A binding contract requires offer and acceptance and consideration. Generally, an offer can be accepted at any time until it is revoked. In order to not allow an offer to be available for acceptance all Agreements of Purchase and Sale should contain a clause that is commonly referred to as the “Irrevocable” clause.
The Irrevocable clause states a date and time up to which time the offer is irrevocable. Before the time on the specified date, the party offering cannot revoke their offer. The Irrevocable clause usually states that when the time and the date passes the offer becomes null and void. In the standard OREA Agreement of Purchased and Sale, s. 1 is the irrevocable clause and it contains language that nullifies the offer if it is not accepted.
The word irrevocable is important to understand. It means that the Agreement cannot be revoked. This seems obvious, but not everyone realizes the implications. Consider this scenario from the Buyer side perspective:
- Party A offers to Party B through its agent to purchase a property with an irrevocable set 5 days later.
- The next day Party A finds an even better house that is less expensive.
- Party A calls the agent and explains that they want to put in an offer to purchase that property.
- The agent calls Party B’s agent and leaves a voice-mail saying that the offer is revoked, Party A does not want the house anymore.
- Party A’s agent prepares a new offer for the new property and submits it with a 5 day irrevocable.
Party A now has two irrevocable offers to purchase two separate properties. It is entirely possible that both offers can be accepted and Party A will be responsible for purchasing both houses.
This problem arose because Party A’s agent thought that the offer could be revoked by calling the agent and leaving a message. This is not the case. Even if the agent had received the telephone call, the agent for Party A could not revoke the offer because it was irrevocable for 5 days. To avoid this problem, Party A had to wait for the irrevocable to lapse, or receive a counter-offer. Once a counter-offer is received, Party A’s offer has in effect been rejected and Party A can accept or reject the counter-offer.
Problems can also arise if the Seller does not pay careful attention to irrevocable dates. Consider this scenario from the Seller side perspective:
- Party A receives an offer from Party B on January 8 that is irrevocable until 11:59 pm on January 10.
- Party A counter-offers back to Party B on January 8, but does not change the irrevocable date or time (only changes “buyer” to “seller”) in the Irrevocable clause. This has the effect of making Jan 10 at 11:59 pm the irrevocable date and time for the seller’s counter-offer.
- Party C offers to Party A an offer that Party A wishes to accept.
- Party A informs Party B that they have received another offer they would like to take and that the counter-offer is revoked.
- Party A accepts Party C’s offer.
- Party B accepts Party A’s counter-offer before 11:59 pm on January 10.
Party A has now sold the property under two separate agreements. It will almost certainly end in litigation, or if Party A is lucky, it may be able to negotiate with one of the parties for a mutual release.
Both of these scenarios reveal Agents who do not understand what an irrevocable provision means in the agreement and they may have caused their clients to be exposed to liability. Although Party A is at fault for entering into multiple agreements, it is the agent who is responsible to advise Party A and Party A should have been advised about the effect of the irrevocable offer by the agent.
Real Estate lawyer, Noah Potechin, holds seminar’s for Real Estate Agents wherein he covers this, and many other topics, which explain where agent’s liability may be and ways to avoid it. To book a seminar for your brokerage, please contact Noah Potechin.