As a busy real estate lawyer, I have the challenge of dealing with a wide array of problems that can arise in what many people incorrectly assume is a straightforward real estate transaction. As many of you would agree, what would appear to be a simple transaction between a Buyer and a Seller can be anything but that. This column will look at some of the problems that can arise when a Buyer, Seller or realtor fail to address issues in an Agreement of Purchase and Sale (“Agreement”) in a typical residential real estate transaction.
- Use of the wrong OREA form- I have recently seen cases where the realtors are using either an outdated or entirely incorrect form as a template for the Agreement. Realtors should be using the 2020 form and not a form from 2016. As well, the form being used must coincide with the type of property being sold. For instance, I have seen realtors use the standard OREA house purchase Agreement where the property is a Parcel of Tied Land (“POTL”). Using the wrong form could create problems on the deal and result in unnecessary disputes between the parties.
- Seller is an Estate- whether buying or selling, if the Seller is an estate, the realtors must address the question of whether or not probate for the estate of the deceased has been applied for or obtained. Where the probate is required, failing to obtain it from the relevant estates court office will delay or even jeopardize a closing. If an estate is the Seller, questions must be asked before the Agreement becomes firm.
- Tenants-if the property is tenanted, the Agreement must address whether the tenants are staying on the property or if the Seller is giving vacant possession on closing. If the Agreement is silent on this issue, then vacant possession is required. The parties should be careful as the rules for evicting a tenant have changed in light of new legislation and Covid-19. Tenants cannot be evicted just because the property has been sold. The Agreement must be clear in stating whether the tenant is being assumed and if so, the terms of the assumption. I have seen deals almost fall apart when this issue is not clearly addressed and the Seller has difficulties in evicting a reluctant tenant.
- Status Certificates-I always recommend that an Agreement be made conditional on a Buyer’s lawyer’s review of the status certificate and related condominium documents. The status certificate must be current, meaning that it should not, if possible be more than one month old. If the status certificate is outdated, it is of no value and a new one should be ordered. Similarly, the ancillary documents to the status certificate must be provided as well. These documents will yield important information that would be relevant to the Buyer’s decision to purchase the condominium unit.
- Non-resident Seller-if you know that your Seller is a non-resident of Canada, you should be aware that there will be a statutory withholding tax of 25% on the sale of the property. The Seller should immediate be advised that it will need to hire an accountant to obtain a clearance letter from Canada Revenue Agency and the Seller’s lawyer will need to holdback 25% of the sale price which cannot be released until the prescribed certificate is obtained. This can take months to obtain after closing.
- Visits to the property-due to Covid, this has become a new challenge. Many Agreements will allow the Buyer to visit the property prior to closing. Now with Covid, many Sellers are understandably reluctant to allow Buyers to visit the property prior to closing. In my view, the solution is to have a clause which clearly sets out the number of visits, the duration of each visit, who is allowed to attend at the property and the protocol to be observed during the visit. For instance, the clause may include provisions that masks must be worn, the agent must be present and nothing may be touched. These are important issues which can be properly addressed in a well drafted clause.
- Waivers-most Agreements contain clauses with conditions on financing, inspection and status certificate. It is important to ensure that the clauses are precisely drafted to state the time period for the condition, when it will expire and how the clause can be waived by the party who enjoys the benefit of the clause. Again, making the wording clear will avoid disputes in the future.
- Keys-I encourage realtors to continue to include clauses in the Agreement that call for keys to be left in the lockbox on closing. This is more convenient for both Buyers, Sellers and their lawyers.
Finally, I have been asked by a number of realtors about the benefits of incorporating. My advice is that this may work for some, but not all realtors. I recommend that prior to deciding if this makes sense for you to consult with an accountant for tax advice. This is not a one size fits all solution.