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Alarm bells raised over new COVID-19 legal clauses in real estate purchase and sale deals
One of Ontario’s most respected real estate lawyers has sounded the alarm against using untested COVID-19 clauses in property transactions.
Sidney Troister is a partner at Toronto’s Torkin Manes LLP, and is widely regarded as one of Ontario’s leading real estate lawyers.
Last week, Troister and his law partner Aaron English distributed an e-bulletin cautioning against the use of these clauses.
The first clause they say “raises a number of issues and questions” provides for an extension of closing if the buyer’s lender, or the local land registry office, should cease operations. If the delay exceeds a particular date, the clause allows either party to terminate the transaction.
Jeffrey Lem, Ontario’s director of titles, has stated that the land registration system will not be closing. As well, there is no basis to expect that the banks will “cease operations.”
Troister and English warn that giving either party the right to terminate could allow a dishonest or insincere party to use the clause as an excuse for ending a transaction that otherwise should not be cancelled.
Another clause concerning the lawyers states that if there is a delay in registration of the title documents, the closing will be extended past the scheduled date to the “next possible date,” and there will be an “escrow” or trust closing where funds and keys may be exchanged.
The Torkin Manes bulletin notes that this clause does not specify how the closing will take place or what would be involved in such a complex arrangement. Under this clause, a buyer would be in the purchased property paying expenses but the seller would not get his money to pay off the mortgage.
Troister notes the escrow closing clause “is hardly satisfactory to address the nuanced issues” involved in that type of transaction.
A third clause states that if the buyer or the seller is the “subject of a mandatory COVID-19 virus quarantine, the closing will automatically be extended, at the request of either party, for a period of 14 days.”
This problematic clause does not distinguish between a quarantine and voluntary self-isolation. It also does not address what should happen if either party remains unwell after the 14-day period.
As well, the clause seems anachronistic in our electronic age that provides a digital solution to print, sign and scan documents, as well as meet by videoconference. This clause, the lawyers say, sends mixed messages that open it to both confusion and disputes among the parties.
While there are certainly ways to ensure real estate transactions can proceed under the restrictions of the pandemic, the proposed clauses could cause the opposite — or easily lead to litigation among the parties and their real estate agents.
Troister and English caution that buyers and sellers contemplating entering into agreements of purchase and sale for real estate during the current pandemic should view these COVID-19 clauses “with caution” and would be wise to seek legal advice before including them in any purchase agreement.
Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents. He can be reached by email at firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818.