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Real Estate

Real Estate Law: Provisions in the Agreement of Purchase and Sale: Time for Searches, Future Use, Title, Schedules

Time for searches

Before closing a real estate transaction, a real estate lawyer will need time to search title, executions and make off-title searches or inquiries.  The title search date in the OREA Agreement sets out the date in which a lawyer has time to do the searches and request that the Vendor’s lawyer rectify any on title or off-title deficiencies.   Should the contract fail to provide a specific time period for submitting requisitions, there a statutory date set in Section 4 of the Vendors and Purchasers Act which prescribes a 30-day period from the date of the contract.  It is important to give lawyers on both sides enough time to make and reply to requisitions because if there is a matter that cannot be resolved such as a lien that cannot be satisfied, the contract can be terminated or delayed.  Sometimes, lawyers will disagree as to whether the requisition is a valid one and whether failure to satisfy the requisition can terminate or delay a deal.  In these cases, there is recourse under the  Vendors and Purchasers Act.

In clause 8 of the OREA form, two time periods for searches are given.   The first period is  referred to as the “Requisition Date”, and is meant to allow the buyer and the buyer’s solicitor to examine title and submit any requisitions revealed by this title and off-title search.  A maximum of 30 days after the requisition date is given is the second time period, which is never more than five days prior to the completion date.  Usually, non-title matters are the subjects of the searches conducted under this section. This second period is provided to search for work orders, to determine if the use of the property as set out may be lawfully continued and to inquire whether the principal building on the property could be insured against risk of fire and peril. Searches for outstanding work orders or deficiency notices from the municipality may take some time depending on the response time of the relevant department.  If a title matter goes to the root of title, a purchaser’s solicitor is entitled to bring it up at any time before the closing date no matter what is stipulated in the agreement because a root of title issue is one that questions the vendor’s lawful right to sell the property.  Outstanding executions or a planning act violation is an example of a root of title issue.

An opportunity is provided by the Agreement to determine whether or not fire insurance coverage can be arranged, because getting fire insurance coverage has become increasingly challenging.  It may be appropriate to consider a condition in the Agreement that will expire, allowing the buyer to investigate the ability to arrange for coverage at the outset of the transaction.  Most lender’s will not give mortgages to properties that cannot be insured against fire and peril.

Future use

Should the buyer be contemplating a use different from the permitted one, it is incumbent upon the buyer’s solicitor to make the Agreement conditional upon being able to obtain permission for the change of use, or being able to determine that the current zoning will permit this use which the buyer intends it for.  This clause can indemnify the vendor for any verbal assurances of the potential use of the property.

Title

This provision puts the onus on the seller to provide good title, free from all registered restrictions, charges, liens and encumbrances except those that are listed in subparagraphs (a) to (d). Subparagraph (a) excepts any registered restrictions or covenants that run with the land provided they are complied with. For instance, many subdivisions are subject to restrictions prohibiting the operation of businesses, the placing of television antennas on properties, the plating of trees, the hanging of clothes lines, etc.  It is possible that the buyer could be unaware of these restrictions or covenants when submitting an offer to purchase. Should the buyer have a specific use in mind, it would be appropriate to make the offer conditional upon being able to accommodate that need. In such a situation, it is not uncommon to delete subparagraph (a).  Other instruments that generally remain on title and pass with the property are: airport notices, subdivisions agreements (that are not expired), registered easements for utility companies and or municipalities and certain municipal by-laws.  Another important note is swimming pools; If a purchaser is intending to build a swimming pool in the subject property only to discover possible restrictions due to unregistered easements (buried pipes and wires), the purchaser will not have recourse against the vendor.  If this is important to the purchaser, the purchaser should make the proper inquiries before the agreement becomes binding.

Schedules

Agreements generally include Schedules with additional provisions such as further conditions, representations and warranties, and other  provisions such as; to provide a copy of the survey (as a means of disclosing encroachments, dimensions or rights of way), and other terms of the contract. The terms of the Agreement preceding the statement as to schedules is preceded by something like this: “Buyer agrees to pay the balance as more particularly set out in Schedule A (part of Appendix A).” It would be appropriate to mention in the Schedule the terms of payment. Should the seller be providing financing to the buyer, this clause would be preceded by a paragraph outlining the terms. It is also necessary to clearly mention any conditions or rights to terminate regarding any other financing that the buyer is going to require in order to complete this transaction.

While drafting conditions, it is imperative that the wording is clear and correct. There are a number of different elements required for a condition to be effective. Firstly, the time frame has to be clear. (How long does the party, for whose benefit the condition is inserted, have to fulfill the requirements?) Secondly, the terms of the condition should be defined clearly. Whether it is for financing or a home inspection, an accurate description of what is being sought should be provided. Thirdly, a means of notice for fulfillment, waiver or non-fulfillment of the condition should be provided. Fourthly, a clause stating that if the condition is not met, the deposit is to be returned to the buyer, should be there.   It would be appropriate to include a waiver allowing the party, for whose benefit the condition was inserted, the option of continuing with the transaction even if the condition is not fulfilled.

Lastly, schedules supersede anything in the standard form, therefore what is written in those schedules is extremely important especially if there are conflicting provisions between the standard form and the schedules.  The rule of thumb is, when in doubt, spell it out!

If you have any questions with regards to your agreement of purchase and sale, contact one of the lawyers at Levy Zavet for a free agreement review.

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