Newsletter – Title Tips

With over 15 years of Real Estate experience and over ten thousand deals closed, we have come across most of the issues that come up in closing a Real Estate deal. To help our clients we publish a newsletter “Title Tips” to answer questions and keep closings smooth. Below are the most common questions and issues we find.

Disclaimer: The information provided on this website is not intended and should not be relied on as legal advice. Feel free to call John Zinati to discuss your particular situation today.

Condo Care and Concerns

As more and more people are choosing condos as their entry into the market, we thought we would remind you of some of the essentials of condo buying.

Status Certificate: Make your deal conditional on Status Certificate review even if you know the building and have closed deals in it before. This is because the particular unit being purchased may have liens, notices of violation, common expense arrears or outstanding notices from the Condo Corp. Also, Special Assessments, increases in common expenses or lawsuits may arise at any time. Order it fast and try to allow 3 days for review if possible.

New Condos: Have the agreement reviewed by a lawyer well within the 10 day cooling off period. These deals often contain provisions for significant extra charges, changes to the closing date, changes in design and material, cancellation clauses and extended occupancy fee terms. The buyer needs to be made aware of these matters and, although difficult to do, give us an opportunity to limit their effect. Dealing with a reputable builder with a good track record is a plus.

HST & Investors: If investing in a condo remember that most new condo agreements require that the purchaser be using the condo as a primary residence for him/her or a family member. If not, the purchaser may be charged back 36% of the G.S.T. on the purchase. There are also capital gains tax considerations so if the purchaser is investing and wants to sell after closing, tax advice should be considered in these matters. Also, if the purchaser wants to be able to sell before actually closing with the builder, a right to assign should be inserted into the agreement obtained.

Keys and Pass Cards: Try to put a clause in the agreement requiring the vendor to deliver all keys and pass cards on closing. This will save your buyer some expenses and headaches as these are not all necessarily turned over on closing.

Inspections: Don’t assume that a condo should not be inspected. Although uncommon, we have become aware of condos being used as grow houses. This can damage electrical work and cause mold. Also, even condos have leaks, possible electrical problems, roaches, etc… Consider each condo individually.

Rules – Pets, Satellite Dishes, etc… If the buyer has a pet or wants to use a satellite dish you should ask about the rules before proceeding and, even then, specifically tell the lawyer to watch for rules regarding these and any other specific matters.

How to Flip a Condo

With estimates of over 150 new condominium projects under construction in the GTA, many bought by investors, and many homes and subdivisions being developed, there’s a lot of interest in flipping (assigning) builder agreements. While quite worthwhile to both buyer and seller, this involves a little more work and can get a little tricky. To assist in the process we’ve posted a detailed Assignment Guide on our website, but these are the basics you need to know:

Why Assign? Advantages to Seller/Assignor: Usually do not have to pay the builder’s closing costs and land transfer tax; do not have to pay the GST/HST rebate back to the builder; avoid the carrying costs (mortgage, maintenance fees, taxes, etc.) for the time between listing the property and selling the property; get money out of the property. Advantages to Buyer/Assignee: May get a price advantage over current properties on the market; will get a brand-new home and possibly make finish selections.

Can You Assign? Most new home agreements prohibit assignment. There are exceptions where the builder has specifically initially agreed, but this is unusual and most contracts do not allow it. Moreover, if the buyer in any way tries to sell, assign, or list for sale (on the MLS system or otherwise), the buyer is in breach/default and the builder is entitled to cancel the deal and keep deposits. It is very important not to list or enter into this type of agreement without knowing if it is allowed. It is still possible to obtain consent even if the contract does not include a clause entitling the original buyer to make an assignment as many builders will still allow it, for a fee, even though it is not specifically stated in the contract. You must ask through the sales office or lawyer’s office.

Negotiating the Deal: There is more to think about on assignments. The essential elements are: Does the new price include the builder’s adjustments to be charged on closing? In most assignments the new buyer takes over the entire contract and pays the builder’s adjustments. However, sometimes the new buyer and original buyer agree to split adjustments. Who pays the assignment fee? In most instances the original buyer pays the fee. How much money will the seller/assignor get and when? Usually the original buyer has paid deposits to the builder under the contract. When the contract is assigned these deposits are taken over by the new buyer. The original buyer usually wants his deposits back and his profit on assignment. From the original buyer’s perspective, the more funds that he can obtain before final closing the better. The way that the balance is usually struck is that the original buyer receives the deposits he has paid to the builder back on assignment and waits for final closing to obtain his profit. Again, however, it is important to note that each deal is different and that this can be structured in any way that the parties agree. Who will get the interest on the deposits paid by the original buyer? This is usually the new buyer.

Conditions: It’s critical to make the deal conditional on: (1) the builder’s signed consent, (2) a review of the original Builder’s Agreement, (3) a review of the actual Assignment Agreement by each side’s lawyer (4) financing—use a rep experienced in these deals.

Who Is on Title?

A frequently raised issue is about who must be and who may be on title to a property. Where a mortgage is being registered, all the Borrowers on the mortgage must go on title as owners. It is therefore not possible for an individual to be a Borrower on the mortgage, to help with financing for example, without that individual also going on title. He/she must go on title. However, if the individual helping for financing purposes is only a Guarantor, not a Borrower, he/she may, but does not have, to go on title. Unfortunately, for the purposes of obtaining financing, Guarantors are less common because lenders require the income of the person helping with financing to qualify the mortgage and, when they do, he/she is considered a Borrower, not a Guarantor. Also, very often an individual will sign the agreement but will not be on title for financing or other reasons. In these cases, unless an amendment is prepared, it is important to remember that this individual will have to sign at least a Direction regarding Title through the purchaser’s lawyer before closing.

Who Is the Buyer?

Anybody can enter into an Agreement of Purchase and Sale unless he/she is under 18 or mentally incompetent. A Corporation also has all the powers of a natural person can enter into an agreement, as can a partnership. However, unless the acquisition of land is in the ordinary course of the business of the partnership one partner cannot enter into the agreement on behalf of the partnership. All partners must sign. Where an agreement is being signed under Power of Attorney, the agreement should clearly so indicate. We suggest the following wording:

“Mr. Smith, as attorney for Mrs. Smith” or “Mrs. Smith, by her attorney, Mr. Smith” – where Mr. Smith is the attorney for Mrs. Smith.

Who Is the Seller?

The person(s) registered on title should be shown as the Sellers in the Agreement and all should sign the offer. A non-titled spouse should also sign the Offer and closing documents for a transfer of a Matrimonial Home except in limited circumstances. If this is not possible and one of the registered owners or spouses is selling by Power of Attorney the Power of Attorney must include a power to sell the property (most do, but if in doubt check or have the vendor’s lawyer check). An original or Notarized copy should be provided to the vendor’s lawyer before closing. Where an agreement is being signed under Power of Attorney, the agreement should clearly so indicate. We suggest the following wording:

“Mr. Smith, as attorney for Mrs. Smith” or “Mrs. Smith, by her attorney, Mr. Smith” – where Mr. Smith is the attorney for Mrs. Smith.

If one of the owners has passed away you should determine if the owners held title as Joint Tenants or as Tenants In Common. This will be on the Deed or can be determined by a simple subsearch. If title was held as Joint Tenants then it will automatically pass to the survivor without the need for a court application. The vendor’s lawyer will prepare an application to place title in the name of the survivor. This is a simple procedure which does not require much time or a court application. However, the Death Certificate will be required. In these cases you would list the surviving owner as the seller. If title was held by two people as Tenants In Common and one passes away, or by one person who has passed away, an application to the courts must be made to appoint an Executor, whether or not there is a Will. This can be time consuming and sufficient time must be allowed for closing (ask the Estate lawyer). In these cases the seller should be listed as “The Estate of …” and the executors of the Estate should sign the offer and all closing documents.

How Do You Change the Purchaser in the Agreement?

Very often a purchaser is changed after the offer is signed. Legally speaking, when changing a purchaser, the vendor wants to make sure that the new or added purchaser can be held legally responsible for closing if there is a problem. The new purchaser wants to make sure that the vendor can be legally bound to deal with him/her.

If possible, draft a new Offer on the same terms with the new purchaser and original vendor, have all the new parties sign it, release the original purchaser and assign or return the deposit. Another way to change the purchaser is to have an Assignment Agreement drafted whereby the new purchaser receives an assignment of the agreement. For new homes, the builder’s consent (and a fee) is generally required.

We rarely see new Offers or Assignment Agreements as the parties don’t want or have time to go to a lawyer to have one prepared. Instead, we often see amendments deleting one purchaser and inserting another. This can be problematic. If the change is being made this way, it is important to know that an agreement can only be amended by BOTH parties to the agreement. Both the original vendor and purchaser should sign the amendment changing the name. The original purchaser and the new purchaser alone cannot amend the agreement. If you do use an amendment to change the purchaser, then the new purchaser should also sign the amendment with the original offer attached to it and a statement inserted stating that the new purchaser accepts and adopts the terms of the original agreement.

Do You Need a Survey to Close Your Deal?

Tile Insurance, which is now commonly used, covers purchasers for losses which result from not obtaining  a survey or not having an up to date survey. This means that  in most cases a purchaser does not need a survey to close the transaction. Title Insurance can be obtained instead. The Title Insurance policy will usually cost about $270.00, which the vendor can be asked, or offer, to pay if a survey is unavailable (we include this in our closing cost package). So, a vendor should not agree to provide a survey unless he/she is sure he/she has one and, if so, should not agree to provide a  more legible/current/complete/signed  survey than is available. The purchaser can usually close with Title Insurance protection.

Grow Houses and Mold

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.

If you are listing a grow house you should ensure that the buyer acknowledges the previous use and the potential concerns with Grow Houses directly in the Agreement. The buyer should also waive any claims against the Seller, Broker or Agent.

If you are acting for a buyer you should ensure that a full and thorough inspection is conducted to determine if there are any environmental fitness, structural, electrical, plumbing, mold, or other damage concerns. If so, the buyer should carefully consider whether to proceed and, if so, insert a clause making the transaction conditional on the proper remediation and certification of remediation of all of the problems revealed. The purchaser should also ensure that the home can be insured as we have recently seen insurance declined on a Grow House for these reasons.

Grow houses also often result in Mold. Mold, which may be caused by excessive humidity, building leaks, bathroom surfaces and flooding can affect the air quality in a home and result in health problems such as asthma, coughing, wheezing and headaches. However, mold is not just a concern in Grow Houses, but in all homes, including, in a recent case, Condominiums. When mold permeates a home it can be extremely difficult and expensive to remove. It is therefore important that purchasers have an air quality test for mold prior to proceeding with the purchase. Some home inspectors will conduct the test for an extra charge. There are also specialized companies which will conduct these tests. If mold is found, a reputable and experienced company should provide an estimate for the cost of removal. The purchaser should make the Agreement conditional on satisfactory removal and certification of remediation from such a company. The purchaser should also ensure that financing will not be prejudiced by the presence of mold.

Investing in New Condos and HST

The Condo market still seems to be going strong and many people are buying condominiums or new homes for the purposes of investment; either to “flip”, or resell the unit, or to rent it out. What they don’t realize, however, is that most condominium and new home agreements contain a provision requiring that the purchaser be buying the property for his/her own use. This is because the builder will receive a rebate of the HST on the transaction from the government provided that the property was purchased for the purchaser’s own residential use. If the rebate is denied to the builder because the purchaser did not use the property as his/her residence, or as a residence for a family member in certain circumstances, the builder can charge the purchaser with the amount of the expected rebate and can sometimes lien the property for the amount claimed. There are some circumstances where an investor will be eligible for a similar rebate. The amount of the rebate can vary and there are a number of conditions, mainly that G.S.T. was paid without a rebate being obtained and that the first tenant is reasonably expected to occupy the unit as his/her primary place of residence for at least a year. Because there are other conditions, and this can get complicated, we recommend going over this in detail with a lawyer.

People sometimes try sell before closing to profit or try to avoid this. This often appears as “selling interest in Agreement” on the MLS. However, most new home or Condo agreements strictly prohibit dealing with an interest in the Agreement in any way before closing without the vendor’s consent, which is often denied. We have also seen Agreements which allow the vendor to charge the purchaser of a new Condo $3000.00 for each instance of listing or even advertising a property. If you see, or are considering, this kind of offer be extra careful, and have the Agreement reviewed by a lawyer.

Time Really Is of the Essence

Agreement allowed to be cancelled because deposit paid late.

As you may be aware, the Standard OREA Agreement of Purchase and Sale for a resale House or Condominium reads: “Time shall in all respects be of the essence hereof provided that the time for closing or completing any matter provided for herein may be extended or abridged by an agreement in writing…”

The clause makes it clear that time is essential in “all” respects and that this can only be amended “in writing”. A recent case, upheld by the Court of Appeal of Ontario, reminds us of how important this clause and timing are in Real Estate Agreements. In this case, the buyer inadvertently paid the deposit 7 days late. In the meantime, after the day on which the deposit was due, the seller had an opportunity to sell the property to someone else and did so. The court upheld the seller’s right to cancel the original agreement because the deposit was delivered late and sell the property to the new buyer. The court also held that the seller was not required to tell the buyer that it intended to cancel the agreement as soon as the date for paying the deposit passed and noted that the agreement was negotiated by a professional agent. Essentially, the court affirmed the notion that where parties enter into agreements which specifically state that “time is of the essence”, as is found in the standard OREA agreement, they will be held to that standard for timing. Although this recent case involved a commercial transaction, it may be relied on as authority for allowing parties to cancel a transaction when something is not done on time, whether intentionally or not and without an obligation to immediately advise the other party of the intent to cancel. This may also possibly be relied on and extended as general authority for all time related aspects of a transaction. Dates for satisfying conditions, providing waivers, conducting inspections, completing Status Certificate reviews, providing further deposits, and, of course, closing may all take on greater importance . So, to be safe and avoid the risk of allowing an agreement to be cancelled or be subject to other consequences, always pay close attention to and meet all the time limits in an Agreement. If you cannot, have them extended in writing.

When An Owner Passes Away – Probate Precautions

Probate refers to what happens to a person’s assets, or their Estate, which includes Real Estate, after that person passes away. In probate, the Court confirms that another individual has the right to deal with the deceased’s Estate. Generally speaking, though there are exceptions, a transfer of Title to a property may not take place until this has occurred. When an owner has passed away, you should therefore consider whether probate must take place before the property is listed, sold or finally closed.

When dealing with a property on which one of the registered owners has passed away it is important to determine if the person’s Estate will have to be probated before the property can be dealt with or a sale of the property completed. Generally, if the owner of a property has passed away without a will the property should not be listed for sale or otherwise dealt with until probate is completed. This is because without a will it is not clear who would have the authority to deal with the property. If there is a Will, it may be possible to list a property and even complete an Agreement of Purchase and Sale because the Will lists executors who are authorized to deal with the property. However, a transfer of Title and final closing generally cannot take place until the Will is probated. So what must be remembered is that, whether or not there is a will, probate must generally take place before final closing. This will apply even if the individual who has passed away previously gave a Power of Attorney because a Power of Attorney will generally be of no effect after the person who granted it passes away.

If there are two or more Registered owners and only one has passed away, you should determine if the surviving owners can deal with the property without probate. If all of the owners held Title as Joint Tenants, then the interest of the owner that has passed away will automatically pass to the survivor (or survivors) and they can deal with the property without probate or the signature of the deceased owner. However, if title was held as Tenants in Common, the interest of the deceased person will not pass to the survivors. It will pass to his or her Estate and the Estate will generally have to be probated before final closing. This applies whether or not the deceased had a will. If you are not sure check the deed or ask a lawyer to do a subsearch for a copy of the deed. This will help you determine whether the property may be listed or sold and whether the property will be subject to probate before final closing. You should also try and determine how long probate will take from the lawyer for the Estate. Make sure the purchaser knows that closing may have to be extended or, for the Estate, reserve the right to extend and include the appropriate clauses in the offer.