Real Estate Law. Real-World Lessons.

Every week, Ontario courts deliver decisions that reshape how real estate deals play out - impacting your closings, commissions, and client relationships. But who has time to sift through 50+ pages of legalese?

We do.

Clause & Effect breaks down Ontario’s biggest real estate cases into clear, practical takeaways for realtors, mortgage advisors, and investors. No fluff. No Latin. Just sharp lessons you can actually use.

Let’s dive in!

What happens when a buyer exercises a lawyer approval condition but doesn't explain why their lawyer disapproved?

Does the seller get to demand reasons? Can they refuse to return the deposit because the notice simply said "we're backing out"?

That's the question in Yui v. Yan, where a seller refused to return a $60,000 deposit after an assignment deal fell through. The seller argued the buyers hadn't properly exercised the termination condition. The Court of Appeal disagreed.

The Case: An Assignment Deal Unravels

August 29, 2023. Christine and Michelle Yui signed an agreement to take over the purchase of a property from Sa Yan. The assignment required a $60,000 deposit. Paid in full.

The agreement included a lawyer approval condition. The deal could be terminated if the terms were not acceptable to the buyers' lawyer, based on that lawyer's "own and absolute opinion." The buyers had 17 banking days to deliver written notice of termination.

Before the deadline, the Yuis' real estate agent contacted Yan's agent, Ms Picard. The message was simple. The buyers were "backing out."

Yan refused to return the deposit. The termination wasn't valid, Yan argued. The notice didn't say the lawyer disapproved. It didn't give reasons. It just said they were walking away.

The buyers brought an application. They wanted their $60,000 back.

The Court Showdown: Was "Backing Out" Enough?

The seller argued:

• There was no evidence the buyers' lawyer actually disapproved the agreement.

• The condition couldn't be waived at the buyers' sole discretion.

• The termination notice was defective because it didn't reference the lawyer's opinion at all.

• Solicitor-client privilege was impliedly waived when the buyers exercised a condition based on legal advice.

The buyers argued back:

• The condition allowed termination in the lawyer's "absolute" discretion.

• They consulted with a lawyer before terminating.

• Solicitor-client privilege protected their communications with counsel.

• The agreement didn't require them to explain the lawyer's reasoning.

The Decision: Buyers Get Their Deposit Back

The application judge sided with the buyers. So did the Court of Appeal.

• The contract didn't require an explanation. The termination condition said nothing about disclosing the lawyer's reasons. The phrase "own and absolute opinion" made the termination within the lawyer's sole discretion. The court found no requirement to share what that opinion was.

• No implied waiver of solicitor-client privilege. The seller argued that exercising a lawyer-based condition meant waiving privilege over those communications. The Court of Appeal rejected this. Exercising the condition doesn't mean opening your file.

• Ms Picard's evidence didn't help. The seller's agent believed the buyers were terminating because of their living arrangements, not legal advice. But this was just her inference from conversations with the buyers' agent. It didn't prove the condition wasn't properly exercised.

The $60,000 deposit was ordered returned.

Key Takeaways (Without the Legalese)

1/ "Absolute discretion" means just that.

The termination condition gave the lawyer sole authority to disapprove. The court held that "own and absolute opinion" requires no explanation and no disclosure of reasons.

Lesson: When you're drafting or reviewing lawyer approval conditions, pay close attention to the wording. "Absolute discretion" language gives the buyer maximum flexibility to exit without justification.

2/ Exercising a lawyer condition doesn't waive privilege.

The seller tried to argue that relying on legal advice meant disclosing it. The court disagreed. The buyers had no obligation to reveal what their lawyer said or why.

Lesson: Solicitor-client privilege remains intact even when a contract condition hinges on legal advice. Buyers don't have to open their file to walk away.

3/ Termination notices don't need magic words.

The buyers' agent simply said they were "backing out." That was enough. The agreement required written notice within 17 days. It didn't require the notice to quote the condition or explain the lawyer's reasoning.

Lesson: Check the contract's notice requirements carefully. If it doesn't mandate specific language, a statement of termination within the deadline should suffice.

Questions or advice needed on your next closing? Reach out at [email protected] or call 519-997-3775.

Solid contracts ensure seamless closings.

Until next time.

-Christian