TABLE OF CONTENTS
- The Agreement of Purchase and Sale (resale homes)
- Before you sign the Agreement of Purchase and Sale
- The initial meeting with your lawyer
- The lawyer's role in the real estate transaction
- Your role in the real estate transaction
- The signing up meeting with the Lawyer
- The Closing Date
- The Post Closing
The Agreement of Purchase and Sale, is the contract executed between a Purchaser and Vendor of real estate property and sets out the various terms and conditions that the parties have agreed upon. In the majority of cases, the Agreement is prepared by a real estate agent using one of the standard pre-printed forms. The first part of the Agreement typically sets out the parties to the contract, the legal and municipal description of the property, the purchaser price for the property, and the amount of the deposit provided by the Purchaser.
The next section of the Agreement consists of a blank area where special clauses, applicable to the particular transaction, are often inserted by the parties or their agents. There are many clauses which may be inserted into this area, such as clauses in favour of the Purchaser which make the Agreement conditional until certain conditions are fulfilled, such as a condition that the Purchaser be able to obtain satisfactory financing within a certain period of time, or that the Purchaser be satisfied upon the results of a home inspector's report. Other clauses may provide for the Purchaser being able to assume the Vendor's existing mortgage or to give back a mortgage to the Vendor.
The next section of the Agreement deals with what chattels (such as curtains, furniture, appliances etc.) are to be included in the Purchase Price, and which fixtures (e.g. dining room chandelier) are to be specifically excluded. The general rule is, unless specified to the contrary, all chattels are excluded from the Purchase Price, while all fixtures are included in the Purchaser Price. This section also sets out any equipment located on the property which is rented and therefore not included in the Purchaser Price (e.g. hot water tank, furnaces and equipment etc) and the Purchaser usually assumes the rental contract.
The next section of the Agreement deals with significant dates pertaining to the transaction, such as the date upon which the Agreement becomes final and binding, the closing of the transaction and the date by which the Purchaser's lawyer must have investigated title to the property and requisitioned any deficiencies from the Vendor's lawyer. If at all possible, it is best to avoid having a closing date at the end of the month, especially during the summer, as these are the busiest days in the year for real estate closings. Closings are often delayed or do not occur at all due to the heavy volume on these days. Keys are often not available until late in the afternoon or sometimes even in the evening, causing the actual moving in to be very frustrating and stressful. Furthermore there are usually extra costs resulting from late closings, including the cost of having your moving truck and movers sitting in the driveway to your new home waiting for the keys to arrive, and, in rare cases, the cost of accommodation and storage of your possessions in the event that the closing does not occur on the scheduled date. Your lawyer will be able to discuss these matters with you and suggest appropriate closing dates which will minimize any disruption to you.
The next section of the Agreement sets out the remainder of the pre-printed clauses which will govern the transaction, including representations as to the legal uses for the property, the obligations imposed on the Vendor to discharge certain encumbrances affecting the property, and warranties to the effect that the property has not been insulated by Urea-formaldehyde Foam Insulation.
The remaining section of the Agreement is for the parties and their spouses to sign in order to make the Agreement binding.
Before you sign the Agreement of Purchase and Sale, it is an excellent idea for you to review the Agreement with a Real Estate Lawyer, who will explain to you all the fine print in the document, and who may be able to suggest the addition of further clauses to the Agreement to better protect your interests, such as a clause that the Purchaser is purchasing the property in an "as is" condition, and that the Vendor is not making any representations as to the legality of any structures located on the property. In order to assist the lawyer with the preparation or review of the Agreement of Purchase and Sale, this is the time to provide the lawyer with the original Transfer/Deed of Land to the property, copies of any mortgages registered against title to the property, the original survey for the property, and a copy of the last realty tax bill.
Mortgages registered against the property are usually discharged out of the sale proceeds. However, in certain cases where the mortgage interest rate is low and the mortgage can be assumed by the Purchaser, it may be advantageous for both the Vendor and the Purchaser to cooperate in ensuring that the Purchaser is approved by the financial institution to assume the mortgage. The Vendor avoids having pre-payment penalties, if this is not an “open” mortgage, which could cost thousands of dollars, and the Purchaser assumes an existing mortgage at a low interest rate, and with the expenditure of a minimum of fees. There is a drawback here for the Vendor in that the Vendor usually remains liable on the mortgage in the event of a default by the Purchaser unless the Vendor is able to obtain a release of the Vendor’s covenants under the mortgage from the Mortgagee. In the event that the Purchaser is unable to qualify for normal mortgage financing, and, provided that the Vendor is prepared to take the risk, the parties could negotiate a clause in the Agreement where the Vendor agrees to take back a first or second mortgage from the Purchaser. This ensures that the Vendor is able to sell the property without having to wait for the Purchaser to qualify for regular financing, and often is able to benefit from a higher than market rate on the vendor take-back mortgage. The Purchaser has the benefit of being able to afford a home in cases where the Purchaser would not normally have qualified for mortgage financing. Careful and thoughtful drafting of the Agreement of Purchase and Sale in cases where assumable or vendor take-back mortgages are applicable could therefore be of significant advantage to both parties in the transaction.
The initial meeting with your lawyer occurs once the Agreement has been signed, and is for the purpose of gathering and exchanging information about the property being sold and about the vendor. For the initial meeting, in addition to bringing the accepted Agreement of Purchase and Sale with you, you should also have certain information available to be given to your lawyer in order to better assist him/her. This would include providing the lawyer with the original Transfer/Deed of Land to the property, copies of any mortgages registered against title to the property, the original survey for the property, and a copy of the last realty tax bill.
At the conclusion of the meeting, you will usually sign a retainer agreement with the lawyer which indicates that you have retained the lawyer to act for you in the transaction, sets out the duties and responsibilities of the lawyer, and sets out the fees and disbursements which will be charged. This information will be summarized in the retainer letter which will be given to you or mailed to your home, following the initial meeting.
The Lawyer's Role in the Transaction has many aspects, and consists of reviewing the Agreement of Purchase and Sale in order to understand the transaction, receiving and replying to any inquiries or requisitions made by the Purchaser's lawyer, preparing the sale documentation including the Transfer/Deed of Land and the Statement of Adjustment which adjusts for the overpayment or underpayment of any property taxes and for fuel oil, if necessary. In addition, the lawyer arranges to obtain a mortgage discharge statement for any mortgages which are to be discharged, reviews the documentation forwarded by the Purchaser’s lawyer to be signed by the Vendor to ensure that the Vendor is legally required to sign the documentation, meets with the Vendor to review and sign the sale documentation and attends, or arranges for his agent to attend, at the Land Registry Office to complete the sale of the property. On the day of closing, or on the next business day, the lawyer forwards to the financial institution the funds necessary to discharge the mortgage registered against the property, and forwards to the real estate agent the balance of any real estate commission which may be owing. The balance of the sale proceeds are usually provided to the Vendor on the day of closing. At some point following the closing of the transaction, the lawyer will be provided with a discharge of the mortgage to be registered on title.
Your role in the real estate transaction will consist of providing the lawyer with all the documentation pertaining to the property including the Transfer/Deed of Land, copies of any registered mortgages, the survey, contacting the various utility companies to advise them of the sale of the property, and arranging for the cancellation of telephone, cable and insurance coverage.
The Signing up Meeting with the Lawyer will usually occur a few days before the closing date. At the meeting the lawyer will review the sale documentation and assuming that no problems were found, the documentation will be signed by the Vendor, and the Vendor will provide the lawyer with the keys to the property.
The Closing Date represents the culmination of the lawyer's role in the transaction. The Vendor's lawyer, or the lawyer’s agent, will meet with the Purchaser's lawyer, or the lawyer’s agent, in the land Registry Office where the property is registered. After the various closing documentation, keys and money are exchanged and the Purchaser's lawyer registers the Transfer/Deed of land which gives the Purchaser legal title to the property, the Vendor’s lawyer or agent returns the sale proceeds to his office.
The Post Closing period consists of the Vendor picking up the sale proceeds from the office of the lawyer, followed by the Lawyer providing the Vendor with a Reporting Letter containing the Lawyer's report and copies of all the documentation received, sent or signed pertaining to the transaction.