We complete many Assignment transactions and have recently come across a significant issue with more and more builders and affecting clients buying or selling a unit by way of Assignment.

After the transaction between the New Buyer (Assignee) and Seller (Assignor) is firm, and formal application for consent to the Assignment is made to the Builder, the Builder is insisting on removing certain incentives that the original Buyer/Assignor may have received under the terms of the original Builder Agreement. Such incentives can be quite substantial and range from caps to development charge levies, to common expense credits, to other incentives given at the time of the original purchase. The New Buyer/Assignee is then effectively asked to pay more for the property on final closing than was anticipated under the terms of the Assignment Agreement. This is resulting in disputes between Assignors and Assignees as to who is responsible for such extra costs. It is a difficult problem to resolve because the Assignor and Assignee have a firm agreement, subject only to the Builder’s consent, and that Agreement does not contemplate who will pay for these extra costs.

Some recent examples of this are:

• On a Large Project on Adelaide St., East – the Builder deleted the Development Charge cap, common expense credit and free leaseback provision. As part of the builder consent document, they only replaced the Development Charge cap, at a significantly higher amount; and
• On a project at Yonge and Eglinton– the Builder deleted the Development Charge cap (which was $0) and did not replace it. This means the New Buyer/ Assignee would be fully responsible for increases in development charge rates from July 1, 2015, which may amount to thousands of dollars.

If you are acting for a New Buyer/Assignee we would suggest the following clause to protect your client:

It is understood and agreed that the Assignee is taking an Assignment of the original Agreement of Purchase and Sale with the Builder/Vendor as it currently exists and as reviewed by the Assignee and his solicitor, including all incentives, adjustment caps, upgrades, etc.. In the event that the Builder/Vendor removes any such incentives as a condition of granting consent to the Assignment, or in any way requires an amendment to the original agreement such that the Assignee will incur expenses in addition to those set out in the original agreement with the Builder/Vendor as reviewed by the Assignee, the Assignor agrees that the costs and value of same will be deducted from the balance due to the Assignor on Final Closing.

If you are acting for the Assignor we would suggest the following clause to protect your client:

The Assignee agrees and understands that as a condition of granting consent to this Assignment the Builder may withdraw or remove incentives provided under the terms of the original Agreement with the Builder. In the event that the Builder removes any incentives as a condition of granting consent to the Assignment, the Assignee nevertheless agrees to proceed with the Assignment and accept any related costs or increase to the price to be paid to the Builder on final closing.

Another option is to make the Assignment Agreement between the New Buyer/Assignee and Seller/Assignor conditional on there being no changes made to the original Agreement with the Builder. In that regard, we suggest the following addition to the standard condition on Builder’s consent clause:

This Assignment Agreement is conditional on obtaining consent from the Builder to the Assignment without any amendments or changes to the existing Agreement of Purchase and Sale with the Builder/Vendor.

If you are in the middle of an Assignment deal right now, we suggest that you amend your clauses immediately!

If you are working on the purchase of a Preconstruction Condominium with a client who is being told that the purchase includes a right to Assign the property to a New Buyer, we recommend that during the initial signing of the Builder’s Agreement, within the 10-day cooling off period, that the following clause be inserted to protect your client:

The Vendor agrees that in the event of an Assignment of this Agreement the Assignee will not be required to accept any changes to this Agreement. In particular, any amendments, incentives, adjustment caps, or upgrade credits, etc. in this Agreement will apply and be transferred to the Assignee.

It is no secret that the passing of the Ontario Fair Housing Plan and the introduction of the 15% Foreign Buyer’s tax has, for now, affected some sales and property values. Because it was introduced so quickly, some buyers are attempting to get out of a contract or reduce the purchase price on the basis that the price paid for the home is “too high”. Buyers may not want to pay the “higher” price, may be unable sell their own house at an expected price, or cannot Finance because the purchased property does not appraise for the contract purchase price. This represents a difficult challenge for all parties involved and it is important to understand the law in these situations. This issue of Title Tips will outline the law and provide some tips on what to do in these circumstances.

First-The Law

On a firm agreement of purchase and sale, buyers are not entitled to a reduction of the purchase price because they could not sell their home, because the market changes or because they could not get the financing they expected. While this may seem obvious, it is surprising how many buyers believe that these reasons allow them a lower purchase price. A firm agreement of purchase and sale is a binding contract which each side is expected to fulfill on its terms, the most essential of which is perhaps the purchase price.

When a buyer cannot or does not complete an agreement without cause the buyer will be responsible for making the seller “whole”. This means that the seller is entitled to be put in the same position as the seller would have been had the buyer completed the transaction as scheduled. The buyer is liable to the seller for the difference between the original contract price and the price that the seller ultimately sells the home for, or, if the seller does not sell the home, the market value of the home at the time of the breach of the agreement by the buyer, plus any related costs incurred by the seller, such as legal, carrying, moving or accommodation costs etc.. The seller’s damages must be reasonable and foreseeable and the seller has an obligation to mitigate the amount of damages suffered, but the buyer is responsible for paying the seller these damages. A recent B.C. case, where the law is largely the same as it is in Ontario, confirms this.

https://www.cbc.ca/news/canada/british-columbia/buyer-who-walked-away-from-real-estate-deal-ordered-to-pay-360k-1.4232844

Second-What Happens to the Deposit?

Contrary to what some buyers believe, buyers are not entitled to a return of their deposit, nor is their liability limited to the amount of the deposit. In general, as long as the deposit is not out of all proportion to the damages suffered, and the forfeiture of the deposit is not unconscionable, the seller is entitled to the deposit. This would be even if there were no damages suffered by the seller. If damages are suffered the seller is entitled to all of the damages as noted above and the deposit would be applied as part of those damages. Unfortunately for the seller, the seller will not automatically be entitled to payment from the Broker holding the deposit. The Broker can only payout the deposit on the mutual direction of the seller and the buyer, or by court order. This means a buyer who fails to complete a transaction has some leverage because the buyer can refuse to direct the release of the deposit by the Broker and force the seller through the expense and time of going to Court for an order compelling payment of the deposit. However, the seller does not have to wait for a Mutual Release to re-list the property and in fact may be obliged to do so in order to mitigate, or lower, the damages.

Third-Tips to Get the Deal Closed

While it is true that some buyers cannot close because of difficulties with financing, many buyers simply want a reduction of the purchase price or do not want to pay added expenses associated with financing a home that has perhaps dropped in value. This means that many buyers can be encouraged to complete the transaction. Here are our Tips to make sure that the buyer does everything possible to complete the transaction.

1.  Make sure the buyer understands the liability for the deficiency on resale. This can be as simple as sending the agent the Article above or having the lawyer for the seller write a letter to the lawyer for the buyer. The buyer should be made aware as soon as possible that the seller will not simply reduce the purchase price.
2. Where a property is over $1 million the buyer would have had to have at least a 20% down payment to complete the purchase. The buyer should be made aware that the seller knows that the buyer can be expected to have at least 20% of the purchase price to satisfy the seller’s claim or judgment for damages. If the property is less than $1 million you should get details of the buyer’s financing as a condition of considering any extension or abatement. Then, you can apply the same logic above to the buyer’s request for reduction of the purchase price.
3. If the buyer owns a property, the lawyer for the seller should immediately conduct a title search of the property owned by the buyer and determine the face value of any mortgage on title. This will allow the lawyer for the seller to put the lawyer for the buyer on notice that the seller is aware that the buyer has equity in a property which will be subject to the seller’s claim for damages. The lawyer should also search to see if the buyer owns any other properties for the same reasons.
4. Consider allowing the buyer more time to close. This will generally require that the buyer pay a further non-refundable deposit and pay the seller’s associated expenses.
5. Consider ways in which the seller might be able to assist the buyer in completing the transaction such as providing the buyer with a Vendor Take Back Mortgage for the buyer’s claimed shortage. This will often be less difficult than suing a defaulting buyer and gives the seller security on title for the loan. In the event that the market price comes back the buyer can later refinance the property and payout the seller.
6. Consider whether there may be other means to help the buyer with financing. We recently had a transaction where the father of the seller agreed to give the buyer a second mortgage on the property for one year in order to facilitate closing.
7. The buyer should be encouraged to consider getting help from family or friends rather than face a lawsuit for damages.
8. After the matters above have been made clear, and the buyer still does not or cannot close, the seller should consider whether it is still better to reduce the price somewhat and close the deal rather than face the prospect of relisting and having to take legal action at a later time.Once the buyer is fully aware of the potential liability, the buyer will be in the most motivated position to complete the transaction. It is our experience that when we push back on requests for a reduction in the purchase price most buyers are finding a way to close. In general, we would recommend that it be made clear that the buyer will be held responsible for all damages if the buyer does not close. If, after that, the buyer cannot or will not close the seller may wish to consider whether it may be worthwhile to reduce the price and close rather than re-list and have to proceed with legal action. Every circumstance is different and should be considered clearly and carefully with the buyer’s agent and lawyer.

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Agreement allowed to be cancelled because deposit paid late.

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Grow Houses are houses used to grow large amounts of Marijuana. These seem to be more common and are regularly being listed for sale. Before you list, or take a purchaser to a former Grow House, you should be aware of some concerns and issues.

Grow Houses use a lot of electricity and Police monitor usage to detect Grow Houses. So, in order to avoid detection, grow house electricity connections are often tampered with and illegally connected to the electricity grid. This means that the connection could be faulty and that the home’s electrical system overburdened, causing safety, health and repair cost concerns. Wires, panels, etc. may have to be replaced. Also, plumbing and sewage systems may be altered necessitating substantial repairs.

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