Real Estate Agreements in Ontario ~ Adding Parties

Adding or Substituting a New Buyer to an Agreement

Ontario Real Estate Source

By Brian Madigan LL.B.

For some reason, this issue seems to create some complications. How do you add a new buyer? How do you get rid of the old buyer? What options are available?

From time to time it’s necessary to add a new party, and sometimes the first buyer is to remain and other times the first buyer is to be relieved of their obligations.

Let’s consider two situations. Bob buys a downtown condo from ABC Condo Developers. The property is under construction, he pays the additional deposits, and meets Mary. The occupancy date rolls around and they both move into the condo. On closing, he would like Mary to be on title.

In our second situation, Bob and Mary would like to buy a house. Bill comes along and he would like to buy the condo. It’s gone up in value over the three years of construction. He is willing to pay the increased price. But, the original deal has not been closed.

The choices are somewhat limited:

1)     A Direction re: Title,

2)     An Amendment to the Original Agreement,

3)     A Three Party Assignment of the Original Agreement,

4)     A Two Party Assignment of the Original Agreement.

A Direction re: Title

In this case, Bob goes to his lawyer and tells the lawyer that he would like Mary to be on title. The lawyer prepares a Direction and sends it to the developer’s lawyer.

The conveyance is drawn in favour of Bob and Mary. If, for some reason, the transaction fails to close, Mary has no rights. It is only Bob and ABC who can sue one another.

If for some strange reason, ABC refuses to follow the Direction, then title could be registered directly in the name of Bob, and then Bob could prepare a conveyance of the property in favour of himself and Mary. The only issue is the Land Transfer Tax. Bob paid the tax on closing, and Mary will have to pay tax once she registers the Transfer. If they were married, the conveyance would be for nominal consideration, and no additional tax would be payable, however, if they are not married then they will have to find another way to avoid the duplicity of the tax.

This solution is the least complicated. As long as Mary doesn’t need to be part of the agreement and be in a position to enforce the agreement against ABC Developers, then this will work.

You will appreciate that generally this is satisfactory when it comes to Mary’s situation. Bob will sue if he has to.

In Bill’s situation, again it works appropriately. But, really Bill would prefer to have the right to sue ABC directly should there ever be an issue. So, this particular approach, while “quick and dirty” is not really the preferred solution. Bill’s ability to get Bob to co-operate with any lawsuit “after the fact” is likely minimal.

An Amendment to the Original Agreement

This solution is designed to add Buyer #2, to the original agreement. It would be better for Mary, particularly if she is coming up with her own money to be invested in this property. Also, it is better for Bill.

This way, Bob and Bill sign an Amendment Agreement, stating the following:

1)     Bill agrees to become a party to the agreement, from the beginning,

2)     Bob agrees that Bill will be a party,

3)     Bob agrees that the deposits paid will now be owned by both himself and Bill equally,

4)     ABC Condo Developers agree that Bill will be a party to the agreement (usually phrased as a condition).

The Amendment Agreement is now submitted to ABC Condo Developers for execution, and once it has bee signed, it is binding upon all three parties.

Naturally, there could be other issues which are included. But, in essence, in order to have an enforceable agreement by Bill, we need to add him as a party to the Original Agreement.

A Three Party Assignment of the Original Agreement

This is another approach and it is slightly more sophisticated. It works in Mary’s situation but it could be “overkill”.

However, it is really the right approach when Bill is an independent third party. Bob lists and sells his condo. Well, actually he can’t do that. It’s not finished and there’s no such thing as real estate “in the air”. When the entire project is finished ABC Condo Developers can register under the Condominium Act. That means that they can convey the property. Until then, they are stuck and Bob is stuck, unless he can assign the Contract. While he does not have real estate, he does have a “chose-in-action”, that is, an entitlement which is capable of conveyance.

The proper way to convey this asset is by way of an Assignment of the original Agreement of Purchase and Sale. Bob and Bill sign an Assignment Agreement, stating the following:

1)     Bob assigns the original Agreement to Bill,

2)     Bob agrees that the deposits paid will now be owned by Bill,

3)     Bill agrees to complete the transaction as Bob had initially agreed,

4)     ABC Condo Developers agree that Bill will be a party to the agreement (usually phrased as a condition).

The Assignment which is now a two party agreement is submitted to ABC Condo Developers for approval, and consent.

ABC Condo Developers agree that Bill will be a party to the agreement. Once signed, it becomes a three party agreement.

A Two Party Assignment of the Original Agreement

In this situation, ABC Condo Developers has already indicated that it will not agree to any assignments. This does not mean that contract cannot be assigned. It just means that ABC will not go along with it. ABC wishes to complete the transaction as it stands. To some extent, it may be hoping that Bob does not have the funds to close (thereby keeping the deposits). And, this may be true, but Bill does.

The proper way to convey this property without ABC’s involvement is by way of an Assignment of the original Agreement of Purchase and Sale. Bob and Bill sign an Assignment Agreement, stating the following:

1)     Bob assigns the original Agreement to Bill,

2)     Bob agrees that the deposits paid will now be owned by Bill,

3)     Bob agrees in the capacity of trustee to complete the transaction on behalf of Bill (beneficiary) as Bob had initially agreed.

In this circumstance, Bill will advance the closing funds which Bob will receive “in trust”. A conveyance is first registered in the name of Bob, and then immediately transferred to Bill, the beneficiary of the trust. While there is a second registration fee (under $100), there is no additional Land Transfer Tax.

This solution would also work for Mary, and would save the second Land Transfer Tax, if they were not married.

Agreements “with recourse” and “without recourse”

An Amendment Agreement or an Assignment Agreement can be negotiated on the basis of a “with” or “without” recourse arrangement.

Any arrangement whereby the original purchaser remains liable is “with recourse” and any arrangement whereby the original purchaser can no longer be sued by ABC is “without recourse”.

If you look at the standard Form ABC Condo Developers’ contract you will likely find the following provisions: “no assignments permitted without consent”, “ABC’s consent may be arbitrarily withheld”, and “should ABC consent, then the assignment fees must be paid in advance”.

Condo developers have found that the assignment market is active and they better agree to permit them in the first place, otherwise few investors will ever buy them. So, assignments are generally permitted. In some cases, the fee is nominal, only a few hundred dollars to facilitate the paperwork and in other cases a little more substantial, ie. $5,000.00. In those cases, they are making some money. The original buyer remains liable. But, ABC recognizes that most buyers are not close friends or relatives like Mary, but are truly arms-length purchasers. So, Bob should be let off the hook and the new purchaser should take over. In these cases, this is often arranged for a increased assignment fee, ie. something in the $10,000.00 plus range.

If ABC had sold 200 units and 100 of them were being resold, ABC by agreeing to the assignments with a $10,000.00 fee would generate an additional $1,000,000.00 for the project. And, that is just by filling out a few forms.

It should also be noted that investors are more likely to pay more for these units right at the outset. Confronted with a “no assignments ever building” and ABC’s assignment agreement fee, an investor might be prepared to consider the ABC building when it first comes on the market. Here, ABC may even add a slight premium to the purchase price. Again, a $10,000.00 premium would not be unusual, particularly for the higher priced units. But here, the additional premium is incorporated into the purchase price. So, all 200 units pay this premium and another $2 million finds its way to the bottom line.

So, if you are a condo developer, you should really like assignments. It’s a money maker and goes right to profits.

* caution, there are HST issues, and income tax issues for purchasers withdrawing funds from RHOSP’s, investors relating to capital gains and all parties related to the Land Transfer Tax and applicable rebates. Be sure to obtain proper tax and legal advice when entering into any transaction. Consult your accountant or your lawyer or solicitor practising real estate for guidance.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

Is there Too Much Junk or Debris in the House to Close?

Do You have to Close on a Hoarder’s House?

  

Ontario Real Estate Source

By Brian Madigan LL.B.

Well, if they have moved everything out, then you do; but what are your rights if they still have piles of junk left behind?

To some extent, the answer depends upon the application of the legal concept of “vacant possession” to the circumstances.

You know the situation. The hoarder has accumulated possessions for decades and never thrown anything out. There are piles of old magazines and newspapers all over the place. You will often find that a hoarder suffers from some kind of mental disability or depression which complicates the matter.

However, no matter the cause, the place is still piled high in junk. Oftentimes, estimates to remove the debris can run as high as $10,000. So, it’s a serious problem.

The seller is under a legal obligation to provide:

1)     legal possession of the property (that means title etc.), and

2)     actual possession of the property.

There are two fundamental issues that can arise with actual possession, someone may be still there or physical objects may prevent the buyer from occupation.

Courts are concerned about actual possession. If there is an impediment that would prevent occupation by a buyer then, they will conclude that vacant possession could not be provided.

If it is serious enough, then the buyer can refuse to close. If it is not that serious, the buyer must still close and seek a remedy by way of damages afterwards.

So, what do we mean by “serious”?

Courts have interpreted this to mean an impediment caused by the presence of physical objects that:

1)     substantially interfere with the buyer’s right of possession,

2)     in respect to a substantial part of the premises.

In every case, the facts will have a significant bearing on the decision. If a small portion of the property is still filled with junk, for example the garage and a shed, but the buyer can still move into the main house, then the buyer’s remedy may still be to sue.

In other situations, you can well imagine that there is so much junk and debris that it would in fact prevent the buyer from moving in. Should that threshold be met, then the buyer can refuse to close.

Thus, the interference needs to be substantial, not just a minor inconvenience and it must involve a substantial part of the premises. That does not mean “more than half”. It could simply be the principal areas that must properly be accessed in order to permit occupation.

These are always interesting situations. Please consult a lawyer or a solicitor practising in the real estate field should you require legal advice on such a matter.

The law on this issue is well summarized in Ramatol v. Chairtex (2002) in the Superior Court of Justice in Ontario.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

What Does Vacant Possession Mean in Ontario?

Vacant Possession Explained       

Ontario Real Estate Source

By Brian Madigan LL.B.

Even after you read this, you still may not know. With thousands of years of common law history, this is still a matter which is subject to judicial interpretation. There are still lots of unanswered questions.

The term vacant possession arises generally in two contexts:

1)     occupation by a purchaser of property, and

2)     occupation by a tenant of property.

In some cases, the tenant circumstance is a little more complex because the landlord may have to secure vacant possession from a prior tenant before he can deliver it to the next.

What are the impediments to vacant possession?

Clearly, it would appear to be:

1)     people, and

2)     things.

Presence of People

Surely, if someone is there on the property, then the vendor or landlord cannot provide vacant possession. But, the person needs to be at least one step higher than an invited guest. You might for example find a painter, plumber or electrician present. Truly, they are not “in occupation” of the premises. They are simply there to undertake some work, likely to ready the property for the purchaser or tenant.

Another but far more serious category is that of a trespasser. Here, if a trespasser remains in unlawful occupation of the property, the vendor or landlord cannot provide vacant possession. This principle was set forth in Cumberland Holdings Ltd. v. Ireland (1946), a decision of the Court of King’s Bench and quoted with approval by the Superior Court of Ontario in Ramatrol Corporation v. Chairtex Inc.(2002).

Lord Greene MR in Cumberland stated:

• The phrase “vacant possession” is no doubt generally used in order to make it clear that what is being sold is not an interest in a reversion.  But it is not confined to this. 
• Occupation by a person having no claim of right prevents the giving of “vacant possession,” and it is the duty of the vendor to eject such a person before completion.
• …… the right to actual unimpeded physical enjoyment is comprised in the right to vacant possession. 
• We cannot see why the existence of a physical impediment to such enjoyment to which the purchaser does not expressly or impliedly consent to submit should stand in a different position to an impediment caused by the presence of a trespasser. 
• It is true that in each case the purchaser obtains the right to possession in law, notwithstanding the presence of the impediment. 
• But it appears to us that what he bargains for is not merely the right in law, but the power in fact to exercise the right. 
• When we speak of a physical impediment we do not mean that any physical impediment will do.  It must be an impediment which substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property.

Presence of Things

Judge Caswell also referred to Zygocki v. Hillwood (1975), 12 O.R. (2d) 103, where the Court was dealing with a vendor and purchaser situation.  It was stated:

“…the purchaser had a right to actual, unimpeded physical enjoyment of the premises; that the duty of the vendor is to eject an unauthorized occupant and to give possession.  In the absence of an agreement to assume tenancy I do not distinguish between possession and vacant possession.  The vendor has not complied with his duty, if there exists a physical impediment which substantially interferes with the enjoyment of the right of possession of a substantial part of the premises to which the purchaser has not expressly or impliedly consented.”

In the Ramatrol case, Judge Caswell was dealing with a tenant occupation. The landlord had retaken the premises from one tenant and relet it to another.

The new tenant claimed that the presence of paint spray booths onsite prevented his occupation of the premises. And, the judge agreed. It was not in dispute that they were left behind and that the new tenant was not obliged to accept them.

The Judge concluded that the presence of the spray booths was of such a quality and nature to substantially interfere with the tenant’s enjoyment of the premises:

“In my view, in the circumstances of this case, there was an obligation on Ramatol to remove the equipment that impeded the operation of Chairtex’ paint line.  Since Ramatol failed to remove the equipment, much less to provide the premises in a clean and broom-swept condition, Ramatol has failed to provide vacant possession of the premises as required by the offer to lease.  The effect of Ramatol’s actions, or lack of actions, was to prevent Chairtex from carrying on its business of “manufacturing, finishing and storage of chairs and the painting and finishing of metal products”.  Ramatol can hardly claim to be in ignorance of Chairtex’ business in view of the fact that the use of the premises is set out in the offer to lease.”

The entire matter has been much discussed in the English courts and the matter of a trespasser is unresolved. Authorities support both propositions, namely that the presence of a trespasser interferes with vacant possession and the contrary, that the purchaser or tenant has the legal right to evict.

So, just what is “vacant possession”?

It would appear to be the right to:

1)     occupancy of the premises, free of people who have some claim, right or status,

2)     occupancy of the premises, free of things left behind,

3)     the ability to exercise the enforcement of that right, namely that people and things will not be present,

There are some slight qualifications. The people present will have no right to occupation or any claim or right to occupy the premises. The former tenant who refuses to move is much different the pizza delivery man who will be gone in a matter of minutes.

The impediments created by things must be material. A few garbage bags in the garage will be insufficient. The presence of the two spray paint booths prevents the new tenant from moving in with his own trade fixtures.

Any impediment caused by things will have to:

1)     substantially interfere with the purchaser’s (or tenant’s) right of possession,

2)     with a substantial part of the premises.

It is a two part test: substantial interference and a substantial part. One part alone will be insufficient. A few garbage bags left behind will not meet the test, but a hoarder’s house would.

The matter of “things” adds one more dimension and that is whether they be classed as chattels or fixtures, and should they be chattels whether by agreement they be allowed to remain, or should they be fixtures, whether they be subject to removal.

Please note that there is nothing here in law about the premises being clean and tidy or left “in broomswept condition”.

The premises must be turned over by the delivery of vacant possession. That means “free of the claims of people” by reason of their presence, and free of things, in the sense that should they cause an impediment to occupation, then as a consequence the vendor or landlord is in breach of his obligation to provide vacant possession. In addition, as part of the concept of vacant possession, the purchaser or tenant must have the corresponding right to enforce his right of occupation.

There are still quite a few unresolved “vacant possession” issues.

It would be wise to consult a lawyer or solicitor practising in the real estate field should you experience concerns respecting vacant possession. Naturally, for any lease of premises it would be prudent to define in the lease what items are to remain and what items are to remain. It can save time and money later.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

Who are Your Real Estate Relatives in Ontario?

Who are You Related to? (for real estate purposes)

By Brian Madigan LL.B.

Are you related to cousin Vinny? Well, you were until 31 March 2006 and now you’re not. That’s the “correct” real estate answer!

Who are you related to? That seems to be a simple enough question.

However, the entire matter of who is a “related party” under REBBA 2002 is somewhat confusing.

So, let me give you the simple scheme:

· Lineal Descendants are included

· Lineal Ascendants are included

· Collaterals are included only to the first degree (brothers and sisters)

If that didn’t make a whole lot of sense, then an example might work:

A is related to B if:

B is

earlier ascendant (ie. Greatgrandparent)
grandfather
grandmother
father
mother
child
Grandchild or other descendant
Brother
Sister

…………..of A

Additional rules:

Adoption counts
Marriage counts
Conjugal relationship counts
Associated counts (controlled corporations)

Now, one thing that is very interesting here is that uncles, aunts, nephews, nieces and cousins don’t count. For anyone who remembers the old rules, they were included. So, this new approach seems somewhat strange.

Essentially, this simply doesn’t make any sense. If your father, twenty years after divorcing your mother lives with someone in a conjugal relationship (either a woman or a man), then that individual’s greatgrandparents (whom I’m sure you’ve never met) suddenly become your relatives (related parties) under REBBA 2002.

At the same time, your good friend, cousin Vinny is not related to you anymore.

One other issue arises when it comes to related parties. All associated parties are included. Essentially this means corporations that are owned or controlled by related parties. In addition it includes voting trusts so the definition of “control” is expanded to some degree.

This issue is important to a registered salesperson under the Act, since they are required to make certain disclosures in their dealings with third parties.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

Landlords Must be Careful about Insurance

 

Landlords ~ Don’t Let Tenants raise your Insurance

Ontario Real Estate Source

By Brian Madigan LL.B.

Sometimes Landlords overlook the issue of insurance. Make sure that your Tenant is not carrying on activities which will either increase your insurance premiums or result in a termination or denial of coverage.

 

You might include a provision such as this:

 

“The Lessee covenants and agrees with the Lessor as follows:

 

1)     not to engage in any act or activity, or permit, allow, suffer or acquiesce in any act or activity by occupants or others which may result in the insurer for the Lessor increasing the premium for insurance or which might cause the insurer to reduce, deny, or refuse to continue with coverage under any insurance policy,”

 

You certainly don’t want your tenant operating an illegal grow house (or even a legal one, for that matter), using paints, storing paints, using cleaning solvents, resins or other toxic or obnoxious substances, nor operating any kind of activity which may affect your insurance.

 

There are obviously some risks and you should know about them. A contract of insurance is unlike other basic contracts. Each party is not simply “on their own” and “free to negotiate”. An insurance contract is a contract based on the legal doctrine of “uberrimae fides”, or “utmost good faith”. There is a positive duty upon the insured to disclose all material information. Any information is material if it would be considering in assessing the risk or setting the premium.

 

The remedy available is the insurer is a denial of coverage, once the material non-disclosure issue arises. By that time, of course, there has already been some kind of accident or catastrophe. Too late to get other insurance now!

 

A companion clause to the effect that the Tenant will pay any increased insurance premium should also be included. And, don’t just consider the Landlord’s own insurance. Assuming a multi-unit facility, the immediately adjacent neighbour may also have an increase in insurance premiums. So, that matter should be covered too. The offending Tenant should pay for all the related insurance costs.

 

In many cases, a clause is not generally covered in the standard form Lease agreements, so you will have to include it yourself.

 

This might be a matter to bring to your lawyer’s attention. A good solicitor who practices in the real estate field in Ontario should be able to draft a suitable clause for your protection.

 

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

Witnesses for Real Estate Documents in Ontario

Can You Witness a Document if You’re not there ?

 

By Brian Madigan LL.B.

(Ontario Real Estate Source)

A problem frequently arises in real estate transactions when people say they witness signatures, but they don’t.

In Ontario, there are only three legal documents which require witnesses:

1)     Domestic Agreements,

2)     Powers of Attorney, and

3)     Wills.

Other documents are still valid without a “witness”, but on the basis of “best practices”, there should be a witness to the signature. That’s the case with real estate transactions. Any enforceable agreement to convey real property must be in writing. That is set out in the Statute of Frauds. Domestic agreements and powers of attorney can in fact serve as companion documents, even without a witness. A holograph Will, if completed properly can

Here’s a quick scenario. Bob wants to sell his house, so he hires Jack, a realtor. An offer is faxed into Jack’s office. Bob is on vacation out of the country. Jack e-mails Bob, and Bob gives him the fax number where he is staying. Jack faxes it over, and discusses the offer with Bob by phone. Then, Bob faxes it back to Jack’s office.

It’s not witnessed! So, Jack decides to witness the document, and signs his own name just above the line where it says “witness”.

What’s wrong with this scenario?

Jack said he witnessed the document but he didn’t. That’s the problem!

Now, you can appreciate that Jack’s involvement was helpful. The correct and proper procedure would be to properly document Jack’s involvement.

So, what should Jack have done?

Jack should “authenticate” the document. He really can’t witness it, because he wasn’t there. He should strike out the word “witnessed” and insert ‘authenticated not witnessed”.

What’s the difference? A witness needs to be personally present, and see the person sign the document in front of them. They become a compellable witness in any legal proceedings. They would be expected to comment on several aspects concerning the signing of the document. They should be able to say that the person appeared to have capacity to sign. They knew they were signing a legal document. The person did not appear to be under the influence of alcohol, drugs, medication or fatigue. In all respects, they appeared to be knowledgeable and execute the document without duress or coercion from any other party.

Authentication is somewhat different. The person was not personally present, but can state with a reasonable degree of certainty that the signature is that of a specific individual. They know the signature. They have the signature on file. The signature compares favourably with the signature on file, or they “recognize” the signature. Banks will undertake this task regularly.

You will appreciate that just because the signature looks similar that there is no real guarantee. It’s just a best guess, but it’s a best guess by someone who has certain business records on file, or a certain professional (or otherwise competent) recognition of the signature.

There is obviously one further step. The signature could be “guaranteed”. This means that the authenticating party is absolutely certain, and offers a contractual invitation to a third party to rely upon the truth of the statement.

In the case of the Bank manager: “Authenticate” could lead to a tort liability, a “Guarantee” could lead to a contractual liability.

In Jack’s circumstances, he could raise his involvement and “certification” to the next level. He could state “authenticated and guaranteed”. That would be as close to actually witnessing as possible. But, you will appreciate that it still falls slightly short. He wasn’t physically present, so he truly cannot say anything about intoxification or other factors that might have been an impediment to Bob’s signing of the document.

In real life, all too often someone in Jack’s position will simply sign above the witness line. That’s risky!

 Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

 

 

A Safer Deposit Clause for Vendors

Ontario Real Estate Source

By Brian Madigan LL.B.

Sometimes the deposit is just not paid. I know that it’s supposed to be paid.

What happens if the purchaser doesn’t pay the deposit? Can the vendor get out of the deal? Can the vendor simply sell the property to someone else?

The law on this subject somewhat favours the defaulting purchaser.

The Courts look at the failure to provide the deposit as required as a simple breach of contract, and the remedies afforded to the vendor are the same as any other breach.

The common deposit requirements are (one or more of the following):

1) herewith,
2) upon acceptance, or
3) upon the happening of a certain event.

The choice is up to the purchaser, at least at the time of submission of the Offer. The vendor can, of course, propose an acceptable alternative.

In many cases, the vendor will negotiate an increased deposit and also specify that the deposit cheque must be certified. These are all common provisions.

So, you might have a purchaser offer a $5,000 deposit upon acceptance. The vendor signs back the Offer as a $15,000 deposit, certified cheques, $5,000 upon acceptance and a further $10,000 upon waiver of the “financing condition”.

What happens if the purchaser never pays either deposit? Actually, nothing! Yes, indeed the purchaser is in default, but this is treated as a simple breach of contract. It does not permit the vendor to sell the property immediately to a third party with impunity.

Many real estate agents will talk about “24 hours” to get the deposit cheque. That was a reference in the Real Estate and Business Brokers Act prior to the recent amendments. The similar provisions now provide for “five days”. This is the period of time that the brokerage firm has to deposit the cheque in its trust account after it has been received. Neither the old provision nor the new provisions deal with the contractual obligations between the two parties to the contract. They simply deal with the regulation of the procedural obligations of real estate brokerages. So, all of this talk about 24 hours or 5 days etc. is just a “red herring”.

Now, back to the parties. Let’s assume that the purchaser is somewhat devious right from the outset. The purchaser might initially suggest that he personally attend at the offices of the listing brokerage and deliver his cheque. Remember that the banks were closed the night that the deal was struck. However, he never bothers. Both agents inquire as to the whereabouts of the certified deposit cheque and he simply claims that he delivered it. He claims to have a receipt issued by the receptionist evidencing its delivery. Easily a week passes. The financing condition is waived. He is now obligated to provide a further $10,000 deposit. Same routine, this cheque fails to appear, but again he claims to have a receipt. Two further weeks pass as the purchaser looks for his receipt. Another week can easily pass while the purchaser claims to have his bank trace its records to determine whether the deposit funds have left his account. As you can appreciate this long, tall story could go on for a month or two before anyone could properly prove with utmost certainty that the purchaser’s claim that he paid the deposit was untrue.

What are the rights of the parties in the interim period? Actually, they are just the same as if the deposit was paid. The purchaser is entitled to specific performance of the contract, and the same is true of the vendor. Just because the deposit was not paid does not mean that the deal is off or the contract never arose or is unenforceable.

Since most real estate closings take place within 90 days of the negotiated agreement, this is fairly short period of time, and far too soon to make an application to Court to obtain a declaration that the contract is terminated. So, even once this fact is evident, the vendor is left without a reasonable remedy. He is stuck and just has to wait until closing date, hoping that the purchaser will complete the transaction. Obviously, the purchaser must pay the entire purchase price on closing. There’s no credit for unpaid deposits.

Due to the fact that this is a relatively rare occurrence, neither the legal profession nor the real estate profession have addressed this matter in their precedents for real estate sales, agreements and conveyancing.

If you were particularly concerned about a particular purchaser not paying, why not consider including the following paragraph in the agreement:

The purchaser shall provide the deposit by cash or certified cheque or banker’s draft within 24 hours of the obligation arising under the terms of this agreement. The term “upon acceptance” shall be construed to mean “immediately, but no later than 24 hours following acceptance”, and should a further deposit be required upon the happening of a certain event, then such further deposit must be made immediately, but no later than 24 hours after the happening of such event.

The vendor shall have the right to terminate this agreement in the event that:

1) the purchaser fails to provide the deposit or the further deposit,
2) the purchaser’s deposit cheque(s) cannot be certified, or
3) the purchaser’s deposit cheque(s) is dishonoured by the bank

by giving 24 hours notice in writing to the purchaser, the purchaser’s agent or the purchaser’s solicitor, and upon such termination, this agreement shall become null and void and any deposit moneys so paid shall be returned in full to the purchaser without interest and without deduction.

The above clause would solve the problem of the cavalier purchaser and the rogue deposit.

The agreement would clearly specify that the purchaser has 24 hours to come up with the deposit. If it’s not paid, then the vendor can simply unilaterally terminate the agreement upon 24 hours notice using a condition subsequent clause in the agreement.

It might be wise if such a clause were included in the standard form precedents for agreements of purchase and sale as this would eliminate the problem and provide the right remedy to the vendor.

Just about everyone agrees that the vendor should be able to sell to a third party without a Court Order in such circumstances.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

False Advertising in the Lowball Sale Price in Toronto real estate!!!

Can You List Your House for Whatever Price You Want?

Ontario Real Estate Source

By Brian Madigan LL.B.

Misleading and False Advertising is dealt with under both the Competition Act (federal) and the Consumer Protection Act (provincial).

The federal Act deals with businesses not individuals.

The provincial Act deals with goods and services not real property.

The Real Estate and Business Brokers Act, 2002 also deals with false and misleading advertising but it only deals with registrants or the regulated real estate professionals. It does not regulate homeowners.

Here’s the problem. Bob bought his house 2 years ago for $479,000. It has appreciated inToronto’s hot market. He spent $15,000 to fix it up.

Now, he has instructed his real estate agent to list the property at $399,000. He has no intention of selling at that price, he just wants to create lots of interest and hopefully generate a “bidding war”.

Is this false advertising?

Sure, absolutely. But, he is not a business so the Competition Act does not apply. It’s real property, not “goods or services”, so the Consumer Protection Act doesn’t apply. And, the advertising guidelines under REBBA, 2002 do not apply to him, just his agent. Under agency law, it is the principal who has made the claim, not the agent.

Under contract law, at best this is simply an “invitation to treat”, or “submit an offer”. There is no corresponding obligation to sell.

So, false advertising or not, like it or not, that’s just the way it is!

Bob is free to list for any price he chooses, and is not obligated to accept any offers.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

Bora Laskin and The Doctrine of Caveat Emptor in Real Estate

The Expanded Definition of Fraud

Ontario Real Estate Source

By Brian Madigan LL.B.

One of the very best articles to ever be written concerning the law of disclosure appeared in the Special Lecture series of the Law Society of Upper Canada in 1960 dealing with real estate issues.

Professor Laskin wrote “Defects of Title and Quality”. As you are probably aware he was at that time a professor of law at the University of Toronto Law School. He later was appointed to the bench and ultimately became Chief Justice of the Supreme Court of Canada. In his view, fraud is an exception to the caveat emptor doctrine, and fraud can be established by sufficient evidence of A “careless disregard for the truth”.

 

Laskin wrote:

“Fraud can be a rather elastic conception, and there are cases which show a tendency to find fraud when there has been concealment by the vendor of latent defects. Rowley v. Isley, a British Columbia decision entitling a purchaser to rescind where there was a failure to disclose infestation by roaches, illustrates the proposition, and goes quite far in allowing rescission after the transaction had been closed: [1951] 3 D.L.R. 766 (B.C.). On the other hand, a latent defect of quality going to fitness for habitation and which is either unknown to the vendor or such as not to make him chargeable with concealment or reckless disregard of its truth or falsity will not support any claim of redress by the purchaser. He must find his protection in warranty.”

That commentary was written in 1960 and it has now become well-established as the law in 2011 (Krawchuk v. Scherbak).

Clearly, in this field and others Laskin was years ahead of anyone else. His view was based on what he thought the law should be rather than what he saw in past judgments which may have resulted in some unfairness.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

Homeowners’ Insurance Rescues Seller with False SPIS

Insurer Must Back Up False Statements Made by Seller

Ontario Real Estate Source

By Brian Madigan LL.B.

In Aiken v. Unifund Assurance Co. the Superior Court in Ontario had to consider whether there was a duty to defend under a homeowners’ policy, where the claim arose as a result of a false Seller Property Information Statement.

A purchaser sued a vendor claiming misrepresentation and fraudulent concealment. The purchaser later amended the claim presented to include negligence. That is an unintentional tort and might be covered under an insurance policy.

In the Amended Statement of Claim, it is alleged that the Applicants:

1.     falsely, knowingly, carelessly or negligently failed to disclose or misrepresented a number of facts about the property in the SPIS,

2.     that they consciously omitted to disclose material information relating to the subject property:

a)     with knowledge that the omissions would mislead the Plaintiff or

b)    were careless as to whether such omissions would mislead the Plaintiff;

3.     that they deliberately failed to disclose information about the subject property; and

4.     that they were negligent in relation to information and renovations relating to the subject property.

The Court commented on the duty to defend as follows:

“ An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim.

Similarly, where the claim raises the possibility of indemnity by the insurer, the insurer must defend the action on behalf of the insured.

The recent Supreme Court of Canada decision in Progressive Homes lt. v. Lombard General Insurance Co. of Canada found:

… it is irrelevant whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy.”

So, the Court is saying that the duty to defend does not depend upon the merits of the plaintiff’s lawsuit. Whether it would ultimately be successful is not relevant. The insurer must come to the rescue and pay the defence costs. That’s the point of having insurance in the first place.

The Court also reviewed with approval another recent case:

“The case of Poplawski v. McGrimmon involved a similar fact situation to the one at issue.  In Poplawski, home owners were sued by the purchasers after the sale of their home for alleged misrepresentations and negligence as it related to a SPIS.  The homeowner’s insurer refused to provide coverage and claimed an exclusion under the policy applied which placed the claim outside the coverage of the policy and therefore resulted in no duty to defend or to indemnify.  Mr. Justice C. McKinnon disagreed and found the exclusion did not apply and held there was a duty to defend.  His reasons and findings were upheld by the Ontario Court of Appeal.”

Both cases involved an interpretation of the insurance contract, being a limitation to prevent a homeowner from claiming under the policy themselves. In this case, as well as Poplawski, the Court felt that that principle was still intact, since the homeowners had sold their properties.

Comment

If there is insurance, then there will be more claims. Also, why allege fraud, if fraud is not covered under the insurance policy. Just allege negligent behaviour and then the insurance company must come to the rescue.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com