What is the Difference Between an Agreement for Sale and an Agreement of Purchase and Sale?
The concept of an Agreement for Sale must be distinguished from an Agreement of Purchase and Sale. Under the latter, there is generally one date on which the purchaser takes possession and acquires ownership. The purchaser pays the balance due on closing usually by arranging mortgage financing. The vendor pays off his existing mortgages and obtains discharges.
Under an Agreement for Sale on the other hand, there are always two relevant dates. On the first date, the purchaser takes possession of the property and registers the Agreement for Sale in order to protect his interest. Land Transfer Tax is payable upon registration. The purchaser provides the vendor with post-dated cheques that represent the payments on the balance outstanding. On the second date, the purchaser obtains ownership and pays the balance due on closing and the vendor discharges his mortgage.
This method can be viewed as a conveyance and a simultaneous vendor take back mortgage, but offers increased protection to a vendor where a purchaser has a very small down payment. If the purchaser defaults under a vendor take back mortgage, the vendor must proceed either by way of power of sale or by foreclosure. Under an Agreement for Sale, the vendor retains ownership until the balance due is paid in full and therefore, if a purchaser defaults, the vendor merely has to terminate the Agreement for Sale and evict the purchaser.
An Agreement for Sale is especially useful when the vendor cannot discharge his existing mortgages or must face heavy penalties for doing so.
The comments contained in this article provide a brief overview only and should not be regarded or relied upon as legal advice or opinion. Debra J. Sweetman would be pleased to provide more information or specific advice on matters of interest to readers.
Written by Debra J. Sweetman, B.Sc., LL.B., is a member of Marie G. Michaels & Associates.