issues of fact or law between the parties that must go to trial. The main issue advanced on appeal was the question of whether the "restraint" in this case was a reasonable one. For the reasons I have already given, I conclude that there remains no triable issue on that point. Issues of estoppel or waiver raised in the court below were not seriously pressed on appeal, and rightly so in my view.

[18] In all the circumstances, I am not persuaded the Chambers judge erred in dismissing the plaintiff's action pursuant to R.18(6), as high as the standard is for such disposition. I would dismiss the appeal.”

“The Honourable Madam Justice Newbury”

INSTRUCTOR NOTES

In Brio Beverages (B.C.) Inc. v. Koala Beverages Ltd. (“Brio Beverages”),1 the B.C. Court of Appeal considered the following clause in a distributorship agreement:

“The parties covenant and agree that neither party shall, without the prior written consent of the other, (which consent may be arbitrarily withheld), transfer the whole or any part of this Agreement or any of its interest, rights or obligations hereunder.”

Notwithstanding this covenant, FBI Brands Ltd. assigned its rights under the agreement to Brio Beverages (B.C.) Inc. (“Brio”) without obtaining the consent of Koala Beverages Ltd. (“Koala”), the other party to the agreement. Koala subsequently refused to pay amounts owing under the distributorship agreement to Brio and Brio sued to obtain the monies owing. The trial level found that Brio was not entitled to sue as an assignee of the debt because of the non-assignment clause in the distributorship agreement. The Court of Appeal upheld the trial decision finding that a direct right of Brio against Koala could not succeed in the face of the non-assignability clause in the lease. One of the arguments made by Brio on appeal was that the agreement permitted consent

1 Brio Beverages (B.C.) Inc. v. Koala Beverages Ltd., [1998] B.C.J. No. 2687 (C.A.).



to be arbitrarily withheld which did not meet a test of reasonableness. Newbury J. stated:

“[13] It is true that clause 9.1 purports to permit either party to withhold its consent to assignment arbitrarily. I am not aware, however, of any general requirement of "reasonableness" in commercial contracts — courts of law would no doubt be flooded with applications to rewrite contracts if that were the case. (See Esso Petroleum, at 328, 332-3.) In any event, the entire question is academic, since neither FBI nor Brio sought Koala's consent to the assignment before or after FBI purported to sell its assets to Brio.”

The Court of Appeal in Brio Beverages also considered the effect of section 36 of the Law and Equity Act.2 Section 36(1) provides:

“An absolute assignment, in writing signed by the assignor, not purporting to be by way of charge only, of a debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim the debt or chose in action, is and is deemed to have been effectual in law, subject to all equities that would have been entitled to priority over the right of the assignee if this Act had not been enacted, to pass and transfer the legal right to the debt or chose in action from the date of the notice, and all legal and other remedies for the debt or chose in action, and the power to give a good discharge for the debt or chose in action, without the concurrence of the assignor. “

Brio had argued a right to sue as assignee given the provisions of section 36. The court disagreed and found that, “there is no authority for the proposition that section 36 applies notwithstanding a contractual prohibition on assignment. Indeed, there is formidable authority against such an argument.”

TAKE AWAYS

◆ As commercial transactions of this nature are so complex, a licensee should advise their client to get legal advice.

2 Law and Equity Acy., S. 36.


activity

Completing an Offer to Lease

The scenario below requires learners to work with the Offer to Lease while applying what they have learned about the different pages, parts and clauses in the Contract. There will be insufficient facts to complete the Contract in its entirety and learners will have to provide the information and explain their choices. For example, they will have to determine an appropriate deposit amount and explain their choice. While completing the Contract, learners will be asked to consider (and record) the questions the licensee in the scenario should be asking his or her client (aside from information with respect to addresses and contact information). Learners will consult the PSM for sample clauses and answers to questions that they have when completing this activity. The instructor will lead a group discussion, once the learners have completed this activity.

please note: You will have to include information to complete the OTL and you will have to explain why this information was selected. For example, you will have to determine a deposit amount.

SCENARIO

Mary Ruby is a licensee with Great Development Ltd., and has been working with XYZ890 Ltd. in searching for new office space. After an exhaustive search of the market, XYZ890 Ltd. directs Mary to draft an Offer to Lease for one of Qwerty Realty Corporation’s (a Canadian resident) office spaces. The space that XYZ890 Ltd. is interested in is Unit 44 and 46 of 456 Somestreet Ave., Your Town, BC V7J 8B2. The legal description is as follows: Parcel Identifier 012-534-195, A Portion of Lot 49, Block 57, District Lot 922, Group 1, New Westminster District, Plan 2928. The area of Unit 44 and 46 together is 9000 rentable square feet, and XYZ890 Ltd. is looking to lease the space for five years beginning on January 1, 2015. Unit 44 is currently occupied by an existing tenant operating as an advertising agency,

Part 4



and Unit 46 is currently unoccupied. Qwerty Realty Corporation has assured XYZ890 Ltd. that the advertising agency’s lease expires on December 31, 2014 and that vacant possession of Unit 44 will be obtained on that date. XYZ890 Ltd. wants to ensure that they can begin their tenant’s work (which includes installing new wiring for their computer network) as soon as possible, and all the work is expected to take about one week. During this week, some work will also have to be done by XYZ890 Ltd. to tear down the demising wall between Units 44 and 46 to create one large space. Mary has been directed to offer $25 per square foot per year for the entire lease term, and has also been told that XYZ890 Ltd. does not want to pay rent during the tenant’s work. Qwerty Realty Corporation has provided XYZ890 Ltd. with an estimate of $2.50 per square foot per year as the estimated additional rent for 2015. Mary knows that Qwerty Realty Corporation will likely require the payment of a security deposit, but it has not yet specified an amount to XYZ890 Ltd. Ideally, XYZ890 Ltd. would pay this deposit to Great Development Ltd. in trust, and would not have to pay this security deposit until after subject removal. Qwerty Realty Corporation has provided XYZ890 Ltd. with its standard form net lease which it requires all its tenants enter into, and Mary knows that XYZ890 Ltd. will want to their lawyers to review this lease before subject removal.

What questions should the licensee ask the client?

culminating activitiesThere are three culminating activities in Component Two of the Commercial Applied Practice Course and it is the intention that they comprise the last 45 minutes of the class. These activities include:

Check for Understanding i.clicker Questions

Part 4


Making a Learning Plan

Self-Assessment Handout

The instructor asks the learners to self-assess against the list of learning objectives initially presented in Component One. If the learners have their initial self-assessment, the instructor will encourage them to compare the areas where they have experienced growth and competency and areas that continue to need further development.

Action Plan Handout

Using the information gathered by completing the contract of purchase and sale, answering the i.clicker questions and completing the self-assessment, learners are asked to complete an Action Plan which assists in planning their next steps for professional development. Instructors can speak to the Professional Development Program, courses available through Sauder School of Business, their brokerages, and other resources they have found beneficial.

table of contents - british columbia real estate association€¦ · table of contents introduction...

Documents