What to know about Referential/Escalation Offers
What to know about Referential/Escalation Offers
March 26, 2021 by Cassidy

 

 

In an environment of multiple offers, a listing agent might be presented with an offer containing what is generally referred to as a ‘‘referential purchase price clause’’ (RPPC). The RPPC is a means by which a buyer endeavours to establish a purchase price by reference to prices contained in competing offers. The thrust of the RPPC is for a buyer to piggyback on the next highest bona fide offer which is acceptable to the seller. Such a clause might read as follows:

The purchase price is $1,000 above the price offered in the nearest competing bona fide offer acceptable to the seller to a maximum price of $350,000. The seller agrees to provide a copy of such nearest competing offer on acceptance of this offer.

A 1985 House of Lords decision from the United Kingdom held that a referential offer is an offer which does not stand on its own and which is not understandable without reference to another bid. The House of Lords held that referential offers were invalid.

The B.C. Court of Appeal, in the case of The Bank of Nova Scotia and Yoshikuni Lumber, held that an offer by one bidder which is dependent for its definition on the offers of others is invalid and unacceptable, as being inconsistent with and potentially destructive of the very tendering process in which it is submitted.

In order to avoid potential problems, a listing agent should consider the following guidelines when confronted with an RPPC clause in an offer:

– the listing agent should review the referential offer with the seller very carefully as it might not be the best offer with respect to other terms besides price, such as the financial qualifications of the buyer, dates and any subject to clauses;

– if this offer appears to be the best offer, the listing agent should advise the seller to counter the said offer by deleting the RPPC clause and inserting a fixed price for an identical amount in its stead;

– this counter-offer should be open to the buyer who presented the referential offer for acceptance before the expiration of any other offer the seller may be considering;

– if the buyer in question accepts the seller’s counter-offer, then it is no longer a referential offer as it is a contract for a fixed price;

– if the buyer refuses to accept the seller’s counter-offer by the time it is open for acceptance, then the seller is free to counter or accept another offer as long as it has not expired; and

– the listing licensee should be aware that if acting as a limited dual agent for both the buyer who wishes to present a referential offer and the seller, the usual principles of dual agency apply and the licensee should ensure that both parties understand the limitations of the licensee acting as a dual agent.

Thank you to Khushhal Bains, Partner* of BELL ALLIANCE LLP for providing this helpful information!

 

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