Contract Law for Real Estate Flashcards

In Ontario, what is a 'representation agreement' in the context of real estate contracts?

Answer: An agreement between a brokerage and a client that outlines the terms under which the brokerage will represent the client in buying or selling property

A representation agreement (either a listing agreement for sellers or a buyer representation agreement for buyers) formalizes the relationship between the client and the brokerage, specifying the scope of services, commission, term, and obligations of both parties.

What is 'mitigation of damages' and how does it apply to Ontario real estate contracts?

Answer: The duty of the non-breaching party to take reasonable steps to reduce their losses after a breach of contract

When a contract is breached, the non-breaching party has a duty to mitigate — to take reasonable steps to minimize their losses. For example, if a buyer breaches, the seller should make reasonable efforts to resell the property rather than simply claiming large damages.

In Ontario, what is an 'indemnification clause' in a real estate contract?

Answer: A clause where one party agrees to compensate the other for specified losses or liabilities that may arise

An indemnification clause is a contractual provision where one party agrees to hold the other harmless and compensate them for specified losses, damages, or liabilities. In real estate, it may cover issues like environmental contamination or undisclosed defects.

What is 'novation' in Ontario real estate contract law?

Answer: The substitution of a new contract for an existing one, or the substitution of a new party for an original party, with the consent of all parties

Novation is the creation of a new contract that replaces an existing one, or the substitution of one party with another. Unlike assignment, novation requires the consent of all parties and completely extinguishes the old contract.

In Ontario real estate, what is an 'escape clause'?

Answer: A clause that allows a seller to continue marketing the property while a conditional offer is in place, and to give the buyer a specified time to waive conditions if another offer is received

An escape clause (also called a time clause or 48/72-hour clause) allows the seller to keep the property on the market while a conditional offer exists. If another offer comes in, the first buyer is given a specified time period to remove their conditions or the first offer becomes null.

What is a 'vendor take-back mortgage' in Ontario real estate?

Answer: A mortgage provided by the seller to the buyer as part of the purchase transaction, where the seller finances a portion of the purchase price

A vendor take-back (VTB) mortgage is seller financing where the seller agrees to lend the buyer a portion of the purchase price, secured by a mortgage on the property. This can help buyers who need additional financing beyond what a traditional lender provides.