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Ensure your home purchase deal includes an inspection immediately before closing

It’s the night before closing, the seller has moved out and the buyer wants to do a last-minute inspection to ensure there’s been no damage since the last visit.

Is she or he entitled to a day-of-closing inspection if there is no clause in the purchase agreement allowing a final check?

The court case most often cited as support for a right to a final inspection is a decision of the Waterloo County Court in 1979.

Before the closing of what the court called a “simple and routine residential purchase and sale,” the buyer’s lawyer asked the seller’s lawyer for a final inspection on the morning of closing.

A standard clause in the offer said that the property was at the seller’s risk until closing, and if there was any substantial damage, the buyer could either terminate the deal or close and take the proceeds of any insurance.

The lawyer for the buyer brought a successful court application which gave his client a right to the inspection. Judge Francis Costello held that “It … seems ridiculous that (the buyer) should have to complete the transaction and pay over his money before ascertaining whether or not he had been entitled to terminate the agreement prior to completing it.”

The court case was determined under the Vendors and Purchasers Act which allows the parties to ask a court to determine a question arising out of a real estate contract. As a result, although its reasoning is persuasive, the court’s decision is not binding on any other judges.

The decision in this case was endorsed in a 2104 case in the Supreme Court of British Columbia. The dispute in the case of buyers involved the purchase of a $5,150,000 condominium on the Vancouver waterfront, with a deposit of $500,000.

The purchase agreement required the unit to be in “substantially the same condition at the Possession Date as when viewed by the Buyer on April 12, 2012.”

Prior to closing, there was extensive work being done to the unit to remedy mould and fungal damage. The unit was a construction zone and not nearly finished.

The buyer was denied an inspection by the seller and refused to close. The seller sued to keep the deposit and also for damages, but the court — relying on the Harkness case — decided that the buyer was justified in refusing to close.

The court noted that the buyers were “implicitly entitled to inspect the apartment before closing.” The sellers were not allowed to keep the deposit.

In his decision, Judge Reginald Harris wrote, “I agree with the (buyers) that they should not be expected to hand over approximately $5 million without a closing inspection. This would be analogous to purchasing a dozen eggs without an opportunity to first open the carton to ensure none are broken

There are two takeaways from these cases. The first is that there is no such thing as a “simple and routine residential purchase and sale.” Each purchase requires a high degree of due diligence.

And the second is that every purchase agreement should always contain a right of inspection immediately before closing.

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 bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

 


An easement hinges on whether it restricts enjoyment of the property

Can a buyer ever back out of a purchase on the basis of registered easements that entitle third parties to particular rights on the land?

My last column dealt with two recent cases where buyers refused to close their deals because there were registered utility easements, or usage rights by the local municipality, Bell Canada, hydro and cable TV suppliers.

In another case the buyers asked the court for a declaration they could rescind the purchase contract and get a refund of their deposit on the basis of two registered easements for storm and sanitary sewers. The buyers’ application was dismissed.

In another case, buyers got hit with a judgment for $430,000 after they refused to close a purchase due to typical registered utility easements.

But there have also been cases where registered easements were found to entitle the buyers to back out of their purchase agreements. The cases turn on whether the easements materially affect the use of the property.

Back in 2007, a buyer contracted to buy a Toronto property and paid a deposit of $60,000.

The title search revealed a 20-foot wide easement for storm and sanitary sewers covering 3,400 square feet which was most of the rear garden, and 26 per cent of the entire lot. In addition, a two-storey gazebo was sitting on top of the easement.

The buyer went to court to rescind the agreement. Justice Maureen Forestell set out the four legal tests for whether an easement materially affects the use of the property:

1) the location of the easement;  2) its size;   3) the point of access; and  4) the owner’s enjoyment of the property.

Justice Forestell found that the yard — an integral part of the enjoyment of the residential property — might have to be dug up to access the sewers. She decided in favour of the buyer and ordered the return of the deposit.

Another easement case went to the Court of Appeal in 2018. A buyer agreed to buy a property in Kleinberg. In the agreement, the buyer acknowledged the existence of an easement in favour of TransCanada Pipeline (TCPL). But there was an undisclosed, second easement registered on title that ran directly under the swimming pool, patio and cabana.

A letter agreement, also on title, required the owner to sign a further agreement with TCPL acknowledging that it had the right to remove the pool and cabana if necessary, with costs shared between the pipeline and the owners.

The purchase and sale agreement made no reference to the second TCPL easement or ongoing litigation between the owner and TCPL.

When this came to the buyer’s attention, he requested the return of his $50,000 deposit and the sellers refused.

At the court hearing in 2016, Justice Robert Charney ruled that the undisclosed easement could significantly affect the buyer’s use and enjoyment of the property. He ordered the return of the $50,000 deposit. The Court of Appeal dismissed the seller’s appeal.

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 bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

 


Expensive lessons: Courts tell buyers to pay up!

Fighting failed real estate deals in court can be futile  – and expensive – as shown by the verdicts in two recent Ontario cases concerning easements.

In February, 2020, Mr H. and Ms Y. signed an agreement to buy a property, in Newmarket, from Mr and Mrs B. The contract price was $1,755,000 with a $75,000 deposit.

The property, a two-storey home with five bedrooms and five bathrooms, a pool, cabana and above-ground hot tub, has a title subject to two usage rights, or easements, sanitary and storm sewer access by the town of Newmarket. A standard title clause in the agreement said title had to be clear except for easements that included drainage, storm and sanitary sewers. A building location survey of the property, clearly showing the easements, was attached to the agreement as a schedule. It also contained references to the registered easements.

Prior to closing, the lawyer for the buyers submitted a formal demand that the easements be removed from title. The sellers’ lawyer responded that the title objections were not valid.

The buyers then refused to close the deal and the sellers sued the buyers.

 Justice Jill Cameron concluded on June 28 there was “an inference that the existence of the easements is not the real motive behind seeking rescission of the agreement.”

Cameron noted that the sellers had good title to the property and could convey substantially what the purchasers contracted to get. The sellers were awarded the $75,000 deposit that the buyers had paid.


A similar case was heard in Newmarket court this past February. In 2017, the buyers agreed to purchase a house in Aurora, for $2,130,000. They paid a $100,000 deposit.

The title search of the property revealed two registered sewer easements to the town of Newmarket, an easement to Bell Canada for maintenance to telecommunications facilities, and easements to Aurora Hydro and Aurora Cable TV. A survey of the property attached to the offer depicted the easements and their locations.

The lawyer for the buyers demanded the easements be removed from the property’s title. The sellers refused and the deal did not close. The sellers resold the property for $1,700,000 — a loss of $430,000.

In awarding the sellers $430,000 plus $18,000 in costs without the need for a trial, Justice Gregory Mulligan found that the buyers had breached the contract and noted “there is no indication as to how the property would be serviced by the utilities, including hydro, telephone or cable TV, if the easements were removed.”

As I see it, three important takeaways from these cases are:

1. There is little point in litigating a failed real estate transaction on the basis of standard easements on title.

2. Always attach a land survey to a purchase agreement.

3. Courts do not like technical excuses for getting out of a purchase contract.

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 bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

 

 

 


A buyer’s hefty deposit is forfeited when a judge finds…

he “deliberately” breached his purchase contract.

A buyer of a pre-construction townhouse found out the hard way what can happen if the property is resold before its closing date and without the builder’s permission.

Virtually every Agreement of Purchase and Sale for a pre-built home or condominium contains a prohibition on resale until after the final closing of the transaction and registration of a deed to the purchaser. The reason for the prohibition is so that early purchasers will not compete with the builder’s marketing of unsold units.

In March 2016, Mr W. bought a townhouse in a pre-construction project in Markham, from a builder operating under the name 2426483 Ontario Limited. The contract price was $1,188,800.

Mr W paid the builder deposits totalling $150,000, and in July, 2019, he listed the unfinished home for sale on the Multiple Listing Service (MLS). This was a breach of a clear prohibition in the purchase agreement. The agreement also contained a clause stating that if a purchaser breached the prohibition, the builder could both terminate the agreement and keep the deposit and any other monies paid.

When the buyer was notified by the builder’s sales manager that the MLS listing was a breach of contract, he immediately removed it.

In December, 2019, the buyer requested and was refused permission to resell the property before final closing. Despite this, he again listed the property for sale and subsequently signed an agreement to sell it for $1,290,000 with an April, 2020 closing date.

When the builder saw the listing and sale posted on the MLS website, its lawyer notified Mr W that in light of his contract breach, the builder had terminated the agreement and forfeited the deposit and occupancy fees paid. Mr W was also told to surrender possession of the unit.

Mr W and the new purchaser then terminated their agreement of purchase and sale with an option to revive it if the dispute with the builder was settled.

In June, 2020, in a virtual hearing before Justice Paul Schabas in Toronto, Mr W asked the court for what is known as relief from forfeiture of his deposit. In analyzing the claim, Schabas noted that the court must consider the conduct of the buyer, the gravity of the breach of contract, and the disparity between the value of the forfeited deposit and the damage caused by the breach.

“In this case,” Schabas wrote in his decision, “The buyer knowingly and deliberately breached the agreement when he listed and sold the townhouse in December 2019 and January 2020.”

The judge noted that at the time Mr W resold the unit, the purchaser could have bought one of the builder’s nine unsold townhouses.

Schabas found that Mr W did not come to court with “clean hands” because his conduct did not demonstrate reasonable diligence to comply with the agreement.

Since the deposit was 12.6 per cent of the purchase price in the agreement, the judge found it would not be unconscionable for Wang to forfeit his $150,000 deposit plus all the occupancy fees that had been paid.

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 bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.


Can dead people sign property deeds?

The answer: it depends who you ask about so-called “zombie deeds.”

In legal circles, a deed of land signed during the owner’s lifetime but registered after death is known as a zombie deed.

Judging by online comments in legal blogs, a significant number of real estate lawyers — myself included — would answer yes. This position is based on the 2015 ruling of Ontario Superior Court Justice Laurence Pattillo in the case of Winarski v. Sproul.

But the answer is no if you ask Jeff Lem, Ontario’s highly-respected director of titles, as well as Superior Court Justice Helen MacLeod-Beliveau in her March 2020 ruling in the Thompson v. Elliott estate case.

In the Winarski case, Ms. Sproul signed a deed to her Toronto property and gave it to her lawyer to register. Due to a minor title problem, the lawyer never registered it. Justice Pattillo ruled that the deed was valid to transfer ownership of the home out of Sproul’s estate.

In the Thompson case, Mrs. Elliott and her husband Mr. Thompson jointly owned a home in Ont. Ownership would go to the surviving spouse. Shortly before she died, Elliott signed a deed of land to split the joint ownership so that her half of the house would go to her adult children on her death, instead of her spouse.

When Elliott died three weeks later, her lawyer realized he had forgotten to register the deed, and proceeded to register it, despite the fact that she was deceased.

Justice MacLeod-Beliveau ruled that the post-mortem deed was invalid. She was highly critical of the lawyer who registered it.

The judge also referred to the administrative policy of Ontario’s director of titles, which is opposed to the registration of deeds after the death of the person who signed it. If the land registry office discovers that a deed has been registered after death — a big if, since it’s not always obvious — it will cancel the registration.

One issue that MacLeod-Beliveau seized on in the Thompson case was the statements of legal age and marital status, which are contained in every Ontario deed. At the time the deceased signed the deed, the statements were accurate. At the time of registration, they were not because the person was deceased.

The judge, along with Jeff Lem, the director of titles, take the position that those statements are wrong if the deed is registered after death. However, the judge in the Winarski case had no problem giving effect to an unregistered deed signed before death.

An online warning by the director of titles advises that lawyers cannot, under any circumstances, register a transfer of land signed by a deceased owner — even if we are “pretty sure that is what the client would have wanted.”

So now we have two decisions by judges of the Superior Court coming to opposite conclusions.

My personal view, despite considerable legal opinion to the contrary, is that zombie deeds are — excuse the expression —  alive and well in the province of Ontario.

They are a valuable estate planning tool which allows Ontarians to avoid the punitive 1.5 per cent estate tax and the court delay of eight-plus months to obtain probate.

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 bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

 


Your property, and your family, deserve to be protected in your will

In these times of economic uncertainty, Canadians who own their own homes may be thinking about protecting them from health risks due to the COVID-19 pandemic.

For most homeowners, their houses and condominiums are their largest single assets. In the last couple of months, many Ontario lawyers have noticed an increase in inquiries from clients who want to prepare their wills and protect their homes from the provincial government’s 1.5 per cent estate tax. That’s $15,000 on a $1 million house.

Clients typically ask:

  • who they should name as estate trustee to liquidate homes and other assets;
  • how the proceeds can be sheltered so their spouse or children will efficiently receive their share;
  • how title can be registered to avoid probate fees and the eight-plus months it takes for the courts to issue a certificate to the estate trustee, allowing the home to be sold;
  • who will look after the property during the delay.

I recommend everyone with any significant assets, like a house or condominium, preparing their wills.

Common-law spouses with separately-owned assets often do not consider the need for wills. Recently, one of my clients passed away prematurely, and without a will. He was in a long-term relationship with his common-law spouse and, unfortunately under Ontario law, she is not treated as a surviving spouse and may get little or nothing from the sale of the house in which they lived, or his other assets.

New parents — especially those who own or are about to purchase a home — should have wills, even if their debts exceed their current assets. Wills can also establish written instructions for the care of their children, and direct the care of their money and property.

Dealing with real estate, cash, stocks and other assets is problematic if there is no will or a badly drafted one.

Historically, a will must be signed in front of two adult witnesses who are not beneficiaries or spouses of beneficiaries, with all three people present in person at the same time

But under an emergency order passed by the Ontario government, wills can be witnessed in a videoconference if one of the witnesses is a licensed lawyer or paralegal. In this case, three identical documents each bearing one ink signature will, when attached to each other, be treated as one will.

Another option is for a single document to be circulated among the person signing the will and the two witnesses. The three signatures are placed on the same document during three separate videoconferences, with each person watching the other two sign.

While making a will, it’s also a good idea to prepare a power of attorney for property — including real estate and bank accounts — and a power of attorney for personal care. These documents can save considerable grief when a person is unable to make their own decisions.

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 bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.


Property access and security revolutionized with lockbox technology

The traditional mechanical lockbox has long been making property showings easier and more convenient for real estate agents by eliminating the need for the seller to be home or available for key collection and drop offs. However, this system has become outdated as security concerns have come to light over unauthorized use of the code, codes not being reset, rust or deterioration making the lockbox difficult to open, and no real way to track who has access.

With technology being integrated into almost every part of the real estate and home buying process, it seemed like a natural step for Master Lock to use technology to meet both industry and client expectations.

Master Lock Vault® Enterprise technology encompasses Bluetooth-enabled lockboxes and integration with the Showing Time™ mobile app, bring all parts of the showing process together in “one app, one tap.” Agents can retrieve all the details on the showing appointment, as well as open the lockbox with the app in a seamless manner, and without breaking their stride.

“When a showing agent shows up to a property with a prospective homebuyer or renter, it’s a sales call,” said Barron Robertson, Product Manager at Master Lock. “The goal is to continue the selling process and fumbling with a faulty lockbox can chip away at a good first impression.”

The lockboxes and app were designed with efficiency and security in mind, he added. Having a system where everything is in one place simplifies the process and saves time, which has proven to translate into more showings and faster sales.

These Bluetooth-enabled lockboxes also arm the agent with an added confidence surrounding the safety and security of their clients’ homes. The Real Estate Council of Ontario says agents should follow similar guidelines to those set out by U.S.-based National Association of Realtors, which recommends changing temporary access codes every 72 hours. This is a difficult task when using traditional lockboxes, but using the Master Lock system, temporary codes automatically change every 4 hours. The system relies primarily on Bluetooth credentials specific to each agent, which also allows the listing agent to track in precise detail who is coming in and out of the property, how long one person stays at the property, as well as who has approval to enter the property at any point in time.

“It’s a secure system that makes it easy for agents to adhere to best practices when it comes to the security of their clients’ homes,” said Robertson.

This new system is also making showings in rural markets much easier. The system was designed to be able to work outside of cell coverage, so you can still access a property without having to rely on a real-time connection. Because of this, the system is not only being embraced in urban and suburban neighbourhoods but in rural regions as well.

“For larger geographic areas where there’s a lot of time and space between showings, the ability for a listing agent to share credentials with somebody who could be an hour away, really starts to pay off in time efficiency,” he said.

Similar technology has typically been offered with long term contracts or hefty monthly fees, but Robertson added that Master Lock wanted the system to  not only be flexible in its capabilities, but also in its price and accessibility, so it can be adapted to the needs of any individual, group or company. As Master Lock approaches 100 years in the industry, introducing this technology is just another step in providing dependable solutions to aid in home protection and safety.

The Master Lock Vault Enterprise technology covers all the bases. It benefits the homeowner by providing an added layer of security, it’s convenient and provides an unprecedented amount of data to the listing agent, and the showing agent benefits from a seamless process, leaving potential buyers or renters with a positive first impression.

by Kasi Johnston

06 May 2020

https://repmag.ca


Alarm bells raised over new COVID-19 legal clauses

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 bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

 

 

 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


OREA: End open houses during COVID-19 outbreak

Realtors in Ontario should immediately stop holding open houses during the province’s state of emergency over COVID-19.

That’s the call from the Ontario Real Estate Association (OREA), which issued a statement Saturday urging real estate professionals to use technology for home showings instead.

“I am calling on all Realtors to cease holding open houses during this crisis and advise their clients to cancel any that are planned,” said Sean Morrison, OREA President. “If a client has an urgent need to sell or buy a home during the COVID-19 crisis, there are other real estate tools that Realtors can use for showing a property including virtual tours. Let’s put our clients and communities first and focus on protecting the health and safety of all Ontarians.”

Follow the advice
OREA’s statement added that, while open houses are a common practice in the real estate industry that help sellers get good value for their homes, this is secondary to public health.

It has called for real estate agents to follow the clear advice of the Real Estate Council of Ontario (RECO): “If you decide to offer services involving open houses and showings, it is your duty to support your clients in making an informed choice about hosting or attending open houses and showings.”

OREA’s Morrison gave some advice for real estate agents that are asked by home sellers to hold an open house.

“My message to my fellow Ontario Realtors is clear: you are trusted advisors and professionals. Encourage your clients to use technology that facilitates remote interactions and especially avoids large groups that can happen during open houses. Every Realtor has access to modern tools such as virtual showings, video conference calls and digital signing. Now is the time to use them or, if you can, wait until the State of Emergency is lifted,” he said.

by Steve Randall

https://repmag.ca

 


OREA: End open houses during COVID-19 outbreak

Realtors in Ontario should immediately stop holding open houses during the province’s state of emergency over COVID-19.

That’s the call from the Ontario Real Estate Association (OREA), which issued a statement on Saturday urging real estate professionals to use technology for home showings instead.

“I am calling on all Realtors to cease holding open houses during this crisis and advise their clients to cancel any that are planned,” said Sean Morrison, OREA President. “If a client has an urgent need to sell or buy a home during the COVID-19 crisis, there are other real estate tools that Realtors can use for showing a property including virtual tours. Let’s put our clients and communities first and focus on protecting the health and safety of all Ontarians.”

Follow the advice
OREA’s statement added that, while open houses are a common practice in the real estate industry that helps sellers get good value for their homes, this is secondary to public health.

It has called for real estate agents to follow the clear advice of the Real Estate Council of Ontario (RECO): “If you decide to offer services involving open houses and showings, it is your duty to support your clients in making an informed choice about hosting or attending open houses and showings.”

OREA’s Morrison gave some advice for real estate agents that are asked by home sellers to hold an open house.

“My message to my fellow Ontario Realtors is clear: you are trusted advisors and professionals. Encourage your clients to use technology that facilitates remote interactions and especially avoids large groups that can happen during open houses. Every Realtor has access to modern tools such as virtual showings, video conference calls and digital signing. Now is the time to use them or, if you can, wait until the State of Emergency is lifted,” he said.

by Steve Randall

23 Mar 2020

 


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