TABLE OF CONTENTS
- Before you Buy
- The Agreement of Purchase and Sale (resale homes)
- Before you sign the Agreement of Purchase and Sale
- The Survey
- The initial meeting with your lawyer
- Costs of the real estate transaction
- The lawyer's role in the real estate transaction
- Your role in the real estate transaction
- Joint Tenants
- Tenants in Common
- Obtaining good title to the property
- Title Insurance
- The signing up meeting with the Lawyer
- The Closing Date
- The Post Closing
Before you Buy a home, there are several matters which you should attend to.
- Obtain a “pre-approved” mortgage from your financial institution. This means discussing with your loans officer the maximum amount of money which you will be able to borrow for the purchase of your home. With this important information, and knowing how much savings are available to you, you will then known exactly how much money you can afford to spend on your purchase. This has two definite advantages:
Your loans officer will also discuss with you the advantages of obtaining “mortgage insurance” which will pay off your mortgage in the event that the insured owner dies. This would ensure that the bereaved family of the deceased will not be forced to sell the home, leaving the spouse and children homeless.
- You will not waste your time or the time of your real estate agent looking at homes which you cannot financially afford;
- You will not need to make the Agreement of Purchase and Sale conditional upon your obtaining financing. In todays market, this is will ensure that your offer has a better chance of being accepted, as vendors are more likely to accept unconditional offers than offers containing numerous conditions.
- Consider discussing with your financial adviser the manner in which you will be acquiring title to the property. In cases where the property you are purchasing is a second home, a cottage, or a rental property, from a tax point of view it may be financially advantageous to have several individuals own the home, or perhaps the home could be owned in the name of a corporation or a partnership. Keeping in mind that upon the sale or other disposition of any property other than your personal residence there will likely be capital gains to pay, competent financial advice is crucial to avoiding the payment of unnecessary taxes. Another reason why you may wish to sign the Agreement of Purchase and Sale under an incorporated company is to protect you from personal liability in the event that the Purchaser cannot close the transaction for any reason whatsoever, and in many cases you may have to structure the Agreement specifically to get this potential benefit. While this protection is not absolute, it offers substantial protection in cases where you are unable to close the transaction for a bona fide reason, and where the corporation is controlled by several individuals. Competent legal advice in this area is crucial.
- Keep in mind that The Family Law Act of Ontario confers an interest in the matrimonial home to each spouse, if the purchasers are married, even if only one of the spouses is named as the owner. In certain cases, especially in cases of second marriages, the parties may wish to discuss with a family lawyer the advantages of entering into a marriage contracts prior to purchasing a home in order to address the issue of ownership and the disposition of property in the event of marriage breakdown.
The Agreement of Purchase and Sale is the contract executed between a Purchaser and Vendor of real estate property and sets out the various terms and conditions that the parties have agreed upon. In the majority of cases, the Agreement is prepared by a real estate agent using one of the standard pre-printed forms. The first part of the Agreement typically sets out the parties to the contract, the legal and municipal description of the property, the purchaser price for the property, and the amount of the deposit provided by the purchaser.
The next section of the Agreement consists of a blank area where special clauses, applicable to the particular transaction, are often inserted by the parties or their agents. There are many clauses which may be inserted into this area, such as clauses in favour of the Purchaser which make the Agreement conditional until certain conditions are fulfilled, such as a condition that the Purchaser be able to obtain satisfactory financing within a certain period of time, or that the Purchaser be satisfied upon the results of a home inspector's report. Other clauses may provide for the Purchaser being able to assume the Vendor's existing mortgage or to give back a mortgage to the Vendor.
The next section of the Agreement deals with what chattels (such as curtains, furniture, appliances etc.) are to be included in the Purchase Price, and which fixtures (e.g. dining room chandelier) are to be specifically excluded. The general rule is, unless specified to the contrary, all chattels are excluded from the Purchase Price, while all fixtures are included in the Purchaser Price. This section also sets out any equipment located on the property which is rented and therefore not included in the Purchaser Price (e.g. hot water tank, furnaces and equipment etc) and the Purchaser usually assumes the rental contract.
The next section of the Agreement deals with significant dates pertaining to the transaction, such as the date upon which the Agreement becomes final and binding, the closing of the transaction and the date by which the Purchaser's lawyer must have investigated title to the property and requisitioned any deficiencies from the Vendor's lawyer. If at all possible, it is best to avoid having a closing date at the end of the month, especially during the summer, as these are the busiest days in the year for real estate closings. Closings are often delayed or do not occur at all due to the heavy volume on these days. Keys are often not available until late in the afternoon or sometimes even in the evening, causing the actual moving in to be very frustrating and stressful. Furthermore there are usually extra costs resulting from late closings, including the cost of having your moving truck and movers sitting in the driveway to your new home waiting for the keys to arrive, and, in rare cases, the cost of accommodation and storage of your possessions in the event that the closing does not occur on the scheduled date. Your lawyer will be able to discuss these matters with you and suggest appropriate closing dates which will minimize any disruption to you.
The next section of the Agreement sets out the remainder of the pre-printed clauses which will govern the transaction, including representations as to the legal uses for the property, the obligations imposed on the Vendor to discharge certain encumbrances affecting the property, and warranties to the effect that the property has not been insulated by Urea-formaldehyde Foam Insulation.
The remaining section of the Agreement is for the parties and their spouses to sign in order to make the Agreement binding.
Before you sign the Agreement of Purchase and Sale, it is an excellent idea for you to review the Agreement with a Real Estate Lawyer, who will explain to you all the fine print in the document, and who may be able to suggest the addition of further clauses to the Agreement to better protect your interests, such as inserting a clause making the Agreement conditional upon your being able to obtain financing, or by inserting a clause requiring that the Vendor provide an up-to-date legible survey, or provide evidence that the garage in the backyard was built with a building permit. Without an up-to-date survey you may be faced with having to pay significant amounts to money to legalize a non-conforming structure at your own cost.
The survey is a document which illustrates the location of a home and all other structures, including fences, porches, decks and swimming pools, in relation to the boundary lines of the lot. Frequently, Agreements Purchase and Sale require the Vendor to supply the Purchaser with an “existing survey” which may be incomplete, illegible, and several years old.
The Purchaser is required to review the survey and then advise the lawyer if there have been any additions made to the building, or if there are any additional structures built which are not shown on the survey, e.g. swimming pool, garage etc.. Any survey which is not recent and up-to-date may not accurately depict the location of fences, buildings, pools, or additions to the building as they may presently exist today. Your lawyer’s opinion of title will, of necessity, be qualified when commenting on the compliance of the property with the relevant zoning and other by-laws. Your lawyer will only be able to certify to you as to any defects or problems which the existing survey shows as your lawyer will not be able to discover or have any knowledge of any defects or problems which may exist today, and which an up-to-date survey would reveal. This could cause you aggravation and expense in the future if problems are subsequently detected which an up-to-date survey would have revealed, especially as you may have no right to recover any damages from the vendors.
In order to obtain an unqualified letter of opinion, a lawyer will usually recommend that you have an up-to-date survey prepared. This may be necessary in the event that the financial institution through which you are obtaining financing, as a condition of financing requires you to obtain an up-do-date survey. While the requirement of an up-to-date survey is no longer necessary with the purchase of Title insurance, as discussed below, certain private lenders and financial institutions do not yet accept Title Insurance. In addition, a prudent Purchaser who wishes to have certainty when it comes to the legality of the home he is purchasing, may still wish to have an up-to-date survey prepared. Due to the fact that surveys cost several hundred dollars, the Purchaser should attempt, when negotiating the terms of the Agreement of Purchase and Sale with the vendor, to insert a clause requiring that the Vendor provide an up-to-date survey as soon as possible after the acceptance of the Offer.
The initial meeting with your lawyer occurs once the Agreement has been signed, and is for the purpose of gathering and exchanging information about the property being purchased and about the purchaser. For the initial meeting, in addition to bringing the accepted Agreement of Purchase and Sale with you, you should also have certain information available to be given to your lawyer in order to better assist him/her. This would include the complete legal names and dates of birth of all the Purchasers to the transaction, your intended use of the property, the name, address and telephone number of the banking institution through which you will be obtaining financing, and the name, address and telephone number of the insurance broker from which you will be purchasing home insurance.
At the conclusion of the meeting, you will usually sign a retainer agreement with the lawyer which indicates that you have retained the lawyer to act for you in the transaction, sets out the duties and responsibilities of the lawyer, and sets out the fees and disbursements which will be charged. This information will be summarized in the retainer letter which will be given to you or mailed to your home, following the initial meeting.
Costs of the real estate transaction will be discussed with you at the initial meeting with your lawyer. This will include the legal fees, the various disbursements, registration costs, title insurance costs, and the cost of land transfer tax.
The Lawyer's Role in the Transaction has many aspects, and consists of reviewing the Agreement of Purchase and Sale in order to understand the transaction, searching title to the property being purchased to determine whether there are any outstanding mortgages or work orders which have to be discharged by the Vendor, the presence of any easements or rights of way which could affect the property, ensuring that there are no outstanding property taxes or utility payments owing by the Vendor, preparing the purchase documentation, completing the mortgage documentation, meeting with the Purchaser to review and sign the Purchase documentation, and attending at the Land Registry Office to register the purchase of the property.
Your Role in the Real Estate Transaction essentially consists of contacting the telephone, cable and utility companies to advise them of the closing date of your purchase, and providing them with the information which they will request. In addition, you will be responsible to arrange for home insurance as early as possible in the transaction. Home insurance must be in place before a financial institution will release mortgage proceeds to your lawyer. You must also decide the manner in which you will be acquiring title to the property. If title is to be held by individuals, then you have the choice of owning the property as “joint tenants” or as “tenants in common” or a mixture of the two. These terms are defined as follows:
- Joint tenancy ensures that on the death of either of the joint tenants ownership goes to the surviving tenant. Interest in a property owned under joint tenancy cannot be willed to a third party or encumbered or disposed of by one or other of the owners without the consent of the other.
Tenants in Common
- There are no rights of survivorship in this type of ownership, therefore the interest in the property does not terminate on death. Each tenant holds an undivided interest in the property and can dispose of this interest by will or other means.
Obtaining good title to the property from a lawyer starts with the lawyer conducting a title search where the history of the property being purchased is reviewed, and any problems or encumbrances are brought to the attention of the vendor’s solicitor to correct. In addition to the title search, execution searches are conducted against the vendor to determine whether the vendor has been sued and judgment recovered, as good title to the property cannot pass to the purchaser unless these judgments are satisfied. Various searches are conducted of the municipal records to ensure that the property can be legally used as a residential dwelling, that there are no work orders registered against the property, that all structures located on the property have been built legally and comply with the relevant zoning by-laws, that all taxes have been paid, and that there are no outstanding utility accounts..
Should title insurance be applied for, instead of the lawyer’s Letter of Opinion, then many of the municipal searches will not be necessary as title insurance will insure over these matters.
In either case, the lawyer will still conduct the required title search to ensure that the registered title to the property you are purchasing is clear of any mortgages, liens and other registered encumbrances and you will still receive an opinion from the lawyer concerning these matters. However, whereas in the traditional letter of opinion the lawyer would, in addition, certify that there are no work orders, Sub-Division Agreement problems or occupancy problems (having determined this through additional searches), with the Title Insurance Option it is not necessary to conduct these expensive searches, as the Title Insurance Company will issue you a policy that will provide you with compensation should problems in these areas occur in the future.
Title Insurance provides the purchaser with a direct claim against the insurance company if a specified title risk causes a loss, regardless of the source of the loss. Under the traditional lawyer’s opinion on title, the purchaser has a claim against his or her lawyer only if the lawyer acted negligently. However, a loss arising from any error made by a third party on which the lawyer has reasonably relied, does not make the lawyer liable to the purchaser. Due to the different degrees of risk associated with different aspects of the title search, only certain losses will be covered by a title insurance policy. Due to the fact that there are several title insurance companies offering various degrees of coverage, it is important that the purchaser review this option with his or her solicitor to ensure that the most appropriate coverage is obtained.
Although Title Insurance is paid by the purchaser as an additional disbursement, whereas the solicitor's opinion of title is included in the legal fees, the cost savings which are achieved in not having to pay for the costs of the additional searches and the Surcharge Levy, frequently make Title Insurance the more cost-effective alternative especially in cases where a survey of the property is not available, as Title Insurance insures against most deficiencies which an up-to-date survey would have revealed.
The Signing up Meeting with the Lawyer will usually occur a few days before the closing date. At the meeting the lawyer will review the results of the various searches performed and the purchase and mortgage documentation. Assuming that no problems were found, the documentation will be signed by the Purchaser, and the Purchaser will provide the lawyer with a certified cheque or bank draft which will consist of the balance of the purchase price, the lawyer's fees and disbursements, and the Land Transfer Tax payable.
The Closing Date represents the culmination of the lawyer's role in the transaction. The Purchaser's lawyer or agent will meet with the Vendor's lawyer or agent in the land Registry Office where the property is registered. After the various closing documentation, keys and money are exchanged, the Purchaser 's lawyer registers the Transfer/Deed of land which gives the Purchaser legal title to the property, followed by any mortgages.
The Post Closing period consists of the Purchaser picking up the keys from the office of the lawyer, or lawyer’s agent followed by the Lawyer providing the Purchaser with a Reporting Letter containing the Lawyer's certification of good title, and copies of all the documentation received, sent or signed pertaining to the transaction.