What does ‘good faith’ mean in a real estate agreement?

In our experience at Benjamins Realty, most real estate transactions operate smoothly. Two or more parties agree to terms on a property while legal and financial professionals work alongside those parties to ensure the agreement is carried out in “good faith”. But what exactly does that mean?

“Good faith” is a legal term that finds its roots in the familiar Latin term “Bona Fides” (often misspelled today as bonafied) This legal term can be traced all the way back to the Roman empire. The Romans occupied Britain for 400+ years during antiquity and naturally, this expression made its way into the medieval British legal system known as Common Law. Fast forward to today and “good faith” is still a very important element of legal contracts in Canada, something we’ve inherited from our English forefathers who brought the already well-established legal traditions of the British empire to the new world.

A copy of the magna carta, a key record in. Common Law

Good faith was considered a virtue by the Romans. It was the implied responsibility parties had to one another in an agreement. This basic principle is still so important today in Real Estate. The Supreme Court of Canada recently ruled that “good faith” was in fact an organizing principle of all contracts.

In short, if you enter into an agreement you must do so with honest intentions to fulfill that agreement. This sounds reasonable enough but in real estate, it can quickly become sticky when ie. the seller leaves the property in an unkempt condition for the buyer upon possession, or the buyer looks to dissolve the agreement on a technicality because their financial situation has changed. Interestingly enough, the principle of good faith takes precedence and this is evident in the court’s ruling.

Ever had the thought you might be able to take advantage of a situation because an agreement isn’t in writing?

That doesn’t work either, contracts can be formed verbally or even implied by the context of a situation. Once a contract is formed, good faith is an organizing principle and therefore you must seek to carry out the agreement with honest intentions.

We always encourage our clients to negotiate and create agreements in good faith. Be fair but firm in your dealings, it always pays off in the end. If your selling a property, leave behind the items you said would and leave the property in the condition it was originally inspected under. If your a purchaser or a seller, know that a change in your situation won’t exempt you from an accepted agreement, you will be liable if that agreement collapses.


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