Don't Let a Wildfire Destroy Your Deal This Summer!

🔥Fire season has, unfortunately, already started.

🔥That means real estate closing days (and many lives!) could be impacted by wildfires.

⛔There’s 2 primary ways wildfire could impact a real estate closing:

1. the property is damaged or destroyed by wildfire; or

2. the property is uninsurable due to wildfire in the area.

This newsletter explains the legal implications of the above two situations, including some practical considerations to keep in mind.

To make your lives easier, I’ve written two clauses to protect your clients (both buyers and sellers) from losing their deal due to a wildfire:

• Subject to Insurance Clause

• Automatic Extension Due to Wildfire Clause

🚒Property Damaged or Destroyed by Wildfire

People love to bandy about the word “frustration” when properties are damaged or destroyed before closing day. They think transactions collapse automatically if a property is significantly damaged before closing day.

These people are what us lawyers like to call “wrong.” Frustration generally does not apply in the case of fire damage.

Look no further than Gill v. Zhang, 2016 BCSC 1464 (“Gill”), a frequently cited case about a property seriously damaged by fire between subject removal and completion. Courts frequently rely on the principles set out in Gill for all sorts of property damage occurring between subject removal and closing.

The principles, as summarized from paragraph 87, are:

• The Buyer is entitled to:

  • purchase the property with an appropriate compensation or reduction in the purchase price;

  • the details of the insurance policy and details of the damage; and

  • a reasonable opportunity to assess the damage and their position before electing to affirm the contract or accept the repudiation.
    

• The Buyer is not entitled to demand an entirely new or different agreement.
  

• The Buyer and Seller are both obligated to:

  • agree to reasonable requests to extend the closing date to permit negotiations and investigations;

  • uphold their duty of reasonableness;

  • enter the negotiations in good faith; and

  • be reasonable as to price.

Keep these principles in mind if you find yourself in a situation where the property is damaged or destroyed by wildfire, or just about anything else. Ask me if you have any further questions!

📌Property Uninsurable Because of Wildfire in the Area

Many insurers will not offer renewals or new policies in areas where a wildfire is within 25, 50, or 100km. The definition of “wildfire” and radius varies between insurers.

Mortgage lenders require proof of insurance, on closing day, before funding a mortgage.

Therefore, unless the Buyer is paying cash, and chooses to take the risk of buying an uninsurable property, they will need insurance to complete the purchase.

Insurance could fail to materialize, or fall through, at the last minute. Many buyers get caught flat footed because their contract didn’t consider this possibility.

Wildfire extension clauses also protect sellers, as they “keep the contract alive” through (what should be) the length of wildfire season. This is especially important if a seller has a subsequent purchase lined up.

📝Consider Protecting Your Clients With These 2 Contract Clauses:

***Disclaimer*** Every transaction is unique, these clauses are not 1-size-fits-all. I’ve done my best to draft useful, reasonable clauses - they are not legal advice. It’s your duty to ensure you understand their implications before using them. Please contact myself or another lawyer to ensure these clauses fit your client’s needs.

Subject to Insurance Clause

Automatic Extension Due to Wildfire Clause

💡Practical Tips

1. Consider how you can help victims of wildfires.

2. Attempt to get an insurance policy bound to the property as soon as subjects are removed, perhaps even before. Some insurance agencies will bind policies up to 60 days in advance!

3. Get your home insurance information ready, including copies of all policy documents, for buyer review.

4. Prepare you home for wildfires as best you can.

   1. Here’s 10 tips from the Insurance Bureau of Canada.

   2. BC FireSmart Home Guide

5. Monitor Active Wildfires in Your Area

6. Review the BCREA guidance

🤔Did You Know?

I offer real estate agents and mortgage brokers complimentary short phone consultations. Message me on WhatsApp, or book a call.

A reminder that Arora Zbar LLP has 4 lawyers offering services in real estate transactions, construction disputes, corporate law, commercial litigation, tenancy/strata disputes, and estate planning.

We offer services in English, Punjabi, and Farsi.

We are super transparent about pricing, check out our app at www.pricemyconveyance.com - it calculates property transfer tax, too!

Contrary to what people think, a lawyer is not more expensive than a notary. Remember that all lawyers are notaries, but notaries are not lawyers. In my experience, most notaries refer clients to a lawyer as soon as there’s a problem with a deal. Why not start with a lawyer?

Sincerely,

Eli Zbar

Lawyer

Arora Zbar LLP