Some homebuyers wonder if every page or change on a real estate contract needs to be separately initialed by both parties to make it legal. The short answer is no, but if it is initialed, it is better proof that all terms were brought to everyone’s attention should things go wrong.
Here’s a story of what can happen when things get missed.
In the spring of 2011, Sushil Batra and his wife were looking for a property in Surrey B.C. to open a store selling wholesale and retail cloth. Batra found a two-acre piece of land owned by Satish Kumar and made an offer on June 28, 2011.
After negotiation, Batra agreed to pay $4,040,000 and offered a deposit of $100,000 with a closing date of July 28, 2011. The deposit was supposed to be paid within 48 hours of acceptance.
Batra’s offer said that the deposit would be paid to the Century 21 real estate brokerage in trust. When it was signed back and accepted by the seller, the words “Century 21” were removed and replaced with “direct to seller.” The words “in trust” were not removed. The clause was initialed by the seller, but not by the buyer, Batra.
Batra paid the deposit to the real estate brokerage a few days later on July 2. He later found out that Kumar had sold the property to someone else on July 14, completing the deal one week later on July 21. Batra sued for damages of $300,000, an amount outlined in the agreement if the deal did not close because of the fault of the seller.
Kumar argued that there was no deal with Batra because the deposit was paid late and to the wrong party. In addition, since the deposit language change was not initialed by Batra, the contract was void.
The judge disagreed. In a decision dated June 21, 2013, Madam Justice Barbara Fisher of the B.C. Supreme Court decided that even though the deposit clause was not initialed by the buyer, it did not result in the contract being void.
She added that even if the parties were not in agreement on this issue, there was a binding contract, as the parties had agreed on the essential three elements of the contract, namely the parties, the property and the price, a principle laid down by the Supreme Court of Canada in 1920. She also noted that the words “in trust” were not deleted by the seller. So even if there was no final agreement on where the deposit would be paid, it would not make the contract void.
The judge was also satisfied that the contract was not finally accepted until June 29 or 30 so the deposit was in fact paid in time as well.
When contract terms are ambiguous, a judge is permitted to hear evidence from the parties involved in order to correct any ambiguity. It was clear from the decision that the judge preferred the evidence given by Mr. Batra, the buyer, who was awarded the $300,000.
The main lesson is that it makes much more sense to make sure that all contract changes and pages are initialed by both the buyer and the seller, so that there is no confusion or unnecessary legal expenses later.