Did the Flood Frustrate Your Real Estate Contract?

This is a repost from my good lawyer friend Jeff V. Kahane as he and I have had many questions about it.

Did the Flood Frustrate Your Real Estate Contract?

     We’ve all seen the horrific images over the past weeks of those directly affected by record flood waters. What we haven’t seen reported in the mainstream media is those who have been directly impacted by virtue of having bought or sold a property, and settling on a possession date during or after the flood.
     Many questions arise when realtors, lenders, lawyers, and others in real estate-related professions face the daunting prospect of resolving these untimely transactions. Let’s explore just one of those aspects which has inevitably arisen: sellers or buyers wanting to get out of their purchase contract as a result of the floodwaters affecting their property in question.
     The law contains a legal doctrine known as “frustration of contract” which applies in certain limited circumstances to discharge parties from their obligations under a contract. The doctrine is an exception to the principle of caveat emptor, or ‘buyer beware’ and requires three requirements: 1) a supervening event; 2) beyond the control of the parties; and 3) the incident must have been beyond the contemplation of the parties.
     Inevitably, the question arises of how frustrated a purchase contract must be before a seller or buyer can get out of the contract. Does 2 inches of river water in a home give a purchaser reason to avoid taking possession of the house? Does the prospect of months of necessary remediation give a seller grounds to terminate their contractual obligations (possibly with the underlying prospect of having the province pay for a brand new basement which the selling home-owner always longed for)?  
     The third requirement above is the one which creates the most uncertainty. If you find yourself in this situation you should seek legal advice from a qualified lawyer. But generally speaking, a real estate purchase contract may be terminated due to frustration when something occurs between the signing of the contract and the possession date which renders it physically impossible to fulfill the contract or transforms one or both parties’ obligations into something radically different than that undertaken at the time the purchase contract was entered into.
     At the end of the day, it falls to the parties, with the advice of a lawyer, to determine how much frustration is too much for the contract to be successfully completed. For a more thorough discussion on this topic and many others please visit our blog at www.kahanelaw.com/blog.