Archive for April, 2014
Spring means more people are signing real estate deals. Besides the price to be offered, you also need to think carefully when choosing your closing date, so that your deal will close smoothly. Here are seven things to remember:
1. Do not choose a Friday at the end of a month. This is typically the busiest day in most real estate law offices, especially in the summer. This results in many deals not being able to close until late in the day, close to 5 or 6 pm. Worse, if the deal has to be extended, you don’t get keys until the following Monday, or maybe Tuesday if it is over a long weekend.
2. Close your deal on a Wednesday, if possible. If there are delays, it is much easier to manage a one day extension than an extension over a weekend.
3. Sellers, you need to plan to be out of your home by 3 pm on the closing day. Under most real estate contracts, sellers must turn over possession as soon as the deal is registered electronically. In normal practice, when the closing is not at the end of a month on a Friday, the deal will likely be registered by 2 – 3 pm. Vacant possession must be given to the buyer at that time. There was a case where a seller had to compensate a buyer for increased moving costs when they were late getting out of the home.
4. If you are buying and selling a home in the same time period, close your purchase 2 days early and get bridge financing to assist you. You will close your deal without pressure and have a few days to move in while you wait until your sale closes. This will also make it much easier to negotiate an extension, if you have to, as you will not be dependent on the money from your sale to close your purchase.
5. Sellers, remember that you must turn the house over in broom swept condition, which means no garbage. Buyers, make sure you schedule you schedule your final visit two days before closing to make sure that the seller is properly cleaning up.
6. Buyers should not plan to move in until late in the day or the day after closing, as you do not want to have to pay extra to your movers if the closing does not happen until late in the day or the deal has to be extended.
7. Even if you are not moving in on the day of closing, buyers must make sure to get in and check the condition of the home on the day of closing, to make sure that nothing has been broken or damaged since the date that you signed your contract to buy. The seller typically only warrants that everything will be working on the closing date, not afterwards, so find out right away if you need to make a claim about anything after closing.
By doing your homework before choosing a closing date, you should be able to avoid pitfalls later.
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By Bob Aaron, Real estate lawyer.
New home purchase agreements have loopholes
What happens when the new-build condominium unit you buy from just the plans is significantly different from the one the builder has completed? Are you obliged to close the deal?
That was the issue in a case heard in the Ontario Superior Court late last year.
Ms A, signed an agreement of purchase and sale with a developer back in January, 2011. The $543,400 unit, which the buyer purchased from floor plans, was marketed as a “two-bedroom + loft plus roof deck.” The condominium was to be a stacked townhouse on three levels in a 63-unit project in Toronto.
Although no floor plans were attached to the agreement, a subsequent amendment contained a sketch of the 1,140-square foot unit. The plans showed a living, dining and kitchen area on the first floor, two bedrooms and a bathroom on the second floor, and a loft on the third level with a laundry area and stairway to the roof for access to the roof deck. The loft was to be 9’10” by 11’4”. As construction progressed, it became apparent the loft had disappeared and in its place was an enclosed stairway to the roof deck.
The agreement provided that:
● any changes made at the request of the city would not be considered a material change;
● the builder had the right to “change, vary or modify the plans and specifications,” and
● the purchaser had no recourse for any changes, deletions or alterations.
It turned out that the city of Toronto would not permit a rooftop loft area to be used as livable space, but only for mechanical use and a landing. The builder’s position was that it never guaranteed Ms A. the exact size of any room on the third floor. Ms. A. repeatedly asked the builder for revised floor plans, but her requests were ignored. The builder later took the position that any changes made at the request of the city were specifically permitted under the agreement, and were not a “material” change to the agreement which entitled the buyer to rescind the deal.
Under the Condominium Act, a purchaser has 10 days to terminate a transaction after being notified of a material change in the required disclosure statement.
Ultimately, the buyer terminated the agreement and demanded return of her deposit of $79,611. She applied to the court for a declaration that the disappearance of the all-important loft space was a material change entitling her to cancel the agreement and have her deposit refunded. In the face of the clear wording of the agreement, her refusal to close carried considerable risk. Losing the legal battle would have meant forfeiting the deposit and paying legal costs for both sides.
In November, the judge ruled that a material change was indeed made by the builder when the loft disappeared into an enclosed staircase. The builder was aware that the buyer had chosen the townhouse so that the loft space could be used as a home office. The change in the plans, the judge ruled, was “drastic” and significant enough to affect a reasonable buyer’s decision to purchase the unit. That required the builder to disclose the change and allow the buyer 10 days to back out of the deal. The judge allowed the buyer to terminate the agreement and receive a deposit refund.
This case clarifies that a builder who makes a material change in the plans for a condominium unit will not be able to rely on contract clauses which would appear to force a purchaser to accept changes made at the insistence of the municipality.
It also emphasizes how important it is to have floor plans with measurements attached to any agreement of purchase and sale of a new condominium or house.
There is lots of confusion as to the rights of landlords and tenants in Ontario when a home is put up for sale. Landlords are trying to bully tenants into leaving and tenants are refusing to permit potential buyers to see the home. Here are the rules:
- Landlords can sell their home at any time;
- If the tenant has a lease, they cannot be evicted before the end of their lease term;
- Tenants must permit showings to potential buyers, as long as 24 hours’ advance written notice is given and the showing takes place between 8 am to 8 pm. Tenants need to make sure that any pets that they own are kept securely during showings. Tenants are permitted to be at the home during showings, although it is not mandatory.
- If a tenant’s lease has ended, they automatically become a monthly tenant and must still be given 60 days’ notice to vacate, provided that a buyer has already unconditionally agreed to buy the home.
Some tenants believe that if they still have a lease for several months, the landlord cannot show the home to potential buyers. Wrong. If the buyers do purchase the home, they must still respect the terms of the lease when they take over as landlord. At the end of the lease term, the buyers, now the owner, can provide a 60 days’ eviction notice based on the fact that they need the home for themselves or their family. If a tenant refuses to permit showings after proper notice has been given, the landlord can start eviction proceedings as this is a breach of conduct by the tenant. The landlord could also potentially claim damages from the tenant if the tenant’s actions prevent the landlord from selling the home in a timely manner. Landlords cannot trick tenants into leaving either, pretending to move in so that the tenant vacates and then immediately fixing the place up and selling it. The tenant can sue the landlord for damages if this occurs. This can include all the tenant’s moving costs and higher rent that may have been paid elsewhere. The Board may also add additional fines for breaking the law. If you are planning to sell your home, my advice is to approach your tenant first to work out a plan for showings that accommodates everyone, so that the tenant can properly plan to protect their valuables and secure any pets and the landlord can permit potential buyers to see the home on a timely basis. As an example, agree to permit showings only from 4-6 pm each day. Some landlords assist their tenant first in finding another place to live, even before putting the home up for sale. This is also an excellent solution, in my opinion. The tenant gets to find another place, without the stress of an eviction proceeding, and the landlord then gets to later fix up their home and make it more presentable to a wider range of potential buyers. When landlords and tenants understand the rules and co-operate when a home is being sold, everyone wins.
Click here to view and/or print a PDF copy of this article
Mark Weisleder, Real Estate Lawyer, Author, Speaker
Sellers and real estate agents will advertise the top-selling features of a home in order to attract the largest number of potential buyers. However, be careful what you say. If it turns out wrong later, you may have to pay for it.
Mr. A. bought a detached home in Toronto in September of 2009 for $439,000. He purchased it “as is” from a family who had owned it since 1967. The basement was not finished.
He then obtained the proper permits to extensively renovate the home, including a refinishing of the basement, and sold it to Ms. B. and her mother in September of 2010 for $658,000.
When the house was listed on the MLS service in May of 2010, it stated that “This house was gutted to the bare bones, and has literally been rebuilt from scratch. Except for the four exterior walls, almost everything else is new. New insulation, framing, walls, floors, roof, electrical, plumbing.”
In another brochure which was given out to potential buyers at the property, it stated “Fully insulated from basement floor walls all the way to attic. Basement designed as a comfortable entertainment centre and/or spacious home office. Gutted to the bare bones.”
A home inspection was done for the buyers. In the report it indicated some concerns about potential basement leaks. In particular, it said that “Cannot predict how often or badly crawl space or basement will leak and that there were “efflorescence, stains dampness on the exposed foundation wall, and that these are typical conditions not out of the ordinary for a home that age. It turned out that 99% of the foundation wall was not visible, as is usually the case when homes are inspected.
The report further stated that since the inspector could not see behind the walls, the buyers were encouraged to consult a licensed contractor or engineering specialist.
The buyers stated that they started to smell musty odours and dampness almost immediately after closing. No investigation was done behind the drywall as they did not wish to do any unnecessary damage to the finishes. There was then a major flood one year after closing. Most of the costs incurred to repair the damage were covered by insurance.
The clean-up crew did discover that the north foundation wall of the basement leaked water. In order to repair this, it was discovered that there were exposed cracks in the mortar between the cinder blocks, including one crack that appeared to have been crudely plugged with a piece of wood in an attempt to stop the flow of water.
The buyers sued, claiming that the defect was hidden, and that the seller must have known about it if he did in fact gut the basement to the bare bones. The seller stated that he never saw any leaks and did not notice the piece of wood because he did not strip the basement walls to the cinder blocks, but rather just insulated and dry walled the area in front of the existing plaster.
The buyers sued for $8,659, being the cost to repair the leaky basement wall. They also claimed $1,000 in punitive damages, stating that the seller deliberately concealed the problem.
In a decision dated April 2, 2014 in the Toronto Small Claims Court, Deputy Judge Jack Prattas determined that even though the seller did not know that the problem existed with the basement walls, he was still responsible to pay because he had carelessly represented that the property was gutted to the bare bones, and the buyers relied on this when buying it.
Thus he found that the buyers were misled into believing that they were getting a basement which did not have any hidden defect.
However, the judge also found that as a result of the warnings by the home inspector, the buyers should assume part of the risk since they chose not to do any further inspections. He awarded the buyers 50% of the damages, or $4,329.50. No punitive damages were awarded.
There are important lessons for buyers and sellers from this decision:
- Sellers, make sure that any statement you make about your home in any advertising is true and correct
- Buyers, when inspecting older homes, it is always a good idea to do further due diligence about water penetration issues, from the roof or the basement.
Click here to view and/or print a PDF copy of this article
Click here to view the original article on the Toronto Star site
According to statistics’ released today by The Canadian Real Estate Association (CREA), national home sales activity edged up on a month-over-month basis in March 2014. View PDF.
New home buyers and owners renovating their own homes continue to be confused about the GST/HST rebate.
There are different rules when you are moving into the home as your primary residence, when you are renovating an existing home, or whether you intend to rent your new home as an investment property.When you buy a new home or condominium and plan to make it your primary residence, the rebate is usually included in the price. So if you paid $400,000, the real price including the tax is closer to $427,000. In your agreement with the builder, you likely agreed to transfer your rebate to him, bringing your price down to $400,000. If you do not move in on closing, you will have to pay the full amount. If you decide to rent out your new home, you are still eligible for the HST rebate, under a different program, called the HST new rental residential rebate. If you substantially renovated your own home and paid the contractors yourself, you may also be entitled to up to $16,000 in HST rebates. In all cases, you have up to two years from closing your new home or completing your renovations to apply.
Figuring out what to do can be tough, says Michael Beallor of Rebate4U, www.rebate4u.com a company that has helps homeowners collect the HST rebate. He says it can be difficult for the average person to find their way through the Canada Revenue Agency and deliver the documents to support any claim for the HST rebate. Beallor says he’s helped owners get $6 million in tax rebates. The company does not charge a fee up front, but collects when the rebate is paid. Another company that provide the same service is Custom Business Solutions at www.rentalrebate.ca. In addition, lawyers and accountants also provide this service to their clients, as I do in my own law practice.
Some buyers intend to move in when they buy a condominium, but when it is ready years later, their circumstances have changed and so they sell. In these cases, the CRA typically says the buyers are no longer entitled to the HST rebate. But there is a way to fight that, says Toronto author and tax lawyer David Sherman. Sherman says if you can show that you intended to make the house or condo your primary residence, but that circumstances changed, requiring you to sell, then you may be able to fight a reassessment. You may have been relocated for work, there may have been a death in the family, or a child may have intended to use the unit for university but then was accepted to a university out of town. What is very important is that you have the right documents to support your claim when dealing with the Canada Revenue Agency. You may need advice from a lawyer or accountant.
Speaking about first-time buyer rebates related to the Ontario Land Transfer Tax. Scott Blodgett with the Ministry of Finance, clarified an example used in an earlier column which referred to a situation where a couple marry and buy a house. One spouse has already claimed the rebate but sold that home before they got married and one has never owned a house. Blodgett says the spouse who has never owned a home can still claim 100 per cent of the land transfer tax rebate, even if they do not take 100 per cent ownership of the property.
If anyone has overpaid land transfer taxes, you have eighteen months to apply to the Ministry of Finance for an overpayment.
Be prepared when applying for any tax rebate.
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Photo by Dreamtime
A recent decision of the Ontario Superior Court should have a major impact on lease negotiations between landlords and tenants in Ontario. This could assist credit challenged tenants and tenants with pets from obtaining approval to their rental applications.
Here’s what happened:
A young woman agreed to rent a home in Mississauga Ontario from May 1, 2013 to April 30, 2014 for $7,500 per month. The landlord initially refused the woman’s rental application as a result of the fact that shewas from the UK, working in Ontario and was on a visitor’s visa and the landlord was concerned as to whether she would maintain the payments. The would-be tenant then paid one years’ rent in advance, being $90,000 to demonstrate her good faith. This was accepted. The tenant also paid a security deposit of $7,500 up front to cover potential damages to the unit.
The problem is that under Ontario’s Residential Tenancies Act, a landlord cannot request more than first and last month’s rent before a tenant moves into the property. The Act also states that anything in a lease that violates the Act is void. As such, after moving in, the tenant brought an application to court to pay the extra months’ rent and the security deposit back to her, as she claimed that this was all demanded by the landlord. In an original decision dated October 7, 2013, Judge Kofi Barnes of the Superior Court of Ontario looked at a text sent by the tenant’s real estate agent to the landlord’s agent that said “My client will pay 12 month’s rent up front.” Based on that, he decided that since the tenant offered the money up-front, it was legal. However, since the security deposit was not offered by the tenant, this amount had to be paid back.
The case was appealed and in a decision dated February 12, 2014, Superior Court judge Frank Marrocco agreed with Justice Barnes and explained that while a landlord could not “require” a tenant to pay more than first and last month’s rent as a condition of the tenancy, if the tenant “offered” to pay more money in advance and the landlord accepted the payment, then it would be legal. In addition, the court held that interest on the entire prepayment of rent had to be paid by the landlord, in accordance with the rate prescribed under the Act, which was 2.5% in 2013 and .8% in 2014.
The lawyer who acted for the landlord on the case, tells me that both judges relied on a prior decision in 2009 of Royal Bank v McPherson in support of this position. In the McPherson case, the tenant prepaid a years’ rent of $24,000 to the landlord and then the landlord lost the property to the bank after defaulting on his mortgage. The tenant said he did not owe any rent as he had prepaid it for a year. The bank argued that since the payment was illegal, it should not be binding. The court disagreed, and said that the bank must step into the shoes of the landlord and be bound by the prepayment. It would be unfair to penalize the tenant by not recognizing the prepayment.
As a result of the McPherson case, lenders who sell a rental property after an owner defaults will typically state that the buyer accepts any tenancy arrangement. A buyer in this situation must do due diligence in advance to try and verify what payments were made by the tenant to the prior landlord so that they are not faced with a similar situation where the tenant has prepaid rent to someone else and now they are stuck with it.
Here are the lessons to be learned from these cases:
- Landlords cannot advertise that they will require more than first and last month’s rent in advance of the tenant moving in. This includes any security deposit.
- If the tenant offers to pay extra money up front, make sure that it is clear that the offer is coming from the tenant. This could include a deposit to cover any damages or clean the unit when the tenant wants to bring a pet.
- Tenants need to keep a receipt for the payment as proof that the amount was paid, in case it is ever challenged later by anyone.
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