Understanding the Agreement of Purchase and Sale
Did you ever wonder what all the fine print meant on the pre-printed form when buying or selling a house? This article covers each clause of the Ontario Real Estate Association form.
Firstly, the full legal names of the buyer(s) and seller(s) are set out. This is followed by the description of the property which should be obtained from the current deed or the survey in order to be accurate. The purchase price is set out in words and in numbers in order to avoid errors.
The deposit is set out. If the deposit is to be paid “Herewith” it means it is provided with the offer. If the deposit is to be paid “Upon Acceptance” it is to be provided within 24 hours of acceptance of the agreement. No deposit is necessary, however, it is thought that it shows good faith on the part of the buyer. The agreement can provide for interest on the deposit to be paid to the seller or the buyer. If there is no such provision, neither party gets the interest. The deposit should be made payable to a real estate broker or a lawyer, in trust; it should never be made payable to the seller personally. It is possible to have more than one deposit paid.
Schedule “A” to the agreement should contain a clause that provides for the payment of the balance of the purchase price, subject to adjustments [see paragraph 18 below for an explanation of this term], in cash or by certified cheque, to the seller on the completion of the transaction.
1. Irrevocability: The person making the offer must keep the offer open to this date. After that date, the offer is no longer open for acceptance. Also, where the other party makes a counteroffer, the original offer is no longer open for acceptance.
2. Completion Date: The date of closing cannot be a Saturday, Sunday or statutory holiday. The property is to be vacant upon closing unless tenancies are set out in the agreement. It is wise to attach a schedule stating the duration of any tenancies, rents, security deposits, date of last rent increase, and appliances/amenities included in the lease. Closing cannot occur until the buyer’s lawyer has funds. This is often in the afternoon especially on busy closing days.
3. Notices: Once the contract is finalized the listing broker has the authority to give and receive notices on behalf of the seller and the buyer’s broker has the authority to give and receive notices on behalf of the buyer except where the broker represents both buyer and seller. This paragraph also allows for delivery by fax or email only if the fax or email address is included.
4. Chattels Included & 5. Fixtures Excluded: It is often difficult to determine what is included and what is excluded from the contract. Where there is any doubt, any item to be excluded should be set out (water heaters, water softeners, rented appliances where the buyer is not assuming the rental contract) and any item to be included should be spelled out (chandeliers, broadloom, mailbox, T.V. antenna, birdbath, storm windows, curtain rods, drapery tracks, mirrors, pool equipment and supplies). Whether something is a chattel or a fixture depends upon the degree it is attached to the property and on the purpose of attachment (i.e., for personal convenience or for the benefit of the property). Obviously, there is much room for disagreement.
6. Rental Items: Where an item is a rental it should be excluded in paragraph 5 or listed here if the buyer is assuming the rental contract. The terms of any rental contract should be spelled out and a copy of the contract attached as a schedule. A warranty should be provided that there are no arrears in rental payments.
7. HST: HST may or may not be included in the purchase price. The seller will sign a declaration that no HST is payable if that is the case. HST on chattels is no included in the purchase price.
8. Title Search: The buyer’s solicitor conducts various searches. Most searches are to be performed by the date set out. Work orders, deficiency notices, zoning and fire insurance, are subject to the second date in the paragraph. The present zoning of the property is to be set out. The wording of the zoning should be the same as that of the applicable zoning bylaw.
9. Future Use: If the buyer intends to use the property for a different purpose than it is currently used for, the seller is not promising that this is legal. For example, amendments may have to be made to the Official Plan or zoning bylaws, or an application may have to be made to the Committee of Adjustments. This all takes time and costs money.
10. Title: The buyer must take title subject to the following:
(a) any registered restrictions or covenants provided that such are complied with (for example, a restriction that the owner cannot alter the drainage or the grading to the property);
(b) any registered agreements with a municipality or a supplier of public utility service including provided such have been complied with or security posted (for example, a subdivision agreement with the town or city);
(c) minor easements for the supply of household utility or telephone service to the property or to adjacent properties (for example, a hydro easement over the rear 10 feet or side 4 feet of the property); and
(d) any easement for drainage, sewers, public utility lines, telephone lines etc. that does not materially affect the present use of the property.
So, for example, if the buyer wants to install a swimming pool, it is important that the agreement be amended to provide for this or that searches be performed before the offer is made to ensure that this is possible.
If a title problem, work order, deficiency notice, zoning problem, or insurance issue is found within the allowable search period, the seller is to obtain title insurance or otherwise remedy the problem, unless the seller is unable or unwilling to do so in which case the agreement is at an end, although the buyer may consent to proceed without the matter being remedied. The final sentence makes it clear that the requisition date does not apply in the case of an objection that goes to the root of title, such as a mortgage.
11. Closing Arrangements: Most transactions are completed by electronic registration of the deed and any mortgage. Usually any documents and funds are delivered by courier and the lawyers never meet.
12. Documents and Discharge: The seller must give the buyer all documents in the seller’s possession including, statutory declarations, affidavits, and a building location survey if requested. The seller has no obligation to provide any survey unless one is in the seller’s possession. This paragraph also states that private mortgages must be discharged at closing while institutional mortgages may be discharged at a later date.
13. Inspection: Once one party accepts the other party’s offer, it is a binding contract. The buyer may have recourse if the buyer was prevented from making a proper inspection, or if the seller actively concealed a defect or misrepresented the state of the property. Also, there may be implied conditions, for example, that the property is fit for human habitation. Aside from these exceptions, any defect that exists at the time the offer is made is the buyer’s problem; any damage occurring after the time of acceptance is seller’s problem. It must be kept in mind that reasonable wear and tear will occur. Unless the buyer has made the agreement conditional upon a home inspection, this paragraph states that there will be no inspection.
14. Insurance: The seller is liable for any damage that occurs to the property after the date the contract is entered into. If substantial damage occurs to the property, the buyer can either refuse to complete the transaction or can take the insurance proceeds and complete the deal. The buyer is not to assume the seller’s insurance. The buyer must prove there is sufficient insurance to cover any mortgages taken back or being assumed.
15. Planning Act: Where a seller owns land adjoining the land being sold, the seller must obtain a severance unless the land being sold is the whole of a lot or block on a registered plan of subdivision. This takes time and costs money.
16. Document Preparation: The seller prepares the deed. The buyer prepares the land transfer tax affidavit and any mortgages. If the buyer requests, the Planning Act statements in the deed must be signed by the seller and seller’s lawyer indicating that there is no Planning Act violation. The buyer’s lawyer also signs this. Traditionally, the seller pays for the registration of any vendor take back mortgage (a mortgage the seller is going to hold on the property) although this is not stated in the agreement.
17. Residency: The seller must provide a declaration that the seller is a resident of Canada. Where the seller is not a resident of Canada, the seller must provide the buyer with a certificate of exemption under the Income Tax Act. Otherwise, the buyer must withhold an amount in accordance with the Income Tax Act.
18. Adjustments: There are several items that will be adjusted prior to closing: prepaid rent; last month’s deposit; 6% interest on deposit; the principal and interest of a mortgage being assumed; taxes and local improvements; full oil or propane tank; ONHWP (HUDAC) on a brand new house; common expenses on a condominium. The day of closing is paid for by the buyer.
19. Property Assessment: If the property is reassessed for property tax purposes, no claim will be made except regarding property taxes accruing prior to closing.
20. Time Limits: Any dates or times set out in the agreement must be adhered to and each party should proceed promptly unless an extension is agreed to in writing.
21. Tender: The seller’s solicitor may meet with the buyer’s solicitor instead of the seller meeting with the buyer in order to exchange keys, money, and the deed and other documents. Any funds must be paid from a lawyer’s trust account by way of a bank draft, certified cheque or wire transfer.
22. Family Law Act: The seller is stating that if this is the seller’s matrimonial home, that the seller’s spouse has signed the agreement of purchase and sale or has released any rights in the matrimonial home in a separation agreement.
23. UFFI: The seller has not installed Urea Formaldehyde Foam Insulation and to the best of the seller’s knowledge, no one else ever has.
24. Legal, Accounting and Environmental Advice: The broker has not provided any legal, accounting or environmental advice. Therefore, the buyer and seller should retain the appropriate professional(s) where warranted.
25. Consumer Reports: Under the Consumer Reporting Act, the seller must notify the buyer if a credit report or personal information report is to be obtained. This applies where the seller is taking back a mortgage or where the buyer must qualify to assume the mortgage.
26. Agreement in Writing: If clauses are added to the agreement that contradict the pre-printed clauses, this added clause prevails. This is especially important in a purchase under power of sale and with respect to whether a survey will be provided to the buyer. Nothing has been stated or agreed upon that has not been set out in the contract.
27. Time and Date: Any reference to time and date refers to the time and date where the property is located rather than where the buyer or seller is located.
28. Successors and Assigns: Should the seller or buyer die or assign the agreement to someone else, the successors and assigns of the seller and buyer are bound by the agreement. This does not give a right of assignment, however.
There is no mandatory requirement for a witness but it is evidence of the identity of the signer.
The seller is accepting the buyer’s offer (note the seller would still sign here when making an offer or counteroffer to the buyer and would not be accepting the buyer’s offer in that case) and directing the seller’s solicitor to pay any real estate commission due to the listing broker.
Spousal Consent: If this is the seller’s matrimonial home and the seller’s spouse is not an owner of the property, the seller’s spouse signs here to release rights to possession under the Family Law Act. The two dollars is required to have the spouse bound to the contract.
Confirmation of Acceptance: It is often difficult to determine what date and time the agreement was finally accepted and by whom.
The information on brokerages is self-explanatory. Separate documentation will have been signed to clarify the agency relationships.
The acknowledgement of receipt is filled out so the agent has proof of delivery and so that each solicitor has a record of the address and phone number of the seller and buyer.
The commission trust agreement protects the selling broker if the listing broker declares bankruptcy.
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.