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Real Estate

Understanding the Standard Agreement of Purchase and Sale – Part 1

Often my clients have their realtors prepare their agreements of purchase and sale without fully understanding the clauses that are inserted. Most real estate clauses contained in the schedules of the standard Ontario Real Estate Association (OREA) Form have become very standard however, purchasers and vendors should be aware of what is contained in their agreements. Below are some of the items to look out for on a standard real estate agreement.

Any clause where a warranty or representation is made and states “this warranty shall survive and not merge on the completion of the transaction” means that whoever is making that warranty or representation is liable for that statement after closing is complete. Vendors should never make any statements they do not have control over after they have transferred their property. Generally a vendor does not want any representations and warranties to survive, while a purchaser wants all representations and warranties to survive. Therefore drafting the agreement is a give and take proposition and both sides should decide what provisions are absolutely important to survive and which are not.

Agreements are typically conditional on financing. In the past, the standard clause stated that the purchaser would use “all reasonable efforts” to obtain financing. This put the onus on the purchaser to actually try their best and only fail the condition if in fact no financing was available to them. Today this clause has changed in the purchaser’s favour by dropping the “reasonable efforts” provision and adding “financing satisfactory to the buyer in the Buyer’s sole and absolute discretion.”   At first glance, this new form may give a purchaser a wider discretion to escape from the agreement because the purchaser can blame higher than expected interest rates as a reason to not go ahead with the transaction, however, the courts are still insisting that a purchaser use best and reasonable efforts before walking away.

When other property inside or outside the real property is important, make sure that the items to be included and excluded are spelled out. Generally chattels are movable objects such as appliances, and fixtures are affixed to the property such as awnings, however, differing interpretations of what is affixed and what is movable still persist. Purchasers and vendors should take care in describing exactly what is included and or excluded in the purchase price under the agreement of purchase and sale.

A recent development and an important one is a clause regarding growth and manufacturing of illegal substances. The provision generally represents and warrants that the property was not used in such activities. Properties that were used for the growth and manufacturing of illegal substances can contain health hazards such as mold, and problems with electrical and ventilation systems. In Ontario, indoor marijuana grow operations are prevalent thus making this clause extremely relevant.

Sometimes realtors throw in clauses that may unnecessarily burden the vendor such as the duty for the vendor to provide serial numbers to appliances, phone numbers to service providers, three sets of keys and remotes for garages, etc. and for an immaculately clean property after vacancy. Unless these items are absolutely important to the purchaser and the vendor does not mind obliging, these concerns should not be included but rather courtesy and common sense should prevail.

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