Articles & Resources
Your Guide To The Standard Purchase Transaction
The purchase of your new home is an exciting time. It can be quite overwhelming as well. From signing the Agreement of Purchase and Sale to executing the final closing documents is a process. At Nava Wilson LLP, we are here to make that process as smooth as possible. While we have our responsibilities, you, as the purchaser, need to be aware of what you need to get done as well. The purpose of this guide is to give you an oversight into the standard purchase transaction.
The Agreement of Purchase and Sale
An important aspect to any transaction, if not the most important, is signing the Agreement of Purchase and Sale (“Agreement”). The Agreement is contractual. It carries significant weight and it is what guides the entire transaction. Rarely can we deviate from it and drafting in the best possible way to suit your needs. This entails being aware of important clauses that have a significant impact on your purchase. First and foremost, who will be purchasing the premises? It is important to spell this out in the Agreement. A part of this requires an understanding of whose name the mortgage will be taken out under. A reason why purchasers amend the Agreement is to add a person on title to qualify for mortgage. Therefore, consult with your mortgage broker early on as whether you qualify for financing.
Secondly, while you have your trusted realtor to set dates, it is always prudent to be mindful of where the dates fall. For example, the date of closing cannot be on the weekend or a statutory holiday as the Land Registry office is closed on those days and we will not be complete deals. Equally important is title search dates or in other words, requisition dates. This is the date by which we can make enquiries into the state of title and cannot afford to miss them.
Thirdly, what items do you want included in your purchase? Are there particular items you want the sellers to leave on the property? Then, include them under “chattels” and ensure it is a condition that they be in “working order”. Are the hot water tank, furnace and/or air conditioning unit rental? Are you prepared to assume them? As the purchaser, it is likely that it is an added expense. Therefore, verify this information early on and make it a condition that these items are not rental.
What other conditions do you want in there? Do you require satisfactory inspection of the property by a certified property inspector? Make the Agreement conditional upon satisfactory inspection of the property. Typically, the Agreement is conditional for a period of five days until an inspection is carried out and this should always be to the sole satisfaction of the Purchaser. On the other hand, if you are unsure that you qualify for financing, make the Agreement conditional upon you securing financing to your sole satisfaction.
Equally important are Surveys. As a purchaser, you can be never be too sure when a Survey can come into handy. Often, you would require it when it comes to fencing or additions. It is helpful to make it a condition that the Seller provide you with an up to date Survey of the subject premises. Other considerations are whether there are any deficiencies or issues that need to be addressed by the Vendor before the closing of the transaction. If so, then these need to be included in Schedule A of the Agreement. Should the work not be completed out as per the Agreement, then it is grounds for us to seek a reduction in price – albeit, it may not be entirely successful and we may need to litigate down the road.
All too often Purchasers run into difficulties due to a multitude of reasons. For example, whether you wish to show that you are a married person. Please keep in mind that if we have acted for you in the past, we have to keep your spousal status consistent unless there truly has been a change in your marital status. At times, for different reasons, some clients don’t wish to declare that they are a spouse. This is problematic on different levels. For one, we would have to be inconsistent from the previous transactions. On the other hand, we would not be representing the lender faithfully because keep in mind, in the standard real estate transaction we represent the Borrower and Lender as lawyers. We have an obligation to disclose all material information to the Lender. Your spousal status is material. As well, if the subject premises is a Matrimonial home, your spouse has an interest in the property and will need to consent to the new mortgage. There simply is no other way in the absence of a divorce order.
Whether we complete the purchaser of your home or not is entirely dependant on financing. In the present economic conditions, it is not always possible for individuals to complete a purchase by way of cash. Thus, mortgages are crucial and mortgage brokers (if there is one) and you as the purchaser, have to be diligent in securing financing. If we are not in possession of mortgage instructions at least two days before closing, it is extremely difficult for us to complete your purchase. The reason being we need to complete a multitude of documents in accordance with the lender requirements in order to secure funding for the day of closing. In this respect, please ensure you seek the appropriate assistance well ahead of time – do not delay!
An open line of communication between yourself, the broker and our firm is absolutely crucial. We need to be kept in the loop as to what is happening. It is important to keep in mind that our firm has to be pro-active in ensuring that your transaction is not jeopardized. The failure to complete the transaction is a serious breach of contract. Simply not closing the transaction does not mean you can walk away. It carries significant financial consequences. Foremost, you could lose your deposit in its entirety and be liable for more damages if the Vendor can prove they have suffered damages greater than can be compensated by the deposit monies.
On the same note, we cannot complete a transaction without your cooperation. This means that you get us documentation within a reasonable time. For example, a transaction cannot close without your property insurance or fundamentally, without your closing funds. It also means that you be available to attend at our office to sign documents. Although we are extremely flexible in our timing, there are simply instances where we cannot accommodate you.
A lot of times, clients ask us when they will get a copy of the documents they have signed at our office. Typically, we are able to prepare a final report in a relatively short period of time but please be patient in busy times of the year as it may take 4-6 weeks for us to complete them.
The New Home – Signing the Agreement of Purchase and Sale
Purchasing a brand new condominium unit is fraught with many technicalities. More often than not, we see prospective buyers rush to sign an Agreement of Purchase and Sale in respect to a condo unit. However, how is one to determine if the Agreement signed is the right fit for them?
This is precisely the reason why statutory protection is found in section 73(1) of the Condominium Act – applicable only to Condominium units or those with common elements (i.e. town homes with a common roadway as a common element). The section sets out that a prospective purchase has the ability to rescind by way of writing [s.73(2)] within ten days of either having signed the Agreement of Purchase and Sale with the declarant [s.73(2)(a)] or having received the disclosure statement [s.73 (2) (b)]. Should you choose to terminate the APS, then the Vendor must refund all payments received without any penalty or deductions together with interest on the funds calculated at the prescribed rate from the date the declarant received the money to when the money is refunded.
This period is more often referred to as the “Solicitor-Review” or “Cooling-off” period.
However, this same protection is not afforded to purchasers of Free-hold homes. In any event, it is absolutely possible to negotiate a certain amount of time (i.e. 10 days) wherein the Agreement is conditional upon Solicitor Review. It is absolutely necessary to have the Agreement of Purchase and Sale reviewed by your Solicitor as soon as you have signed it.
What To Look For
The new freehold and condominium have common features. At the same time, they have different features and clauses to be scrutinized. As mentioned above, it is important to have both types of Agreements reviewed by a Solicitor.
Common to both agreements are costs to be adjusted on the final statement of adjustments or as more frequently referred to as “Closing-Costs”. This is where many purchasers are taken by surprise. Unless these costs are capped – meaning an amount which the cost cannot exceed – a purchaser is potentially looking at thousands of dollars extra on the date where title is transferred.
Closing costs contain both stipulated and unstipulated amounts. Most agreements will set out pre-determined costs for Tarion Warranty enrolment, NSF fees, Assignment costs and etc. These are not troublesome. However, we run into issues with Development Charges, Planning act charges, water metre installation charges among others. Purchasers are most drastically affected by Development charges. Such a scenario is demonstrated through the following example.
Recently, in respect to a condominium project, 40 purchasers were expecting closing costs to in the range of $5,000.00 and $12,000.00. However, on closing the collective purchasers were charged in the range of $20,000.00 and $60,000.00. According to a CBC report, purchasers were most affected by Development charges and HST – a matter to be addressed below.
In the foregoing example, had the Purchasers negotiated a cap on the Development charges, they would not have run into such a high amount on closing. However, they did not. A more challenging aspect is that Developers are not required to factor closing costs into sale prices. This leaves purchasers vulnerable to unexpected costs as did the Purchasers in the above example.
Apart from the above, it is important to scrutinize Agreements for any out of the ordinary clauses and a Solicitor is best placed to do this. For example, in a recent Agreement of Purchase and Sale there was a clause wherein any construction liens arising from an upgrade ordered by a Purchaser will be the responsibility of the Purchaser even though the upgrades are being carried out by the Vendor pursuant to the Agreement of Purchase and Sale. On the other hand, some vendors insert clauses where the Purchaser is prevented from listing the property (whether condo or freehold) for sale within a year after final closing. The effect of this is to reduce market competition in the subject subdivision or one that is being developed. However, Solicitors and Purchasers should be aware of these clauses and attempt to have them deleted from the Agreement. The reality remains that an individuals circumstances are subject to change and flexibility needs to be there.
Tarion Warranty – Condominium
What Is Tarion?
Tarion is a private corporation established in 1976 and administers the Ontario New Warranties Plan Act, a protective statute. The purpose of Tarion is to ensure that purchasers are protected under the statutory provision, homes are built according to standards and concerns are dealt with in a timely manner. There are also strict timelines that you as a purchaser need to abide by.
Whether it is a brand new freehold home or condominium, there is something called a Pre-delivery Inspection (“PDI”). The purpose of the PDI to conduct a walk through of the dwelling to inspect it and list any and all deficiencies. No matter how minor the deficiency may seem, it is your responsibility to list it. Should you fail to, you will not have a recourse down the road. As well, Vendors will permit you to send a representative in your place to conduct the PDI. However, we recommend that you – as the purchaser – carry t his task out on your own.
One Year Warranty
- Requires a home is constructed in a workman-like manner and free from defects in material;
- Protects against unauthorized substitutions
- Requires the home to be fit for habitation;
- Protects against Ontario Building Code violations; and
- Applies for one year, beginning on the home’s date of possession even if the home is sold.
Two Year Warranty
- Protects against water penetration through the basement or foundation walls;
- Protects against defects in materials that affect windows, doors and caulking and defects in work that results in water penetration into the building envelope;
- Covers defects in work or materials in the electrical, plumbing and heating delivery and distribution systems;
- Covers defects in work or materials that result in the detachment, displacement or deterioration of exterior cladding (such as brickwork, aluminum or vinyl siding);
- Protects against violations of the Ontario Building Code that affect health and safety; and
- Applies for two years, beginning on the home’s date of possession.
Seven Year Warranty
Your home’s seven year warranty covers major structural defects (MSD) and begins on the date you take possession of the home and ends on the day before the seventh anniversary of that date.
For example, if your home’s date of possession is October 23, 2005, the seven year MSD warranty begins on October 23, 2005 and remains in effect until and including October 22, 2012.
A major structural defect is defined in the The Ontario New Home Warranties Plan Act as:
In respect of a post June 30, 2012 home, any defect in work or materials in respect of a building, including a crack, distortion or displacement of a structural load-bearing element of the building, if it,
(i) results in failure of a structural load-bearing element of the building,
(ii) materially and adversely affects the ability of a structural load-bearing element of the building to carry, bear and resist applicable structural loads for the usual and ordinary service life of the element, or
(iii) materially and adversely affects the use of a significant portion of the building for usual and ordinary purposes of a residential dwelling and having regard to any specific use provisions set out in the purchase agreement for the home
The seven year MSD warranty includes significant damage due to soil movement*, major cracks in basement walls, collapse or serious distortion of joints or roof structure and chemical failure of materials.
In addition to the general exclusions, the seven year MSD warranty specifically excludes: dampness not arising from failure of a load-bearing portion of the building; damage to drains or services; and damage to finishes.
Please note the content on this web site is provided for general information purposes only and does not constitute legal or other professional advice of any kind.