house for sale - the Legal Guide
THE AGREEMENT OF PURCHASE & SALE
A
written agreement is required when you want to purchase
a home or lot of land. If you are buying a property
that is being sold through a real estate agent, the
agreement is usually drafted by the agent on a standard
form agreement. For private sales where the services
of an agent are not used, it will be necessary for a
lawyer to prepare the agreement. In either case, the
agent or the lawyer will need to tailor the agreement
to meet the particular needs of the parties as each
property presents different concerns. Some of the clauses
that can be added for your protection include the following:
FINANCING
In most cases, a
buyer will either assume an existing mortgage or arrange
new mortgage financing to assist in the purchase of
the new property. A clause that sets out the amount,
the rate and the term of the mortgage should be included
in the agreement.
Also, a sufficient
number of days to obtain a written commitment from the
mortgage lender should be specified. Even if you have
a pre-approved mortgage, a financing clause should be
used, as you must ensure that the property that you
are buying meets with the approval of the mortgage lender.
It is important to
know most financing clauses "deem" that a
mortgage
is arranged unless the buyer notifies the seller or
the seller's agent in writing on or before a specific
date. Therefore, if you have not arranged financing
by the specified deadline in the financing clause, you
must take steps to avoid legal liability and you should
seek advice from either your agent or your lawyer.
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HOUSE INSPECTION
It may be in your
best interest to retain the services of a qualified
professional to inspect the condition of the property.
If so, a clause should be inserted in the agreement
allowing for a qualified professional to inspect the
entire house for problems. It is important not to limit
the inspection clause to specific areas or parts of
the house. Also, a sufficient number of days to complete
the inspection should be specified.
In most cases the
inspection will be "deemed" to be acceptable
unless the buyer notifies the seller or the seller's
agent to the contrary. Again, action is needed before
the deadline if there is a problem.
Clauses that require
the seller to guarantee that the basement or roof
do not leak or which address other specific concerns
can also be inserted in the agreement for your protection.
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WHAT THINGS ARE INCLUDED IN THE PURCHASE
PRICE?
A clause that sets
out the items to be included in the price is important.
Many items will be negotiable with the seller, such
as appliances, woodstoves, blinds, drapes, tracks, security
systems, etc. This list is not exhaustive. However,
if you are concerned that the seller may take or remove
any item you should specify that it is included and
must remain with the property. You should also enquire
whether the furnace or hot water heater are owned or
leased if your house is heated by oil or propane.
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WHEN IS THE CLOSING DATE?
The Closing Date
is the date the buyer and the seller agree to complete
the transaction. This generally should be a weekday
when your mortgage lender and lawyer are open for business.
It is the general rule of thumb that the seller moves
out before noon on the closing date. However, if you
have special requirements to move in on the closing
date by a special time you should have your agent stipulate
this in the agreement.
You cannot change
the closing date after the contract is signed without
the seller's consent.
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WHAT ABOUT A LOCATION CERTIFICATE?
If you are obtaining
a mortgage, your mortgage lender will require a location
certificate from a qualified land surveyor indicating
the location of the house in relation to the boundaries
of the property. Whether you are obtaining a mortgage
or not, it is strongly recommended that a location certificate
be obtained to protect your investment.
When obtaining a
location certificate it is advisable to have the surveyor
not only show the house location on the lot but also
to plot the location
of any decks, driveways, fences, sheds, garages, retaining
walls and well (if there is one). In some cases the
location of specific improvements on your property can
violate municipal or subdivision regulations and it
is important to raise any of these concerns with your
lawyer.
In some cases the
seller agrees in the Purchase & Sale Agreement to
supply an existing location certificate to the buyer.
You should be clearly aware that you cannot rely on
a certificate that has been prepared for someone else.
If it is determined at some later point that there are
difficulties or errors with the survey, because you
did not pay the surveyor directly for the certificate,
you may have no legal recourse against that surveyor.
Your lawyer can assist you in obtaining the services
of a surveyor.
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YOUR MORTGAGE
The mortgage lender
will usually provide a written commitment to provide
a mortgage following approval of the buyer and the property.
It is important that the buyer reads the mortgage commitment
and complies with all of the conditions required for
the mortgage
loan. You should give the mortgage lender the name of
your
lawyer. The mortgage lender will send to your lawyer
the necessary
mortgage papers and instructions to prepare the mortgage
documents.
Your lawyer will make the necessary arrangements to
obtain
the mortgage funds directly from the mortgage lender
on the
date of closing.
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WHAT ABOUT UFFI?
Some houses were insulated with
Urea Formaldehyde Foam Insulation. This insulation later
proved toxic in some situations. A clause should be
inserted that specifies that the property does not and
has never contained UFFI. The clause should also specify
that this warranty would survive the closing.
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WHAT IF THE PROPERTY HAS A WELL AND SEPTIC SYSTEM?
Your mortgage lender will
require a certificate that the well water is afe for
human consumption. This usually means that the water
is free from coliforms. You may wish to include in the
agreement the right to test for high mineral content
in the water that may potentially cause health problems.
Furthermore, you may also wish to include a clause in
the agreement that the well and septic system are in
good working order and will supply the needs of you
and your family. Finally, you may also wish to have
the seller agree to provide the location of the well
and septic to you and certify that both are wholly on
the property.
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ARE THERE ANY RESTRICTIONS ABOUT THE USE OF THE PROPERTY?
You should enquire about the municipal
zoning regulations that may govern the use of your property.
If the property has an in-law suite or rental unit you
should examine whether it is a legal use. It is wise
to insert a clause in all agreements that the agreement
is subject to the property conforming to all municipal
zoning, by-laws and restrictive covenants.
In most subdivisions, there will
be a set of rules called restrictive convents that apply
to the use of the property. These should be reviewed
prior to signing the contract to ensure there are no
rules
or conditions in the subdivision that are unacceptable.
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DO YOU NEED INSURANCE?
You are required to obtain
an insurance policy by the mortgage lender prior to
the closing. The insurance shall be effective as of
the date of closing.
You should consult with
an insurance agent after signing the agreement to obtain
advice on the most appropriate coverage. In most cases
the mortgage lender requires that you have at least
enough insurance to cover the amount of your mortgage.
If there is any difficulty obtaining such coverage special
arrangements are needed to satisfy your mortgage lender
that insurance coverage is adequate.
In all cases it is advisable
to insure the property for its full insurable value
on a replacement cost basis. Your lawyer will require
written confirmation from your insurance agent indicating
the amount of coverage and that the mortgage lender
has been named as loss payee
in the policy before the closing date. You should ensure
that you give the agent the correct name and address
of your mortgage lender.
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HOW ABOUT UTILITIES?
In due course you should arrange
for utilities to be connected in your name. The utilities
should be changed into your name effective the
date of closing.
WHO SHOULD BE NAMED IN THE DEED?
You will have to discuss
the way in which the title to the property will
be held by you during your ownership. You can take title
to property with another person as either joint tenants
or as tenants in common. Title can also be put in the
name of one person for a variety of reasons.
Joint Tenancy is a form
of ownership that gives to each owner an undivided one-half
interest in the property. The result is that if one
joint tenant predeceases the other, the property automatically
vests in the surviving joint tenant. In other words,
the person who survives the
longest will ultimately receive sole title to the property.
A person's Will has no effect
on what happens to property held in joint tenancy. However,
if property is held as tenants in common, then on death,
the interest of the deceased owner will pass under that
person's
Will. In such instances, the deceased's estate shall
be required to pay probate fees on the value of the
property. If there
is no Will, the property will transfer to the person's
heirs at law pursuant to provincial legislation.
With respect to sole ownership,
title can be put in one person's name alone for a variety
of reasons, including business and tax concerns. If
the matrimonial home is in one spouse's name, the other
spouse will have a matrimonial interest. The "non-owner"
spouse would be required to release the matrimonial
interest at the time of any conveyance or mortgaging.
Provincial matrimonial law does not generally apply
to common law marriages insofar as property ownership
is concerned. Therefore, common law couples may wish
to address their ownership concerns by way of a separate
contract. This should be discussed with your lawyer.
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ADJUSTMENTS, LEGAL FEES AND DISBURSEMENTS
On closing there may be
a number of adjustments to the purchase rice,
some of which are set out below:
- Tax Adjustment:
Your lawyer will contact the municipality and check
on the status of the property taxes for your property.
Your lawyer will also obtain a certificate from the
municipality with respect to unpaid taxes or betterment
charges.
The seller usually pays for the cost of this certificate
and the buyer will receive a credit for the cost of
the tax certificate on the purchase price. You will
be responsible for property taxes from the closing
date to the end of the tax year. If the seller has
prepaid the taxes, he may be entitled to a rebate
from you and there will be an adjustment to the purchase
price. If you purchase a property at certain times
of the year, you may be required to pay in advance
any tax bill that may shortly be due.
If you are going to pay your taxes with your mortgage
payment, it is normal practice in some cases for your
mortgage lender to withhold an amount from your mortgage
money at the time of closing to pay any upcoming tax
bill. This may be necessary when there is not sufficient
time to build up enough money in your tax account
with your regular mortgage payments to pay the next
tax bill. You should check with your mortgage company
with respect to the approximate amount that may be
deducted. If there have been any new improvement,
such as paving, severs or curbs installed recently,
you should advise your lawyer. In some cases the municipality
charges the property owner for this work. It may be
the case that the seller is responsible for their
improvements even if the bills have not yet been issued.
- Fuel Adjustment:
If your house is heated by oil or propane, there will
normally be an adjustment for fuel oil or propane
in the property at the time of closing. The general
practice is to adjust for a full tank, as partial
tanks are difficult to gauge. The approximate cost
to the buyer for a 200-gallon tank of oil is $300.00,
but this figure will vary from time to time. Your
lawyer will provide an exact figure before closing.
- Deed Transfer Tax:
Most municipalities charge a tax for the transfer
of the property. The Deed Transfer Tax is payable
on the closing date and can be as high as 1.5% of
the purchase price. You should determine the applicable
Deed Transfer Tax of the municipality prior to purchasing
the property. Your lawyer will request payment of
this money from you on the closing date and will look
after paying the Deed Transfer Tax to the municipality
so that your Deed may be registered.
- Goods and Services
Tax:
Most used residential
houses are exempt from GST. However, you may wish
to specify the property is not subject to GST in the
agreement. New houses, lot sales by developers and
newly renovated houses are some examples when GST
is payable. A GST rebate may be available and is usually
assigned to the builder. You will also pay GST on
your legal fees, applicable legal disbursements and
survey fees. Most fees paid to a government department
do not attract GST.
- Title Searches:
Your lawyer will conduct a title search or retain
the services of a title search company to research
the history of the ownership and the transfer of title
for your property. The lawyer will determine if there
are any outstanding mortgages, liens or other encumbrances
registered against the property and will make arrangements
to have these removed at the time of closing. In some
instances there are title concerns that may arise
and your lawyer will
discuss any potential title problems with you. If
the lawyer is satisfied with the title, you will receive
a Certificate of Title from your lawyer stating that
you have clear and marketable title to the property,
subject to your mortgage, any restrictive covenants,
easements or other encumbrances that are made known
to you.
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THE CLOSING:
It is important to make arrangements
with your real estate agent to inspect the property
on or before closing. It is advisable to inspect the
property after the seller has vacated the premises so
as to ensure the property is in the same condition as
it was in at the time the Agreement of Purchase and
Sale was signed. If any damage has occurred to the property,
you should consult your lawyer and agent immediately.
It is also important to
ensure that the seller has left all of the items that
are included in the purchase price in the property.
The seller is obligated to leave the property in a vacant
and "broom clean" condition prior to receipt
of the purchase money.
Prior to the closing date,
your lawyer will advise you on how much money
will be required to complete the transaction. The lawyer
will require a certified cheque or bank draft payable
to your lawyer's cost of any other payments made on
your behalf by the law firm. Your lawyer will arrange
to pick up your mortgage money directly from your mortgage
lender on the closing date.
Your lawyer will schedule
an appointment on or before the closing date to sign
your mortgage and related closing documentation and
will review the closing adjustments in detail with you.
Your lawyer will send the agreed upon balance of money
due for the property to the seller's lawyer in exchange
for the Deed, keys and related closing material. Your
lawyer will then make arrangements to pay the Deed Transfer
Tax and will forward the Deed and Mortgage to the Registry
of Deeds for
registration. Your lawyer also provides legal assistance
in connection with the purchase, sale or refinancing
of residential property.
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