Critical Analysis: OREA’s Flawed COVID-19 Clauses and the Perils for Ontario Real Estate

The unprecedented challenges introduced by the global COVID-19 pandemic sent ripples through every sector, including the dynamic real estate market in Ontario. As an essential industry, real estate professionals found themselves navigating uncharted waters, grappling with concerns about transaction closures, safety protocols, and potential delays. In response to this evolving crisis, the Ontario Real Estate Association (OREA), the prominent advocacy body representing over 70,000 Realtors across the province, introduced a series of new “state of emergency” clauses. These clauses were designed to “assist” parties in real estate contracts in adapting to the pandemic’s impact on ongoing transactions. However, a closer examination reveals that these proposed clauses are not only confusing and dangerously vague but also introduce significant legal risks, threatening to undermine the very stability they sought to provide.

OREA plays a pivotal role in the Ontario real estate landscape, publishing the standardized forms universally adopted by real estate agents throughout the province. Their forms committee regularly updates these crucial documents, aiming to ensure they reflect current legal standards and market realities. Given this influential position, the release of any new clauses carries substantial weight and expectation for clarity and legal robustness. Unfortunately, in this critical instance, OREA has demonstrably missed the mark, publishing clauses that have drawn widespread criticism from legal experts and industry veterans alike.

OREA’s Intent vs. Execution: The “State of Emergency” Clauses

The four new clauses, made available on OREA’s members-only website, were intended as template tools to guide members through the complexities of real estate transactions during a pandemic. OREA’s media relations chief, Katarina Markovinovic-Praljak, confirmed that these clauses underwent creation and vetting by the organization’s legal counsel and staff. While the intention to provide supportive frameworks during a crisis is commendable, the actual content and implications of these clauses raise serious concerns that extend beyond mere academic debate, directly impacting the integrity of real estate agreements and the livelihoods of those involved.

These OREA clauses bear a striking resemblance to similar advisories circulated by some law firms and real estate brokerages during the initial phases of the pandemic. However, even these early versions were met with caution. Sidney Troister, a distinguished partner at Torkin Manes LLP in Toronto, a director of the Law Society of Ontario, and widely recognized as one of Ontario’s preeminent real estate lawyers, issued a compelling e-bulletin last month strongly cautioning against their use. This expert disapproval highlights a fundamental flaw in the approach taken by OREA, an assessment which I, having practiced real estate law for many years, fully endorse.

The Central Flaw: Analyzing the Main Delay and Termination Clause

At the heart of OREA’s controversial offerings is a primary clause stipulating that if either the buyer or seller is unable to complete a transaction due to the temporary cessation of operations by their bank, institutional lender, or the land registry office, the closing date would be automatically extended. The extension would last for two working days following the restoration of services. Furthermore, if the delay surpasses a predetermined number of days, either party would be granted the unilateral right to terminate the transaction. This seemingly straightforward provision, designed to offer flexibility, is in fact riddled with dangerous ambiguities and impracticalities.

Vagueness and Unrealistic Premises

From a legal standpoint, one of the most glaring deficiencies of this clause is its profound vagueness, particularly concerning the phrase “temporarily cease operations.” What precisely constitutes a “temporary cessation”? Does it mean a complete shutdown, or could reduced staffing, limited public access, or delays in processing qualify? Such undefined terms introduce significant uncertainty into legally binding contracts, creating fertile ground for disputes between parties who may interpret the clause differently based on their own self-interest. In contract law, clarity is paramount, and this clause falls far short of that standard.

Moreover, the underlying premise of the clause—that banks, institutional lenders, or the land registry offices would completely cease operations—is highly unrealistic. Financial institutions and land registries are considered essential services, particularly during a crisis. While they may adapt their operational methods, such as moving to remote work or limiting in-person services, a complete cessation of critical functions is exceedingly improbable. Even throughout the most severe phases of the pandemic, these institutions remained operational, albeit with adjustments. Basing a contractual provision on such an unlikely scenario undermines its practical utility and exposes parties to unnecessary risk.

Even if, hypothetically, such a cessation were to occur, the clause’s provision for reviving a postponed transaction within a mere two working days after services are restored is entirely impractical in a complex COVID-19 environment. The coordination required for a real estate closing—involving multiple lawyers, lenders, and sometimes third-party service providers—is substantial. Expecting all parties to re-mobilize, review documents, transfer funds, and register deeds within such a tight timeframe, especially after a period of operational disruption, is simply not feasible. This impracticality almost guarantees further delays and frustrations, potentially leading to further complications and disagreement.

The Dangerous Right to Terminate

The true “kicker” and arguably the most perilous aspect of this OREA clause is the option it provides to either side to terminate the transaction if the delay exceeds a stated number of days. While appearing to offer an escape route, this provision stands in stark opposition to the fundamental expectations of parties entering into a binding agreement. A real estate transaction is often one of the largest financial commitments an individual or family will make, built on the mutual expectation of completion. Granting a unilateral right to terminate based on vaguely defined delays can shatter these expectations with devastating consequences.

Frustration of Parties’ Goals: For a buyer, this could mean losing their dream home, after investing significant time and money into inspections, appraisals, and legal fees. For a seller, it could mean missing a critical closing date, potentially jeopardizing their own onward purchase or financial plans.
Financial Repercussions: Termination can lead to the forfeiture of deposits, disputes over reimbursement of legal and other transaction-related expenses, and costly bridge financing penalties.
Impact on Real Estate Agents: Agents, who have diligently worked to bring buyer and seller together, stand to lose their hard-earned commission through no fault of their own, creating an immense sense of injustice and financial strain.
Inevitable Litigation: The clause, rather than mitigating conflict, almost guarantees litigation. Disputes will arise over whether the conditions for delay and termination were genuinely met, who bears responsibility, and what damages are owed. This legal uncertainty creates significant financial and emotional burdens for all involved, clogging up already busy court systems.

In my professional judgment, for an organization of OREA’s standing to publish and seemingly endorse such a confusing and destabilizing clause, effectively allowing for the arbitrary termination of a binding agreement, is irresponsible in the extreme. It undermines the very essence of contractual certainty, which is a cornerstone of the real estate market.

Electronic Signatures: Unnecessary and Invalid Provisions

Beyond the primary delay clause, OREA’s website also features two additional clauses concerning electronic signatures. These clauses propose allowing for electronic signatures on “any other documents” and “any closing documents” pertaining to a transaction. While the intent might have been to streamline remote transactions, these provisions reveal a critical misunderstanding of existing legal frameworks and practical requirements.

Agreements of Purchase and Sale: Already Covered

For Agreements of Purchase and Sale (APS), the inclusion of a clause allowing electronic signatures is largely superfluous. In Ontario, the Electronic Commerce Act, 2000 already provides for the legal validity of electronic signatures for many types of contracts, including the APS, provided certain conditions are met. Realtors and legal professionals have been successfully utilizing electronic signatures for these agreements for years. Therefore, presenting this as a novel or necessary provision during a “state of emergency” only serves to confuse rather than clarify.

Closing Documents: The Critical Distinction

The more concerning aspect of these e-signature clauses pertains to “closing documents.” Crucial legal instruments such as deeds, mortgages, and affidavits still mandate what are known as “wet” or ink signatures. This requirement is rigorously enforced by banks, real estate lawyers, and crucially, the Land Registry Office and the Law Society of Ontario. The rationale behind this insistence on physical signatures is multifaceted, primarily aimed at preventing fraud, ensuring identity verification, and maintaining the legal solemnity and integrity of documents that transfer property ownership or create charges against it.

Even if these wet-signed documents are subsequently scanned or faxed for transmission, the original ink signature remains a prerequisite for their legal validity and registration. OREA’s clauses, by suggesting that electronic signatures are acceptable for “any closing documents,” inadvertently guide members towards practices that could render crucial transaction documents invalid. This oversight presents a significant legal hazard, potentially leading to delays in registration, challenges to title, or even the breakdown of a closing if proper execution protocols are not followed. It highlights a dangerous disconnect between the guidance provided and the established legal and institutional requirements governing property transactions.

OREA’s Response and the Broader Implications for the Industry

In response to requests for comment, Markovinovic-Praljak indicated that OREA’s standard forms team would be reviewing feedback, reiterated that the clauses are merely “template tools” to assist members, and advised that members are “encouraged to seek brokerage and legal advice prior to using them.” While this sounds like a standard disclaimer, it fails to address the inherent flaws within the templates themselves.

If the templates provided by an authoritative body like OREA are fundamentally flawed, vague, or legally dangerous, merely advising members to seek independent advice places an unfair and unnecessary burden on them. The expectation is that OREA, in its role as a leading advocacy and guidance provider, would offer robust, legally sound, and unambiguous tools. Providing problematic templates, especially during a crisis, is akin to offering a faulty compass to someone navigating treacherous terrain – the risk of misdirection remains high, regardless of advice to “double-check.”

I am certainly not alone in my belief that the widespread use of these OREA clauses, or similar ones circulating in the market, is extremely dangerous. They introduce unnecessary uncertainty and significantly elevate the risk of future litigation, not only between the contracting parties (buyers and sellers) but potentially also involving the real estate agents who facilitated the agreements using these flawed provisions. The reputation of OREA, an organization built on trust and professional guidance, is undoubtedly jeopardized when its official recommendations are seen to be confusing, impractical, and legally unsound. In a profession built on precision and reliability, such clauses do not inspire confidence.

Towards Better Solutions: Recommendations for Navigating Future Crises

The experience with these OREA clauses underscores the critical importance of foresight, clarity, and expert legal drafting when addressing unprecedented circumstances in real estate. Instead of generic, broad-stroke clauses that invite misinterpretation and conflict, future guidance should focus on precision and practicality.

Specific Force Majeure Clauses: Any future “state of emergency” clauses should be meticulously drafted, clearly defining what constitutes an excusable event, how delays are measured, and outlining a structured process for resolution rather than immediate termination.
Focus on Mutual Agreement and Extension: The default approach in contract deviations should always lean towards facilitating completion through mutually agreed-upon extensions and accommodations, rather than providing easy avenues for termination which destabilize transactions.
Clear Delineation of Electronic Signature Applicability: Future guidance on electronic signatures should clearly distinguish between documents where they are legally valid and those where wet signatures remain mandatory, providing practical steps for secure and compliant remote closings.
Proactive Collaboration with Legal Bodies: OREA and similar organizations should engage in deeper, collaborative drafting efforts with legal experts, the Law Society, and land registry officials to ensure that all guidance is not only practical but also unequivocally compliant with all legal and regulatory requirements.

Conclusion: Upholding Integrity in Ontario’s Real Estate Market

The COVID-19 pandemic presented immense challenges, and the real estate industry, like many others, sought guidance to navigate the uncertainty. While OREA’s intention to provide support was likely well-meaning, the execution of its “state of emergency” clauses fell critically short. These provisions, marked by vagueness, unrealistic assumptions, and the dangerous allowance for unilateral termination, threaten to unravel the stability of real estate transactions and significantly increase the potential for costly litigation. Furthermore, the electronic signature clauses demonstrate a disconnect with established legal requirements, particularly for crucial closing documents.

It is imperative that all parties involved in real estate transactions—Realtors, buyers, and sellers—exercise extreme caution when encountering or considering the use of such template clauses. The responsibility for ensuring contractual certainty and avoiding legal pitfalls ultimately rests with diligent inquiry and, most importantly, seeking tailored legal advice from experienced counsel. Moving forward, the focus must be on developing robust, clear, and legally sound contractual provisions that genuinely protect all parties, thereby safeguarding the integrity and efficiency of the Ontario real estate market, even in the face of unforeseen crises.

I fully endorse Troister’s criticism of the clauses.

The main clause on OREA’s website states that if the buyer or seller is unable to complete the transaction because the bank or institutional lender of either party or the land registry office has temporarily ceased operations, then the closing is extended to two working days after restoration of services. And if the delay exceeds a stated number of days, then either party may terminate the transaction.

In many years of practising real estate law, I can honestly state that this OREA clause is the worst real estate clause I have ever seen.

The clause is vague as to the meaning of “temporarily cease operations.” As well, it is certain that neither the banks nor the land registry offices nor any institutional lenders will be closing during the pandemic.

Even if that were to happen, trying to revive a postponed transaction within two days in the COVID-19 environment is highly unrealistic.

But the real kicker in that clause is the option it gives to either side to terminate the transaction. This would probably be the exact opposite of what one or more of the parties want. It would frustrate their expectations of closing the transaction, deprive the agents of their commission and inevitably lead to litigation.

In my view, for OREA to publish and appear to endorse a confusing clause allowing termination of a binding agreement is irresponsible in the extreme.

Two more clauses on the OREA website allow for electronic signatures on “any other documents” and “any closing documents” respecting the transaction.

For agreements of purchase and sale, this is unnecessary because it is already provided for by statute, but closing documents including deeds, mortgages and affidavits cannot be signed by electronic signatures. So-called “wet” or ink signatures are still required by banks, real estate lawyers and the Law Society, even if they are scanned or faxed.

In response to my request for comment, all Markovinovic-Praljak would say to me was that OREA’s standard forms team would be reviewing my feedback, that the clauses are template tools to assist members, and that they are encouraged to seek brokerage and legal advice prior to using them.

I’m not the only real estate lawyer who believes that the use of these OREA clauses or similar ones is extremely dangerous and could eventually lead to litigation among the contracting parties and the agents who drafted the agreements.

The COVID clauses do not inspire confidence in OREA’s reputation.