If you're new to the purchase of British Columbia real estate, or even if it's just been a while, the Contract of Purchase and Sale (CPS) can be an intimidating document. But it doesn't have to be! Break down the legal jargon and the contract is actually pretty straightforward - or should be, if it's written well.

The Subject Removal Period is a critical part of the purchase process, and the terms must be clearly stated in the CPS. If you're not 100% up to speed on subject removals, this post is for you. I'll break down the subject removal process and give some tips on how to write a good contract of purchase and sale to ensure you're protected as a Buyer.

The subjects of a Contract of Purchase and Sale are conditions which have to be met to the Buyer’s satisfaction in order for the transaction to complete. The Big 5 standard subjects (which are pre-written into the contracts provided by the Victoria Real Estate Board) are

1. Buyer Financing - enabling the Buyer to obtain a mortgage at acceptable terms
2. Property Inspection - permitting the Buyer to have one or more inspections of the property to look for deficiencies 
3. State of Property Title - the Buyer must be satisfied with any claims or “charges” registered on title (the ownership document)
4. Fire/Property Insurance - allows the Buyer to confirm they can have the property insured 
5. Property Disclosure - gives the Buyer the opportunity to review and accept the terms of the Property Disclosure Statement, which contains - or should contain - detailed information about the property (these are sometimes left blank if the owners have never lived at the property, and, at any rate, the Buyer must still perform their own investigation regardless of what the PDS says)

            
Contracts for strata properties usually contain a condition that the Buyer can examine various strata documents to ensure they’re satisfied with the finances, bylaws, and rules of the strata corporation.

Other subjects can be added to the contract, and even the Big 5 aren't obligatory. In competitive situations Buyers will sometimes make "subject free" offers - but you won't hear me suggesting this.

HOW LONG IS THE SUBJECT REMOVAL PERIOD?

The subject removal period - usually seven to ten days - begins with the contract’s acceptance, giving the Buyer time to perform their due diligence and decide whether to “remove subjects” and go ahead with the deal, or let the deal die.

Time is a critical factor of the subject removal process. Buyers will need the assistance of mortgage brokers, building inspectors, and strata managers, many of whom won’t work weekends or holidays. Appointments should be arranged to leave plenty of time for decisions to be made before the subject removal deadline, or Buyers risk the deal collapsing.

DO I HAVE TO REMOVE SUBJECTS?

Of course if the Buyers don’t want to proceed with the deal, they can allow the removal period to expire without removing conditions. However, Buyers should remember that a purchase contract is a legal commitment: if Buyers don’t make a good faith effort to perform their due diligence the Sellers may have a case for legal action against them. 

It’s important to remember that the subjects aren’t Get Out Of Jail Free cards. True, if the Buyer really can’t obtain financing, they aren’t obliged to move ahead with the purchase. However, they should also be able to prove they’ve made an honest attempt.

Likewise, if a serious deficiency is discovered in a building inspection, the Buyers are certainly entitled to some sort of redress. However, if the Sellers commit to fixing the problem themselves or reducing the purchase price to account for it, then the Buyers are more or less obliged to move ahead with the sale. Again, a purchase contract is a serious commitment to buy property and all parties are expected to do their best to complete the deal.

WHEN DO I HAVE TO PAY MY DEPOSIT?

The standard contract states that the Buyer will pay a deposit on acceptance however, this is almost always changed to state that the deposit will be paid after subjects are removed, usually within 48 hours, sometimes less. There’s no set deposit, but five to ten percent of the purchase price is typical. The deposit is held by the Buyer’s brokerage in a trust account, and forms part of the downpayment when the deal completes.

Deposits can also be paid on acceptance - after all, the standard contract is actually written that way. However, in practice, the deposit is very rarely paid prior to subject removal. Buyers might commit to paying a deposit on acceptance in a multiple offer situation, and this would certainly sweeten the deal for the Sellers. However, Buyers should remember that if they pay a deposit on acceptance, and then attempt to back out of the deal, the Sellers might refuse to return it. Again, it’s important to document the efforts made to remove subjects.

CAN THE SUBJECT REMOVAL PERIOD BE EXTENDED?

Yep! Well, maybe. If the Buyers can’t remove subjects before the deadline but don’t want the deal to die they can ask for an extension. The Sellers don’t have to agree, and they might not if they think they can get a better offer from someone else. If there’s a backup offer in place, a request for an extension that “opens up” the contract will quite likely make the backup offer active. So try your best to get those subjects removed!