Buyers — What are Subjects?
In the crazy world of real estate, we have clauses that will protect both the Buyer and the Seller. Today, we will talk about the “Subject to” clause that protects the Buyer and gives the Seller a reasonable amount of time to work the deal with the Buyer.
Let’s make this easier by using the WHAT + WHY + WHERE + WHEN
WHAT IS A “SUBJECT TO” CLAUSE?
A “Subject to” clause serves the purpose of protecting the Buyer. This is a time clause as it gives the Buyer a reasonable amount of time to fulfill the conditions of what they need to do in order to purchase the home
This clause will always have a future date of when the Buyer intends to remove the Subjects (when the Buyer is satisfied with the conditions.) The date really depends on the situation of the Buyer and Seller. Normally it is about 5 to 10 business days after submitting the Offer to the Listing Agent. Sometimes less if the Buyer has met some of their conditions. Sometimes more if the Buyer requires more time figuring out these conditions (ie: out of town Buyers, or the Strata Documents are not ready yet.)
An example of this clause: “Subject to the Buyer obtaining satisfactory financing on or before (a future date of the offer.) This condition is for the sole benefit of the Buyer.”
The most common types of Subjects
Finance
Inspection
Title Search
Insurance
Property Disclosure Statement
For Strata: Receiving All Strata Documents
WHY DO BUYERS NEED “SUBJECT TO” CLAUSE?
The Buyer needs time to review the property thoroughly themselves, and to have other professionals to come in and give their advice for this big purchase
Refer to the Finance example, the Buyer will need a Mortgage Advisor to see if this property is financially feasible, as well to have a Bank Appraiser to appraise the value
Another example would be to have an Inspector to inspect the place, and to prepare a report to see what is going on and what needs to be repaired
For strata — then the Buyer will need time to review the strata’s documents: minutes, depreciation report, bylaws, insurance etc. to make sure the strata is doing well and healthy
If everything goes well, then the Buyer can successfully remove Subject and get the deposit to seal the deal
If one or more condition didn’t meet, then there would be no deal (either an extension of the Subject Removal or a Collapsed Deal)
WHERE CAN WE SEE & PUT “SUBJEC TO” CLAUSE?
In the Contract of Purchase and Sale (Offer)
Under Section 3: Terms & Conditions
WHEN DOES “SUBJECT TO” CLAUSE MATTER?
It matters when drafting up the offer. We need to make sure we know WHAT Subject we are putting on the offer, and WHEN the removal date is
It matters during the offer negotiation. There are times when the Buyer need to have the flexibility of having earlier Subject Removal dates, or no subjects if all of their conditions have already met. In a multiple offer situation, the Seller may prefer an offer that has less to no Subjects just so the deal can close sooner (depends on the situation.)
It matters on the Subject removal date. Once all conditions have been met (so the Buyer is satisfied with their finance, inspection and other Subjects) the Buyer can remove the Subject (known as: Subject Removal) This is also when the Buyer picks up the bank draft deposit
Got Any Questions? Ask!
Written by Ck Real Estate Team
