Subject Clauses in BC: How Conditions on an Offer Work

When you make an offer in BC, you can make it subject to conditions, such as financing or an inspection, that have to be met or removed before the deal is firm. Here is how they work, what BCFSA and the courts expect of you, and how they fit with the rescission period.

The short version

What a subject clause does

In BC, an offer is usually written on the standard Contract of Purchase and Sale, and subjects go in its terms and conditions section. Each one can be marked for the sole benefit of one party and has its own date. Unless each condition is waived or declared fulfilled by written notice from that party, on or before its date, the contract ends and the deposit is returnable under the Real Estate Services Act.

• It is already a contract. BCFSA says a contract of purchase and sale is legally binding once both parties sign it. Subjects make your obligation to complete depend on them.
• Subjects aren't escape clauses. BCFSA is clear that they don't let you avoid your legal responsibilities under the contract.
• Wording matters. BCFSA says it is ultimately your responsibility to be sure your subject clauses mean what you want them to mean.

The common subjects, and how they are worded

BCFSA, the real estate regulator, publishes sample clauses that licensees adapt to each deal. Buyer subjects usually follow one pattern: you must be satisfied, in your sole discretion, by a set date, and the condition is for your sole benefit, so only you can waive it or declare it fulfilled.

• Financing. Subject to you being satisfied that you have received "a satisfactory mortgage financing commitment." BCFSA suggests setting out the specific terms you need. A pre-approval is not a final approval, and this subject covers the gap.
• Inspection. You get an inspection at your own expense and must be satisfied with the report, and the seller allows access on reasonable notice. Another version caps the total cost of fixing any defects found. Here is what an inspector checks.
• Strata documents. A satisfactory review of all relevant strata documentation, including any engineer's or building inspection reports. Here are the strata documents to read first.
• Title. Your satisfaction with title gives you and your lawyer or notary time to review what is registered against the property, such as easements, restrictive covenants and statutory rights of way.
• Insurance. Approval from a licensed insurer for property coverage, "including, without limitation, fire, earthquake and flood coverage," and liability insurance on terms and at rates satisfactory to you. BCFSA notes insurers have grown more reluctant to cover homes exposed to those risks.
• Sale of your home. Your purchase depends on selling your current home. The seller can still consider other offers and can ask for a time clause: if another attractive offer comes in, you must remove all your subjects within a set time, or the contract ends. See Buying and Selling at the Same Time.
• Appraisal. Your lender bases the mortgage on the property's value, so a low appraisal can shrink your loan. A financing subject that names the amount you need covers this, or you can make the purchase subject to the home appraising at or above an amount you set. BCFSA has no sample clause for this, so the wording should say whose appraisal counts.

Your duty to try, in good faith

BCFSA says buyers are required to use every reasonable effort to see that their conditions are satisfied. Even with sole discretion wording, BCFSA notes, you still have a duty to act in good faith. BC courts agree:

• Best efforts, judged reasonably. In a 1988 case, the BC Court of Appeal held that a buyer with a "satisfactory financing" subject had to use his best efforts to get financing and could not withhold his satisfaction unreasonably.
• A reason tied to the clause. As BCREA's Legally Speaking column puts it, you may refuse to remove a subject only for a reason tied to its wording. A buyer can't decline to remove a financing subject because she has found another home she likes better.
• Sellers too. In Zhang v. Amaral-Gurgel (2017), a seller whose acceptance was subject to her lawyer's approval got a higher offer and refused to remove her subject. The BC Supreme Court found she had not acted in good faith and ordered her to complete the sale to the first buyers.
• The cost of not trying. A buyer who doesn't make those efforts can be in breach of the contract, and the seller may be entitled to keep the deposit as damages.

Removing subjects, and when the deposit is paid

You remove a subject by giving the seller written notice on or before its date.

• Waived or fulfilled. A condition is declared fulfilled when it has been met, or waived when you go ahead without it. Either way, that protection is gone.
• Deadlines are firm. Under the standard form, a subject not removed in writing by its date ends the contract.
• Deposit timing. The standard form says the deposit is paid within 24 hours of acceptance unless the contract says otherwise. BCFSA's samples allow a deposit due a set time after acceptance or after all subjects are removed, or one that increases on subject removal.
• Pay the deposit on time. Under the standard form, if you don't pay the deposit as the contract requires, the seller may end the contract. BCFSA also cautions that not paying an initial deposit doesn't reduce your responsibility to make best efforts to satisfy your subjects.

How the rescission period fits with subjects

Home purchases in BC generally come with a home buyer rescission period, with exceptions such as court-ordered sales, auctions, leasehold homes and most presales. It begins the day after the acceptance is signed and ends at 11:59 p.m. on the third business day, not counting weekends and holidays.

• They run at the same time. BCFSA says subject periods run concurrently with the rescission period, which does not begin after subject removal.
• They are separate. BCFSA's example: with five days to remove a financing subject, a buyer who relies on it to get out must show they tried, in good faith, to get financing. On day two, the same buyer could instead rescind and pay the fee, financing or not.
• The fee. You rescind by written notice and pay 0.25% of the purchase price, $2,250 on a $900,000 home. If a brokerage holds your deposit, it pays the fee to the seller and returns the rest to you, with no release needed.
• It can't be waived, and it doesn't replace subjects. The period applies with or without subjects, so removing them early doesn't take it away. And relying on it alone, BCFSA notes, wouldn't guarantee the seller lets your inspector in.

Subject-free offers

BCFSA calls a subject-free offer one of the riskiest options for a buyer. If financing you counted on falls through, you could forfeit your deposit and face a lawsuit from the seller, and you lose the chance to find defects or a strata bylaw change before you commit. If you go this way, confirm your financing for this home, and ask to inspect and review the strata documents before you offer. I cover the strategy in Multiple Offers in Metro Vancouver.

If a subject isn't met

If a condition can't be met despite your reasonable efforts, BCFSA says the contract ends and there is no legal obligation to complete. The deposit doesn't come back automatically: the brokerage holds it as a stakeholder and needs a release signed by you and the seller, and if either won't sign, it stays put until you agree or a court decides. Before you let a subject lapse, be sure you can show the efforts you made.

Questions buyers often ask me

Is my offer binding before I remove subjects?

Yes. BCFSA says a contract of purchase and sale is binding once both sides sign it. Your obligation to complete depends on your subjects, but you must make every reasonable effort to satisfy them.

Can I let a subject expire because I changed my mind?

Not safely. You may refuse to remove a subject only for a reason tied to its wording, and a buyer who doesn't make genuine efforts can be in breach and lose the deposit. Within the rescission period, you can rescind instead by paying 0.25% of the price.

Can I remove subjects before the rescission period ends?

Yes. The two run at the same time, and the right to rescind can't be waived, so it lasts to the end of the third business day either way. After that, a deal with no subjects left is firm.

Do I get my deposit back if a subject isn't met?

Generally yes, if you made reasonable efforts to satisfy it. The contract ends, and once you and the seller sign a release, the brokerage returns the deposit.

Can the seller accept another offer while my subjects are outstanding?

The seller can consider other offers. With a time clause, if another attractive offer comes in, the seller can give you notice to remove all your subjects within the set time, or the contract ends. Otherwise, any other offer the seller accepts should be a backup, conditional on your deal collapsing.

Getting ready to write an offer? Read From Offer to Keys for the steps after acceptance and why pre-approval matters in the Lower Mainland.

This article is general information, not legal advice. It draws on the standard Contract of Purchase and Sale, BCFSA guidance and sample clauses, BC's Home Buyer Rescission Period Regulation and BCREA's Legally Speaking column, current at the time of writing; ask a lawyer or notary about your own contract. For BCFSA's guide, see offers to sellers.