buying and selling residential real estate in ontario

Michael Carabash, B.A., LL.B., J.D., M.B.A. [email protected]

Joseph Khlaif, B. Comm [email protected]

Prepared By: of 42

Michael Carabash

Joseph Khlaif

Buying and Selling Residential Real Estate in Ontario

DISCLAIMER: Please note that the information provided in this eBook is NOT legal advice and is provided

for educational purposes only. If you need legal advice with respect to buying, selling or renting real estate,

you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa,

Hamilton, Brampton, Mississauga and other Ontario real estate lawyers registered to help you with your

purchase, sale, and lease of real estate. If you need legal advice with respect to resolving a real estate dispute,

you can contact Michael Carabash directly at [email protected].

January 2010

http://www.dynamiclawyers.com/

mailto:[email protected]



Buying and Selling Residential Real Estate in Ontario of 42

Table of Contents

Introduction .................................................................................................................................................... 3

Organized Real Estate .................................................................................................................................... 3

Is a Realtor Required? .................................................................................................................................... 4

What does a Realtor do for a Buyer? .............................................................................................................. 6

What does a Realtor do for a Seller? .............................................................................................................. 7

Legal Obligations of Realtors ......................................................................................................................... 9

Realtor Commissions .................................................................................................................................... 12

Referral Fees between Lawyers and Realtors ............................................................................................... 14

Buyer Representation Agreements ............................................................................................................... 17

Stages of Buying and Selling Real Estate .................................................................................................... 19

Agreement of Purchase and Sale .................................................................................................................. 20

Status Certificates for Condo Purchases ....................................................................................................... 33

Title Insurance .............................................................................................................................................. 35

Backing Out .................................................................................................................................................. 35

Defaulting on Your Mortgage ...................................................................................................................... 36

Victims of Real Estate Fraud ........................................................................................................................ 38

About Us ....................................................................................................................................................... 42




Introduction

Many people don‟t understand the process of buying and selling residential real estate in Ontario. Who are

the players in the industry? What are their roles and responsibilities? What is the process of buying and

selling residential real estate? What issues should you be aware of when negotiating a deal? What are the

standard terms in an Agreement of Purchase and Sale? These and other questions are common, but not

always answered. Sometimes, a lack or absence of communication can result in costly mistakes and even

litigation. That‟s why we come up with the idea of writing this eBook. Through it, we hope to shed some

valuable insight into these and other questions that may come to mind when you‟re getting serious about

buying and selling residential real estate in Ontario. Remember: if you‟re looking for a Greater Toronto Area

Realtor, contact Joseph Khlaif directly at [email protected]. If you‟re looking for an Ontario lawyer to

help you with your real estate needs, make a post on Dynamic Lawyers.

Organized Real Estate

We begin this eBook with the overview of how real estate is organized in Ontario. In a nutshell, the industry

is made up of brokerages, brokers, salespersons, the designated government authority, and federal,

provincial and local real estate associations and boards. Each so called “actor” will be examined in turn.

Real estate brokerages are businesses (e.g. sole proprietorship, partnership, corporation, etc.) that are

licensed to trade in real estate under the Real Estate Business and Brokers Act, 2002, S.O. 2002, c. 30, Sch.

C.

Each real estate brokerage must have a “broker of record”, who is registered as a broker under the Act and

employed by the brokerage to trade in real estate. Real estate salespersons are individuals who are

registered as salespersons under the Act and who are employed by a brokerage to trade in real estate. Real

estate brokers and salespersons are also referred to as Realtors, a trademark owned by the Canadian Real

Estate Association (discussed below).

The Real Estate Council of Ontario (“RECO”) is the designated government authority charged with

administering the Act. RECO‟s mandate is twofold: (1) administer the regulatory requirements of the real

estate industry (as determined by the Government of Ontario) and (2) protect consumers and members

through a fair, safe and informed marketplace.

mailto:[email protected]





The Canadian Real Estate Association (“CREA”) is a federal association representing more than 96,000

real estate brokers and salespeople working through more than 100 real estate boards nation-wide. CREA‟s

responsibilities include national and international representation of the Canadian real estate industry, and the

maintenance, protection and standards for certification marks and trademarks (e.g. REALTOR and MLS,

discussed below). CREA has its own Code of Ethics, Privacy Code, and Standards of Business Practice,

which it requires Realtors to follow and which are implemented at the local real estate board level.

The Ontario Real Estate Association (“OREA”) is a provincial association representing Ontario‟s 45,000

brokers and salesperson who are members of the province‟s 42 real estate boards. OREA provides all real

estate licensing and training courses in Ontario. OREA serves its members through educational programs,

publications (e.g. standard forms), and special services (e.g. resolving disputes between local real estate

boards). Finally, OREA acts as a liaison between its members and the Ontario government.

Finally, local real estate boards (e.g. the Toronto Real Estate Board) are responsible for the maintaining

the local Multiple Listing Service (“MLS”) – a comprehensive online gateway of real estate listings and

services accessible only to Realtors. Local real estate boards:

determine membership prerequisites;

process memberships;

develop and implement regulations that support CREA‟s national policies;

enforce CREA‟s Code of Ethics and the Standards of Business Practice;

provide an arbitration service to resolve disputes between members;

ensures local industry representation; and

works in liaison with OREA and CREA.

Realtors must be a concurrent member of a local real estate board, OREA, and CREA.

Is a Realtor Required?

Now that you have an understand of the different players in the Ontario residential real estate industry, an

obvious question is: do I need to engage a Realtor to buy and sell residential property? In a word, “no”:

there is no legal requirement for property buyers or sellers to retain the services of a Realtor.




All you‟ll need is a lawyer‟s help to register title, do the due diligence (e.g. title search, requisitions, etc.), get

title insurance, and close the deal. According to s. 5 of the Ontario Real Estate Business and Brokers Act,

2002, “a person, on the person‟s own account, in respect of the person‟s interest in real estate” does not need

to register in respect of any trade in real estate.

These things being said, it makes SENSE to have a real estate agent at your service. If you are buying

property and find something you like registered on MLS, you WILL need a Realtor in order to pursue that

property. The reason being that MLS is owned and operated by the Canadian Real Estate Association and the

National Association of Realtors. Only Realtors can use MLS to list properties and only individuals who

have Realtors can place offers on MLS listed properties.

When all is said and done, if you‟re looking to purchase a home, a Realtor can help you:

Find the right type of home at the right price;

Prepare and present your offer to purchase;

Handle paperwork (forms and documentation);

Advise on the market value of the home;

Explain the responsibilities you have as a buyer;

Automatically forward you new MLS listing of homes matching your criteria; and

Negotiate a deal in your best interest.

There is no direct cost to the buyer for the real estate agent‟s services: this is paid out of the purchase price by

the seller.

If you‟re looking to sell your home, a Realtor can help you:

Avoid alienating yourself (because real estate agents representing buyers will not work with you

unless you have an agent);

Advise on the market value of the home;

Explain the responsibilities you have as a seller;

Host open houses;

Add your property to the MLS listing so that all agents in Ontario can see it;

Market your property through advertisements, websites, direct mail, brochures, etc.; and

Negotiate a deal.




It‟s always recommended to have a Realtor and a lawyer advising you on the proper way to buy or sell

property. While you can try to do most of the work yourself using for sale by owner services, the market

hasn‟t taken hold of this idea and there‟s a long way to go to eliminate Realtor services altogether.

What does a Realtor do for a Buyer?

A Realtor is initially engaged by a buyer to help find the right type of home at the right price. Once a suitable

home has been found, the buyer will ask their Realtor to prepare an offer, which it typically done using the

OREA‟s standard form Agreement of Purchase and Sale. The Realtor will advise on the comparative market

value of the home and discuss negotiation strategy, the responsibilities of the buyer, and various standard and

non-standard terms and conditions in the agreement.

As will be discussed below, a Buyer Representation Agreement must be entered into at any time prior to an

offer being made by the buyer‟ Realtor. Also provided with the offer is OREA‟s standard form Confirmation

of Co-Operation and Representation. This document identifies the buyer, seller, their respective brokerages

and Realtors, and the relationship between those parties. It also indicates what and how commissions are to

be paid upon closing. Typically, commissions are paid by the listing brokerage to the buyer‟s brokerage, and

from there to the buyer‟s Realtor.

When the offer is finalized and signed by the buyer, the Realtor will call the listing brokerage and verbally

register an offer. The Realtor will then get in touch with the broker or salesperson who listed the property on

MLS. Arrangements will be made between the buyer and seller‟s Realtors to deliver or present the offer.

Negotiations and counter-offers take place until an agreement is reached or the deal falls through.

More than likely, an offer will be agreed upon with conditions that must be satisfied for the deal to close. At

this point, the property is commonly known as being “Sold Conditionally”. Buyers will often offer to

purchase provided they are able to sell their current home or arrange suitable mortgage financing. A buyer

may also include a condition to buy the home subject to a satisfactory home inspection, or subject to a zoning

change or other municipal approval. To be legally binding, the condition must be specifically written into the

offer to purchase.




Conditional offers can effectively reduce risks for the purchaser. They are less attractive to sellers, however,

and may not be accepted. For example, in “hot” real estate markets, sellers may not accept conditional offers

because they don‟t want to wait in uncertainty.

Once the property has been “Sold Conditionally”, the buyer may be required to provide a deposit to the

listing brokerage (which is held in trust) as per the terms of the Agreement of Purchase and Sale. Although

the deposit may be made by personal cheque, sellers generally request that the funds be certified or be

provided a bank draft.

If the conditions are not satisfied within the timelines provided, the parties may mutually agree to extend the

timeline by making a written amendment to the Agreement of Purchase and Sale. Alternatively, the buyer

may waive their right to these conditions by signing a standard waiver; at this point, the parties have reached

what is commonly referred to as a “Firm Deal” because there are no more conditions that must be met.

Assuming the conditions are worded properly to protect the buyer, if the conditions are not met to the buyer‟s

satisfaction, the offer expires and the deposit is returned in full to the buyer without deduction. In order for

the deposit to be released, the buyer, seller, and their respective brokerages must sign a mutual release of

liability. This releases all parties from all liabilities and claims arising from the Agreement of Purchase and

Sale and directs the listing brokerage to disburse the deposit to the buyer. It may take up to 2 weeks for the

buyer to receive their deposit back.

If all of the conditions are met, the buyer must sign a standard waiver indicating that they waive their rights to

the conditions; once again, at this stage, the parties have reached a “Firm Deal” because there are no more

conditions that must be met.

This generally concludes the Realtor‟s involvement in helping a buyer purchase a home. From here, the

Realtor forwards a copy of the Agreement of Purchase and Sale to the buyer‟s lawyer, who gets involved to

help close the deal.

What does a Realtor do for a Seller?

As an Ontario homeowner wishing to sell your property, you will likely ask your Realtor to list it (among

other things). Much of the discussion of listing the property revolves around the appropriate listing price.

Here, the Realtor will generally conduct a comparative market analysis.




He or she will look up comparable homes in the nearby neighbourhood that sold recently. Based on that data,

the Realtor will recommend a listing price. This is a cursory valuation and, for a formal valuation, a

professional appraiser may be engaged. That being said, it is relatively rare to see professional appraisal for

residential homes given the cost, time and effort involved.

From here, the seller and the listing brokerage enter into a Listing Agreement. This is a written contract

between the seller and the listing brokerage that sets out most of the duties and obligations of the relationship.

It includes how the listing brokerage will market the property and how much they will be paid for their

services.

The Listing Agreement will either be a Multiple Listing Service Agreement or an Exclusive Listing

Agreement. Most people enter a Multiple Listing Service Agreement, since all member Realtors of the local

real estate board receive information about the listing and are entitled to share the commission if they bring a

purchaser to buy the property. This is often the most effective way to sell a home.

An Exclusive Listing Agreement means your home will only be offered to prospective purchasers through the

brokerage that you list the property with. Other Realtors are not automatically entitled to a commission if

they bring a buyer, unless your brokerage agrees to co-operate with them. This approach may take longer to

find an interested purchaser.

Note that the Listing Agreement will generally include a clause requiring the seller to provide the listing

brokerage with an exclusive and irrevocable right to act as the seller‟s agent for a set period of time called the

“Listing Period”. If that period of time exceeds 6 months, the listing brokerage must obtain the seller‟s

initials for the agreement to be effective during that period. The seller is required to pay the brokerage a

commission (either a percentage of the sale price or a fixed fee, but not both) for any valid offer to purchase

the property from any source whatsoever obtained during the Listing Period. The seller is also liable to pay

the listing brokerage full commissions after the expiration of the Listing Period and within a certain

negotiated time. This period is called a “Holdover Period” and typically ranges from 60 to 120 days.

If an Agreement of Purchase and Sale is entered into during this Holdover Period between the seller and a

purchaser introduced to the property from any source whatsoever during the listing period or shown the

property during the Listing Period, then the seller is liable to pay full commissions to the listing brokerage.




After the Listing Agreement is signed, the Realtor will list the property, engage in other marketing initiatives

to sell the property, and host open houses. Be sure to discuss various other forms of advertising your property

– such as placing ads in newspapers and magazines, posting online classifieds, and designing and distributing

brochures, flyers, and greeting cards – (and who bears the cost) with your Realtor as soon as practical.

Once a written offer has been made, the Realtor presents it to the seller and explains the terms and conditions

therein. The Realtor will generally discuss negotiation strategy and proceed to negotiate the terms and

conditions on the seller‟s behalf.

After the property has been sold conditionally or if a firm sale has been reached (i.e. if there are no

conditions), the seller‟s Realtor will retrieve the deposit from the purchaser‟s Realtor (if applicable) and try to

ensure that that all conditions are satisfied and waived.

This generally concludes the Realtor‟s involvement in helping a seller. From here, the Realtor will forward a

copy of the Agreement of Purchase and Sale to the seller‟s lawyer, who gets involved to close the deal. If

you‟re looking for an Ontario real estate lawyer, make a post on Dynamic Lawyers.

Legal Obligations of Realtors

So what are the legal obligations of Realtors? In a nutshell, they include professional, ethical, fiduciary and

contractual obligations, each of which will be briefly discussed in turn.

Realtors must follow certain professional and ethical standards under the Real Estate Business and Brokers

Act, 2002 and the Code of Ethics made thereunder. Among other things, Realtors are required to:

not disclose confidential information;

act fairly, honestly and with integrity;

promote and protect their clients‟ best interests;

demonstrate reasonable knowledge, skill, judgment and competence;

not knowingly make inaccurate representations;

use best efforts to prevent error, misrepresentation, fraud or other unethical practice;

disclose any property interest they may have in their client‟s property; and

convey any written offer they receive to their client at the earliest practical opportunity.





Realtors, as necessary members of CREA, must also abide by CREA‟s Code of Ethics. Among other things,

that Code of Ethics requires Realtors to be committed to professional and competent service, absolute

honesty and integrity in business dealings, cooperating with and being fair to all, and complying with

CREA‟s Standards of Business Practice. Discipline proceedings and penalties for violation of the Code of

Ethics are established by local real estate boards.

Realtors also have a fiduciary (special trust) relationship with their clients. This relationship imposes

common-law obligations on Realtors which are separate and apart from any obligations arising under the Act

or any Code of Ethics. Among other things, Realtors must maintain proper records, not disclose confidential

information, act competently and in good faith, and be loyal and obedient to their clients. Acting in good

faith requires Realtors to be honest, promote their client‟s best interests, and disclose conflicts of interest –

either real or perceived – to their clients. Many of these fiduciary obligations are contained in the Act, the

Code of Ethics made thereunder, and CREA‟s Code of Ethics.

Here are some of those fiduciary duties in greater detail:

Accounting

Real Estate Brokerages must:

Provide details of all funds held in trust and all monies handled on behalf of a principal (upon

request); and

Maintain accurate bookkeeping.

Confidentiality

Real Estate Brokerages must maintain confidentiality and not disclose confidential information for any

purpose (i.e. information which is likely to adversely affect the principal‟s interests).

Competence


Have sufficient knowledge, skills, and experiences to transact the real estate as required;

Exercise reasonable care to a standard expected of an average Brokerage; and

Undertake best efforts to avoid having the principal act on misrepresentations, mistakes, or fraud.




Good Faith


Be honest and not take advantage of their principal;

Promote and protect the best interests of the principal;

Disclose any conflicting interests to the principal;

Disclose facts about the property which would be relevant to the principal‟s decision in buying or

selling the property; and

Disclose in writing to the principal if they are representing multiple parties.

Loyalty


Place the interests of the principal above all else (except the law – which means they cannot help them

commit a crime, for example);

Help to promote and protect the interests of the principal at all times and considering the bests

interests of the principal; and

Disclose a conflict (actual or perceived) between their and the principal‟s interests; and

Disclose in writing if they represent more than one principal to a transaction and must not act in that

capacity unless they have the written consent of all principals (who have been fully informed).

Obedience

Real Estate Brokerages must act pursuant to instructions received by their principals (irrespective of whether

they agree or not).

Many of these fiduciary duties are found in sections 2-8 of the Code of Ethics, which Real Estate Brokerages

are bound by and which are made pursuant to the Real Estate Business and Brokers Act, 2002.




Worth mentioning is that Realtors, as necessary members of the Canadian Real Estate Association

(“CREA“), must abide by CREA‟s Code of Ethics. Among other things, that Code of Ethics requires

Realtors to be committed to professional competent service, absolute honesty and integrity in business

dealings, cooperation with and fairness to all, and personal accountability through compliance with CREA‟s

Standards of Business Practice. Discipline proceedings and penalties for violation of the Code of Ethics are

established by local real estate boards.

In addition to their professional, ethical, and fiduciary obligations, Realtors have contractual obligations.

They must, for example, perform their obligations in a Listing Agreement which includes listing properties

on MLS or exclusively within the brokerage and presenting all offers from potential buyers to the seller.

Individuals with complaints against Realtors may be able to take civil or criminal action against them

(depending on the nature of the complaint) and can also launch a complaint under the Real Estate Business

and Brokers Act, 2002 with RECO. Part V of that Act deals with complaints, investigations, and disciplinary

measures which can be taken by RECO. If you believe you have been wronged by a Realtor, contact a

lawyer to discuss your legal options.

Realtor Commissions

A straightforward but often misunderstood topic when buying and selling real estate is: how do Realtors get

paid? Ontario Realtors earn commissions from the purchase and sale of property. The seller‟s Realtor

negotiates a commission that will be paid between his or her brokerage and the buyer‟s brokerage. As per

section 36(1) of the Real Estate Business and Brokers Act, 2002, the commission payable to the brokerages

shall either be an agreed amount or a percentage of the sale price, but not both. If a property does not sell, the

seller will generally not be liable to pay anything to their and the buyer‟s brokerages and Realtors.

There is no legal requirement that governs what percentages are appropriate. So long as the Realtor fulfills

his or her professional, ethical, and fiduciary duty towards his or her client, the negotiated overall

commission is what usually governs the deal.




If a real estate salesperson is involved in the purchase and sale (which is the normal course), then the

commission payable is further broken down between the respective brokerages and their real estate

salespersons. This may be a 75:25 allocation in favour of the real estate salesperson or a simple transaction

fee (e.g. $300) that the salesperson must pay to the brokerage to facilitate the transaction.

While in most cases there is no direct cost to a buyer for their Realtor‟s services, a buyer may be liable to pay

for some or all of their Realtor‟s commissions if they agree to it in a Buyer Representation Agreement (as

discussed above).

So, just to recap, here‟s how it works…

First off, the real estate agent representing the seller negotiates a commission that will be paid to 2 parties

based on the selling price. The 2 parties are the:

Real Estate Brokerage representing the seller; and

Real Estate Brokerage representing the buyer.

In Toronto, the typical overall commission that will be divided among these two parties ranges from 3.5% to

5% or even higher (it depends on many factors).

So let‟s take the following example. Let‟s say the overall commission is 5%. This is allocated as follows: 2%

to the Real Estate Brokerage representing the seller and 3% to the Real Estate Brokerage representing the

buyer (these allocations can vary). Importantly, these percentages are further broken down between the

respective Brokerages and their agents. This may be a 75%:25% allocation in favour of the agent or a simple

transaction fee (e.g. $300) that the agent must pay to the Brokerage. So you can think of it like this:

For a $500,000 sale price, 2% can go to the Sellers (Brokerage and Real Estate Salespersons). That‟s

$10,000 that will be split, for example, 75%:25%, which means that $7,500 will go the Real Estate

Salespersons and $2,500 will go the Brokerage.

Going back to real estate commissions in general, there is no legal requirement that governs what percentages

are appropriate. So long as the Real Estate Salespersons fulfills his or her fiduciary duty towards his client,

the negotiated overall commission is what governs (based on principles of contract law) the deal.




Referral Fees between Lawyers and Realtors

Ever wonder about the legality and ethics of referral fees between Realtors and lawyers? Say, for example,

your Realtor recommends a lawyer to close your deal. If you end up going with that lawyer, is it legal and

ethical for the lawyer to pay a referral fee to the Realtor?

Conclusion

The bottom line is that referral fees are prohibited as between a Realtor and a lawyer. While the issue of

whether a Realtor can make a referral fee may be somewhat unclear, the Real Estate Council of Ontario has

made a strong case that such fees are prohibited. A Realtor is, however, capable of receiving a referral fee

from a third party provided that such fees are first disclosed by the third party to the client and the client

agrees (preferably in writing). In such a case, the third party would pay the referral fee to the Realtor‟s

employer (i.e. the broker), who would in turn pay the Realtor. Much like a Realtor, however, a lawyer is not

capable of making a referral fee to non-lawyers, but is capable of receiving such fees under the same

conditions as would a Realtor. Therefore, since neither a Realtor nor a lawyer are capable of making referral

fees (notwithstanding that they‟re capable of receiving them) to one another, referral fees are prohibited as

between them. Breach of this rule is both illegal and unethical.

The following analysis shows how we came to these conclusions.

Realtors and so-called “Bird-Dog” or Referral Fees

The combined effects of ss. 30(b) and (c) of the Real Estate Business and Brokers Act, 2002 provide that a

broker shall not “pay any commission or other remuneration” to “employ or engage an unregistered person to

trade in real estate”.

Here, a number of terms require further clarification.

Section 1 defines a broker as “a person who, for another or others, for compensation, gain or reward or hope

or promise thereof, either alone or through one or more officials or salespersons, trades in real estate, or a

person who holds himself, herself or itself out as such”.




Moreover, s. 1 defines a salesperson as “a person employed, appointed or authorized by a broker to trade in

real estate”. Here, the word “employ” means “to employ, appoint, authorize or otherwise arrange to have

another person act on one‟s behalf, including as an independent contractor”.

Finally, s. 1 defines a trade as including “a disposition or acquisition of or transaction in real estate by sale,

purchase, agreement for sale, exchange, option, lease, rental or otherwise and any offer or attempt to list real

estate for the purpose of such a disposition or transaction, and any act, advertisement, conduct or negotiation,

directly or indirectly, in furtherance of any disposition, acquisition, transaction, offer or attempt, and the verb

„trade‟ has a corresponding meaning”.

Clearly, while no broker may pay any form of compensation to unregistered persons in furtherance of a trade

in real estate, it is somewhat unclear whether salespersons (i.e. Realtors) are also prohibited from doing so

(because salespersons are not mentioned in s. 30). As Allan Johnson, Registrar of the Real Estate Council of

Ontario, mentioned in a now expired Registrar‟s Bulletin: “A question posed recently dealt with the

salesperson and his or her right to pay some form of compensation in gratitude for leads provided. This issue

may not be as clear.” Interestingly, RECO‟s new Registrar‟s Bulletin on Bird-Dog fees states that, “where a

brokerage is aware of, or more obviously where the brokerage were to use an employee/salesperson as a

conduit to pay some form of compensation, in an attempt to avoid the appropriate sanctions of the Act, this

activity would be construed to be a violation”. So if a salesperson acted alone without the knowledge of the

brokerage, would the latter be immune from liability? In the expired Registrar‟s Bulletin, Mr. Johnson

suggested two caveats which would seem to prohibit salespersons from providing referral fees:

“1. In light of the fact that salespersons are registered and employed by a specific broker

and in fact act with the expressed authority of their broker employer, it may be argued

that a salesperson‟s action in paying compensation with either before or after tax dollars,

may in fact be tantamount to the broker breaching section [30(b)] and/or

2. Payment of this type of compensation to an unregistered person, for what could likely

be defined as „in furtherance of a trade‟, may very well put the salesperson in the position

of „counseling to commit an offence‟ wherein the person receiving the compensation is

determined to be in contravention of the Act, by virtue of trading in real estate without

benefit of registration.”




Mr. Johnson also went on to write that the form of the referral fee (e.g. a bottle of wine, a cash payment, etc.)

would not matter: “As far as the type of compensation, it would not appear to matter the „coin of the realm.‟”

While Mr. Johnson‟s suggested caveats were discussed in a now expired Registrar‟s Bulletin (and the new

bulletin does not explicitly reiterate these views), these caveats nevertheless seem sensible given the purpose

of the Real Estate Business and Brokers Act, 2002 (namely, to prevent unregistered persons from trading in

real estate) and the doctrine of vicarious liability.

Accordingly, a Realtor that makes a referral fee could get fined up to $25,000 and/or sentenced to

imprisonment for up to one year. The broker may also be found vicariously liable and subject to the same

penalties for failing to take reasonable steps to prevent the brokerage – through the actions of the salesperson

– from contravening the Real Estate Business and Brokers Act, 2002. Worth noting here is that s. 40(4) of the

Real Estate Business and Brokers Act, 2002 precludes any action being commenced by the Director against a

salesperson or broker after two years from the date on which the offence was first known to the Director.

Can a Realtor accept a referral fee from a third party? Yes

Nothing in the Real Estate Business and Brokers Act, 2002, the associated regulations, or the Real Estate

Council of Ontario‟s interpretation bulletin on referral fees seem to preclude a lawyer or any other third party

from providing a referral fee to a salesperson. Presumably, so long as no ethical obligations are being violated

either by the lawyer or the salesperson, referral fees from the former to the latter would be permissible.

As had at one point been noted in Jim Marhsall‟s (a broker) Parry Sound Real Estate Blog: “Referral fees are

only acceptable when being paid to a registrant, through their brokerage”. This statement was confirmed via a

telephone conversation with a compliance officer with the Real Estate Council of Ontario: so long as the

salesperson previously disclosed to their client that they would be paid a referral fee from a lawyer by

recommending their client to that lawyer, and the client agreed (recommended to be writing) and

subsequently retained that lawyer, then the lawyer would make payment to the brokerage, which would in

turn make payment to the salesperson. This would coincide with the brokerage/salesperson‟s obligation under

s. 25 of the Code of Ethics to disclose to a potential buyer/seller the existence and details relating to a

commission or other remuneration that may affect whether an offer to buy/offer to sell is accepted at the

earliest practicable opportunity and before any offer is accepted.




Can a Lawyer provide a referral fee to a Realtor? No

With a few exceptions, a lawyer cannot provide a referral fee to a non-lawyer such as a Realtor. Rule 2.08(8)

of the Law Society of Upper Canada‟s Rules of Professional Conduct provide that a lawyer shall not:

(a) directly or indirectly share, split, or divide his or her fees with any person who is not a

lawyer, or

(b) give any financial or other reward to any person who is not a lawyer for the referral of

clients or client matters.

Moreover, pursuant to the Law Society of Upper Canada‟s Practice Management Guidelines, a lawyer may

only pay a referral fee if, among other things, such a fee “is given to a person who is a lawyer”.

Can a Lawyer accept a referral fee from a third party? Yes

Pursuant to the Law Society of Upper Canada‟s Practice Management Guidelines, a lawyer can receive a

referral fee if certain conditions are met: a lawyer can only take “fees, reward, costs, commission, interest,

rebate, agency or forwarding allowance, or other compensation related to employment from…someone other

than the client, but only with full disclosure to and with the consent of the client”. Here, the consent of the

client, other person or agency shall be either in writing or reduced to writing. Moreover, a lawyer may only

generally accept a referral fee if various conditions are met.

Buyer Representation Agreements

At any time before a buyer can make an offer to purchase property, they must sign a “Buyer Representation

Agreement” with the brokerage. This is required by s. 14 of the Code of Ethics (Ont. Reg. 580/05) made

under the Real Estate Business and Brokers Act, 2002. This Agreement gives the brokerage the exclusive and

irrevocable authority to act on behalf of the buyer for a set period of time. At the same time, the buyer

represents and warrants that they are not a party to another Buyer Representation (or similar) Agreement. The

Buyer Representation Agreement helps protect the brokerage by guaranteeing that they will get paid their

commission even if the buyer engages another brokerage during the time period covered in that agreement.

Worth mentioning is that a buyer may be personally liable to pay some or all of their own brokerage‟s

commissions if agreed to in the Buyer Representation Agreement.




This situation could arise, for example, where the buyer‟s brokerage wants more in commissions than what

the seller‟s brokerage has offered to pay. OREA‟s standard form Buyer Representation Agreement states:

“The Buyer agrees to pay directly to the Brokerage any deficiency between this amount

and the amount, if any, to be paid to the Brokerage by a listing brokerage or by the seller.

The Buyer understands that if the Brokerage is not to be paid any commission by a listing

brokerage or by the seller, the Buyer will pay the Brokerage the full amount of

commission indicated above”.

A buyer‟s Realtor will typically explain this clause and accept what the listing brokerage is offering as their

full commission in the Buyer Representation Agreement.

Sometimes, a buyer who signs this agreement will breach it by engaging another brokerage and concluding a

deal through them. The problem here is that the buyer had an existing Buyer Representation Agreement with

another brokerage and may have lied to their present brokerage by indicating that no such deal existed. The

next thing the buyer realizes is that they are being sought after and perhaps even sued by the original

brokerage for the commissions that should have gone to them.

Problems can arise where a buyer and a brokerage never sign a Buyer Representation Agreement. Take the

case of Stoicevski v. Nelson, 2007 CarswellOnt 8606. In that case, a buyer engaged Realtor “A” to look for

properties on his behalf. No Buyer Representation Agreement was ever signed. Realtor “A” identified

numerous suitable properties, arranged inspections for the buyer, and made various offers on behalf of the

buyer (which were never accepted). Four of those failed offers were made in respect of one property and all

of them were accompanied by a “Confirmation of Co-operating and Representation” agreement, which

indicated that Realtor “A” would receive a commission if a deal went through. The buyer, looking to save

some money, engaged Realtor “B” (who would accept a lower commission) to make an offer on his behalf

for that property. Using Realtor “B”, the buyer submitted an offer which was accepted. Realtor “A” then sued

the buyer for lost commissions. The Ontario Superior Court of Justice found that, even though no Buyer

Representation Agreement had been entered into between the buyer and Realtor “A”, the buyer was still

liable to pay Realtor “A” the commission owed. The Court reasoned that the buyer‟s expectation to pay

Realtor “A” commissions if a deal had gone through, coupled with the buyer‟s actions – namely, working

with Realtor “A” (both generally and specifically with respect to the property that was ultimately purchased)

and then engaging Realtor “B” to save money – constituted an unjust enrichment.




This case demonstrates that, in these circumstances, the absence of a Buyer Representation Agreement may

nevertheless make a buyer who engages multiple Realtors liable for commissions owed.

Overall, if a buyer is looking to get out a buyer representation agreement without the headache of litigation,

they should get a written release of liability from the Realtor. Assuming this release is obtained and entered

into properly, it should prove to be a good defence in case litigation arises thereafter.

Stages of Buying and Selling Real Estate

Document Preparation and Review

After the Agreement of Purchase and Sale is completed, the buyer and seller‟s lawyers begin a phase of

document preparation and review. Such documents include the transfer, a statement of adjustments,

directions, undertakings, affidavits, declarations, and supplementary agreements. The purchaser‟s lawyer

will conduct searches on the title, the property to be transferred (as well as adjoining properties in certain

situations), and the seller(s). Based on these searches and other inquiries, the purchaser‟s lawyer will send

requisition letters to the seller‟s lawyer to address any issues that may arise. The lawyers will also explain to

their respective clients their rights and obligations and have them sign off on a number of these documents.

Closing

On closing, when the seller‟s lawyer is satisfied that he or she has obtained all that is required (including the

outstanding funds owed), they will transfer title and mortgage (if applicable) and arrange for the keys to be

delivered to the purchaser‟s lawyer.

Post-Closing

Post closing, the purchaser and seller‟s lawyers will notify relevant government offices and utilities in the

change of ownership, disburse funds as required to third parties (e.g. brokerages) and the seller, and follow up

on any undertakings they provided. The lawyers will also prepare reporting letters to their clients, which

detail the transaction, and render a bill for legal services.




Agreement of Purchase and Sale

An Agreement of Purchase and Sale is a written and binding agreement concerning the purchase and sale of

real property. It typically appears as the OREA‟s Agreement of Purchase and Sale (a standard form). Almost

all Realtors use this form. Purchasers and sellers use this form to list their conditions which must be met in

order for the deal to be transacted. Common terms and conditions include: financing, home inspection, title,

fixtures and chattels, status certificate (in the case of a condo), etc. The Agreement of Purchase and Sale

generally begins as an offer made by the buyer; once the seller accepts, the agreement can only be terminated

according to the terms and conditions of the agreement itself or by mutual agreement.

Parties may also try to call „foul‟ on the other side and terminate the agreement unilaterally on the basis of,

among other things, undue influence, duress, fraud, misrepresentation, etc. It‟s important to note that, as per

the Ontario Statute of Frauds, all agreements dealing with real estate must be in writing to be valid.

The Information Section

The Information Section is the first part that appears in OREA‟s standard form Agreement of Purchase and

Sale. Here, you need to include:

the date of the agreement;

the full legal names of the parties;

the legal description of the property (check with a Realtor and Lawyer to confirm this);

the purchase price; and

the deposit.

Parties

For an Agreement of Purchase and Sale to be enforceable, it must comply with the Statute of Frauds, which

requires that the parties be identified. The Ontario Real Estate Association‟s standard form Agreement of

Purchase and Sale begin with some basic information about the buyer and seller.

Worth noting is that, even after the Agreement of Purchase and Sale has been signed, additional buyers can

be added (e.g. so as to be on title) through a direction provided to the sellers. No amendment is necessary.

The buyer can be a trustee who purchases in trust on behalf of a beneficiary.




The seller is referred to as the “vendor”. It is extremely important that the proper legal names of all of the

registered property owners be stated in the Agreement of Purchase and Sale. For example, absent a marriage

contract to the contrary, a married spouse not registered on title has a proprietary interest in a matrimonial

home. If that spouse does not sign the Agreement of Purchase and Sale, the buyer may only be acquiring the

interest of the other spouse.

In some situations, the legal capacity of the seller will need to be included in the Agreement of Purchase and

Sale where they are not the registered owner of the property. This may be the case, for example, where the

bank is selling the property pursuant to a power of sale or where a sheriff is selling the property to satisfy an

outstanding judgment.

A party can represent a corporation in the purchase and sale of property. In these situations, directors and

officers of the corporation generally have the power to bind it. A buyer or seller dealing with a corporate

party on the opposite side should:

Require the agreement to be signed by an officer or director;

Include a representation and warranty in the agreement stating that the person executing the

agreement has the authority to bind the corporation and that all necessary steps to authorize the

purchase have been completed;

Include a statement under the signature of the person signing the agreement on behalf of the

corporation saying “I have authority to bind the Corporation”; and

Require immediate delivery of a resolution of the corporation‟s Board of Directors approving the

agreement.

A party can also act as agent for a corporation that does not exist (i.e. that has yet to be incorporated). Here,

the Agreement of Purchase and Sale should clearly state that the buyer has the right to transfer the agreement

to the corporation. Within a reasonable time after coming into existence, the corporation must adopt that

agreement. Failure by the corporation to do so will make the buyer liable for the obligations set forth in the

agreement (unless the agreement says otherwise) as per section 21(1) of the Ontario Business Corporations

Act, R.S.O. 1990, c. B. 16 or section 14 of the Canada Business Corporations Act, R.S.C. 1985, c. C-44.

If a party is a partnership, it is prudent to have all the partners sign the agreement if the purchase or sale is

outside the normal course of the partnership‟s business.




Property

For the Agreement of Purchase and Sale to be enforceable, it must comply with the Statute of Frauds, which

requires that the property be adequately identified. The description of the property that is being bought and

sold using OREA‟s standard form Agreement of Purchase and Sale includes:

The municipal address (street number, street, city);

The side of the street upon which the property is located;

The dimensions of the frontage and depth; and

The legal description of the land (i.e. lot and plan or concession number).

Using a survey can help ensure the proper location and dimensions of the property.

Purchase Price

For the Agreement of Purchase and Sale to be enforceable, it must comply with the Statute of Frauds, which

requires that the purchase price be included or ascertainable. Whatever price is ultimately written in this

section, be sure that the words and numbers coincide. Confusion may arise where multiple amendments to

the purchase price are made using the same Agreement of Purchase and Sale. Remember that the amount of

money indicated in this section is not the actual amount that the buyer must pay. The purchase price is the

starting point for which there will be adjustments (as per the statement of adjustments). It is the adjusted

amount which the buyer must ultimately pay.

Here a few points worth mentioning about the purchase price.

If you‟re buying a new home, you will be liable to pay GST (presently at 5%) on the purchase price to the

builder. So while you probably will not be dealing with a Realtor to buy a new home (you can make a deal

with a builder directly) and can avoid paying their commissions, you‟ll end up paying GST.

If you‟re purchasing a resale home, then you don‟t have to pay GST. Also worth mentioning is that, if you‟re

selling a home that is your principal residence, you don‟t have to pay capital gains tax. Whether your home

qualifies as a principal residence is the stuff of another blog…so let‟s keep going…

A common question that may come up is: how is the purchase price determined? You should definitely

speak to a Realtor about this. They‟ll look at a number of factors to help gauge what the fair market value of

the property is, including:




Location of the property;

Size of the property;

Age of the property;

Condition of fixtures and chattels;

Features and amenities;

Upgrades (e.g. finished basement, pool, hardwood floors, ceramic tiles, etc.);

Comparative properties that have sold in the area very recently;

Relative location to schools, hospitals, etc.;

General market conditions;

Client‟s budget;

Potential future value (for investment purposes);

Rent-ability;

Propensity for a bidding war;

Easements and restrictive covenants;

Time the property has been on the market;

Proximity to highways; and

Municipal by-law, zoning, taxes, etc.

Deposit

A deposit is not legally required, but the purchaser typically includes provisions for a deposit to give the

seller reassurance that the deal will get done. The deposit is part of the purchase price and is adjusted as a

credit to the purchased on closing. Under the additional terms and conditions (at the end) of the Agreement

of Purchase and Sale, the buyer‟s agent or lawyer will try to include a provision saying that the Deposit shall

be refunded to the buyer if the conditions of the Agreement of Purchase and Sale are not met.

So what should the deposit be? Realtors in the GTA will likely say between 2 to 5%, although a higher

deposit may make the offer look more attractive to the seller.




What Happens to the Deposit Upon Default

What happens to the deposit if the deal does not go through? If the purchaser refuses to close the deal

without legal cause (e.g. the vendor has satisfied all of the conditions to closing or they have otherwise been

waived), then the deposit may be forfeited to the vendor. If the vendor refuses to close, the purchaser would

be entitled to their deposit.

When an offer to purchase is made, the purchaser usually gives the seller a deposit toward the purchase price.

A deposit is not legally required, but the purchaser typically includes provisions for a deposit to give the

seller reassurance that the deal will get done.

The deposit is part of the purchase price and is adjusted as a credit to the purchaser on closing. It is typical to

see the buyer‟s Realtor or Lawyer include provisions in the Agreement of Purchase and Sale saying that the

deposit shall be refunded to the buyer if the conditions of the Agreement of Purchase and Sale are not met.

The deposit is generally only released in very limited circumstances:

a mutual release signed by all the parties;

performance and completion of the Agreement of Purchase and Sale;

a term or condition concerning the deposit in the actual Agreement of Purchase and Sale; or

court action leading to a judgment.

With respect to court action, if the buyer refuses to close without legal cause (e.g. the vendor has satisfied all

of the conditions to closing or they have otherwise been waived), then the deposit may be forfeited to the

seller. If the vendor refuses to close without legal cause, the purchaser would be entitled to their deposit.

In Iyer v. Pleasant Developments Inc., [2006] 210 O.A.C. 90, 45 R.P.R. (4th) 147, the Ontario Divisional

Court set out the following principles about the nature of “deposits” in Agreements of Purchase and Sale

where there was uncertainty (i.e. no provision to the contrary) as to what happens to the deposit upon default

by the purchaser:

A deposit may be forfeited without proof of damages. In other words, even in the case where the

seller resells at a purchase price that is high enough to compensate for any loss from the first sale, the

seller may nevertheless retain the deposit.

The use of the word “deposit” in an Agreement of Purchase and Sale, while not determinative, will

imply that the payment is intended for forfeiture upon the purchaser‟s breach. If the agreement is

silent and the purchaser defaults, the deposit, by its very nature is forfeited to the seller.




There are circumstances where the loss of a deposit may be subject to relief from forfeiture. If there is

relief, the deposit is returnable, in whole or in part, to the defaulting purchaser.

Whether a Court will return a deposit to a defaulting purchaser depends on a three-part test (all of which must

be satisfied):

Was the conduct of the purchaser reasonable in the circumstances?

Was the purpose of the deposit to secure the payment of the purchase price?

Was there a substantial disparity between the value of the property forfeited and the damage caused to

the seller by the breach?

In Gajasinghe v. Dewar, 2007 CarswellOnt 5738, the Ontario Superior Court of Justice applied this three part

test and refused to return a $20,000 deposit to the defaulting purchaser. Although the Court found that the

purpose of that deposit was to secure the purchase price and that there was a substantial disparity between the

amount of the deposit and the amount of damages suffered by the seller, the purchaser‟s conduct was not

reasonable. Specifically, the Court found that the purchaser‟s actions were “indicative not of a purchaser

who was ready and willing to close but rather of one who was searching for an excuse not to close”.

Deposit Held in Trust

The deposit gets placed “in trust” with the listing real estate brokerage (unless otherwise arranged) pending

completion or other termination of the Agreement of Purchase and Sale. The standard clause says that it will

be placed in a NON-INTEREST bearing trust account. If the buyer is placing a large amount of money as a

deposit and wants interest, they‟ll need to specify that in the Agreement of Purchase and Sale. The deposit

can be made within 24 hours of acceptance of the agreement or otherwise (e.g. in due course or forthwith or

in increments of 30 days, etc.) as per the terms of the Agreement of Purchase and Sale.

Irrevocability Clause

The irrevocability clause says that the offer cannot be revoked or taken back for a set period of time

(specified in this clause). If the offer is not accepted after that time, then the Offer is automatically

terminated – deemed null and void – as per OREA‟s standard form).




Schedules

The next section is a blank area for the purchaser to identify any attached Schedules to the Agreement of

Purchase and Sale which detail any special arrangements. For example, the buyer may agree to assume the

seller‟s existing mortgage rather than getting separate financing through a bank. The buyer may also make the

sale conditional until a specified date on the happening of various events such as the sale of the purchaser‟s

current house, the purchaser arranging adequate financing, a home inspection being conducted to the

satisfaction of the buyer, or municipal approval being obtained.

Completion Clause

This is the closing date, plain and simple. Typically, vacant possession takes place no later than 6:00 p.m. on

the date of closing.

Chattels (included) and Fixtures (excluded)

The next section typically deals with “fixtures” and “chattels”. Fixtures are improvements made to a property

that are attached or cannot be removed easily without causing damage to the property. Hot water heaters,

built-in cabinets, interior doors, a dining room chandelier, and lights are examples of fixtures. Fixtures are

assumed to be included in the sale of the home, unless they are specifically excluded in the agreement. While

the rules for determining whether a certain item is a fixture are very confusing, some of the factors that will

be used in making this determination include:

the nature of the thing;

the mode of attachment;

the circumstances under which the item was attached;

the purpose to be served by the item;

the position of the rival parties;

the degree of attachment to the land or building; and

the ability to remove the item without causing serious damage to it or the land or building to which it

is attached.




Chattels are moveable items of personal property contained on the property and must specifically be listed in

the agreement if they are to be part of the sale of the home. For example, if the seller agrees to include a

refrigerator, stove, or gardening equipment in the sale, these items must be specifically identified in the

Agreement. If there is any doubt whether an item is included or excluded, it should be clearly specified in the

agreement.

Rental Items

The buyer will be asked to agree to assume rental contracts (if assignable) in respect of the property being

purchased. Classic examples of rental items include: hot water tanks, furnaces, and security monitoring

systems. The price for the rental items is not included in the purchase price, but will be accounted for in the

statement of adjustments.

Dates, Searches & Requisition Date

Next, are a series of clauses dealing with relevant dates. The first of these is usually a clause establishing that

the buyer‟s offer will be void unless the seller accepts it before a certain date. It is not unusual for sellers to

have only a few hours to consider the offer.

A deadline is also set in the Agreement for all searches to be done on the property. This is commonly referred

to as the “requisition date”, which is the earliest of 3 dates:

30 days after a specified requisition date;

30 days after the date on which the conditions in the agreement are fulfilled or otherwise waived; or

5 days prior to completion.

Before this date, it is the buyer‟s responsibility to do a number of searches to ensure there are no problems

with the property. The point of the title search is to allow the purchaser‟s real estate lawyer to have time to

examine the title (at the Buyer‟s expense). They are looking for liens, municipal work orders, encumbrances,

mortgages, present use of the property (e.g. multi-residential property), and that the property can be insured

against fire, etc. They‟re also checking to make sure who are the parties registered on title (i.e. the purported

owners of the property). Finally, they‟re checking to see the history of the property. It‟s typical to see that

the title search is conducted a number of days prior to closing so that, if an issue arises concerning title, there

will be time to address that issue and/or extend the closing date (through mutual agreement).




The buyer and the seller also must identify a date for the closing of the transaction. This is the very important

date when the sale is finalized and the buyer takes physical possession of the property.

Conditions

Typical Agreements of Purchase and Sale establish so-called “conditions” that must be met before the sale

can be completed. The party who is responsible for fulfilling the condition must use his or her best efforts to

do so.

First, the buyer‟s entire offer to purchase the home is usually conditional on the seller being the legal and

registered owner of the property.

Second, if the buyer‟s lawyer discovers any problems while doing the various document searches, the buyer

(or the lawyer) must send a letter explaining the problem to the seller‟s lawyer before the requisition

deadline. If the seller is unable to fix the problem, then the entire Agreement may come to an end unless the

buyer specifically chooses to take the property with the particular defect.

Finally, the Agreement will state that, unless the buyer makes an objection in writing before the requisition

date, the buyer cannot complain later about any defects in the seller‟s ownership of the property. For this

reason, it is very important for the buyer‟s lawyer to perform all the necessary searches to ensure there are no

hidden problems that may arise at a later date.

Other clauses in the Agreement may deal with technical issues relating to future use of the property,

production of documents, insurance, tax arrangements, adjustments, and spousal consent. Your lawyer or

Realtor can provide a more detailed explanation of these terms.

Completing an Agreement of Purchase and Sale can be complicated and technical. Before the Agreement is

final, it may change several times as the buyer and the seller negotiate its terms, and counteroffers are

presented. To be certain you understand all the terms, it is best to have your agreement reviewed by a lawyer

before your purchase or sale of land is finalized.

Inspection Rights

The standard clause (section 13) of OREA‟s Agreement of Purchase and Sale says that the Buyer has had the

opportunity to inspect the property and understands that they will “not be obtaining a property inspection”

unless otherwise specified in the agreement.




This is where a good Realtor will include a provision in the additional terms and conditions requiring a home

inspection be done and a report provided to the satisfaction of the buyer. Here‟s a typical clause that I‟ve

come across:

“This offer is conditional upon the inspection of the subject property by a home inspector

at the Buyer‟s own expense and the obtaining of a report satisfactory to the Buyer in the

Buyer‟s sole and absolute discretion. Unless the Buyer gives notice in writing delivered

to the Seller within 5 (five) banking days after acceptance that this condition is fulfilled,

this offer shall be null and void and the deposit shall be returned to the Buyer in full

without deduction. The Seller agrees to cooperate in providing access to the property for

the purpose of this inspection. This condition is included for the benefit of the Buyer and

may be waived at the Buyer‟s sole option by notice in writing to the Seller within the

time period stated herein.”

When the home inspector arrives, he or she will examine the home, which includes:

Mechanical Systems;

Heating and Cooling Systems

Plumbing Systems;

Electrical Systems;

Structure and Foundation;

Major Appliances;

Asbestos;

Water Heaters;

Lighting and Recepticals;

Kitchen, Bath, and Laundry;

Doors and Windows;

Walls, Flooring, and Ceilings;

Roofing, Chimneys and Drainage;

Decks, Walkways, and Stairs;

Basement and Crawlspaces; and

General state of the home.




The home inspector should be registered with a reputable association of home inspectors and insured for

errors and omissions liability. They should also provide a written report with supporting evidence to back up

their conclusions. Finally, make sure to get an invoice from them that properly identifies their company and

the services they performed.

Buyers are highly advised to tour around with the home inspector when they are doing their rounds. This will

give the buyer a firsthand appreciation of what the home inspector is doing and what his conclusions will

likely be.

The home inspection may take 2-4 hours, depending on the size of the home.

Property or Land Survey

A survey is a detailed drawing of a property, as seen from above the property. It includes measurements of

the land and building thereon, including their boundaries. Things included in the survey are: fences,

buildings, roads, bodies of water (if any), etc.

Importantly, surveys can show easements, which are rights of way in favour of third parties and which are

legally enforceable.

Surveys are prepared by individuals who are licensed with the Association of Ontario Land Surveyors (they

are the only ones who can prepare surveys under s. 2 of the Surveys Act). Surveyors are governed by the

Ontario Surveyors Act (which deals with matters such as membership in the Association, satisfying standards

of practice, complying with a code of ethics, maintaining liability insurance, etc). A valid surveyor‟s report

must bear the original signature and embossed seal of the surveyor preparing the report.

While title insurance no longer requires the need for up-to-date surveys, it‟s still a good decision to spend a

couple hundred bucks (assuming it‟s a regular sized and simple property survey) as a safeguard of title.

Knowing where your property line starts and ends before purchasing your home protects you against future

disputes with neighbours; title insurance only kicks in to deal with disputes once they arise. Also, having a

survey will tell you exactly what you‟re getting, not what you think you‟re getting or what the sellers are

representing that you will be getting. Peace of mind for a few hundred extra bucks may be worth it…

Worth mentioning is that, sometimes, financial institutions or financial lenders may require an updated

survey (i.e. one that is less than 15 years old).




Finally, sometimes a buyer will include a clause in the Agreement of Purchase and Sale for the Seller to

provide, if available, a survey to the buyer. If you purchase a new home from a builder, it‟s typical for the

builder to provide a survey.

Price Adjustments

At the day of completion, there will be additional charges or refunds that need to be applied to the purchase

price. These charges and refunds include: realty taxes, private and public utility charges, rents, mortgage

interests, local improvement rates, unmetered cost of fuel, etc. The buyer is only supposed to assume

responsibility for these types of things after closing (i.e. completion of the sale). If the seller, for example,

paid realty taxes in advance, then they would be entitled to a credit in the purchase price.

Ontario Family Law Act

Situations may arise when the vendor has a spouse (e.g. common law or married) that has an interest in the

property. To be clear, a provision was included in OREA‟s standard form Agreement of Purchase and Sale to

warrant that no spouse – other than spouses who execute the Agreement of Purchase – have an interest or

claim to the property.

Successors and Assigns

In OREA‟s standard form, section 27 states that the legal representatives (e.g. heirs, executors,

administrators, etc.) of the purchaser and seller are bound by the Agreement of Purchase and Sale. This

means that bankruptcy, mental incapacitation, death, etc. cannot allow a party to avoid their obligations under

the Agreement of Purchase and Sale.

Witnesses

While not a legal requirement in Ontario, it‟s a good idea to have witnesses sign and date the Agreement of

Purchase and sale in order to establish who the parties are (helps prevent against fraud). Having witnesses

also helps in case an issue arises concerning the capacity of one or more of the parties to enter into the

contract. Finally, witnesses can also be used if a party wants to avoid fulfilling their end of the bargain (and

closing) based on misrepresentations, undue influence, duress, etc.




Spousal Consent

As I have previously blogged about, situations may arise when the vendor has a spouse (e.g. common law or

married) that has an interest in the property. To be clear, a provision was included in OREA‟s standard form

Agreement of Purchase and Sale to warrant that no spouse – other than spouses who execute the Agreement

of Purchase – have an interest or claim to the property (section 22). On the execution page, all spouses not

on title are required to sign the Agreement of Purchase and Sale.

Agreement in Writing

This paragraph states that there is no agreement – oral or written – concerning the purchase and sale of the

property by the parties except as set out in the Agreement of Purchase and Sale. No representation, warranty,

collateral agreement or condition affecting that agreement exists unless it is expressly included therein.

Furthermore, if there is a conflict between the printed form and any clauses inserted in the agreement

(including those inserted in a Schedule), the inserted clauses will govern to the extent of the inconsistency.

Execution and Acknowledgment

In the standard form Agreement of Purchase and Sale, the legal representatives (e.g. heirs, executors,

administrators, etc.) of the purchaser and seller are bound by the Agreement of Purchase and Sale. This

means that bankruptcy, death, mental incapacitation in some cases, etc. cannot allow a party to avoid their

obligations under the Agreement of Purchase and Sale. If a buyer or a seller, for example, died before

closing, their estate trustee would be bound to close the transaction even if the beneficiaries did not want that

to happen.

While not a legal requirement in Ontario, it is a good idea to have witnesses sign and date the Agreement of

Purchase and Sale in order to establish who the parties are (this helps prevent against fraud). Having

witnesses also helps in case an issue arises concerning the mental capacity of one or more of the parties to

enter into the contract. Finally, witness testimony may become relevant if a party wants to avoid fulfilling

their end of the bargain (and closing) based on misrepresentations, undue influence, duress, etc.

To deal with situations where a vendor has a spouse (e.g. common law or married) that has an interest in the

property but is not on title, there is a section in the standard Agreement of Purchase and Sale requiring their

consent.




When the final version of the Agreement of Purchase and Sale is accepted, whichever party accepted it must

sign off. The buyer, for example, could be the last party to accept the seller‟s counter-offer and would be

required to sign off here. This provision was included to avoid difficulties in determining specifically when

the Agreement of Purchase and Sale was finally executed.

Finally, there is an acknowledgment section that states that the parties acknowledge receiving a signed copy

of the accepted Agreement of Purchase and Sale and authorize their Realtor to forward a copy to their lawyer.

This is a requirement on the brokerage under section 12 of the Code of Ethics. This acknowledgment section

also identifies the buyer and seller‟s address for service of notice as well as their lawyer‟s addresses,

telephone and fax numbers.

Status Certificates for Condo Purchases

When a buyer makes an offer to purchase a condo unit, they will typically include a provision for the seller to

provide something called a “Status Certificate”. This is a current report about the status of the

condominium corporation generally and the unit specifically.

What’s included in a Status Certificate?

Under s. 76 of the Condominium Act, 1998, a condominium corporation must give to each person who

requests it a status certificate in a prescribed form that specifies the date on which it was made and which

contains (among other things):

a statement of the common expenses – including arrears and increases – for the unit;

assessments made by the board to increase the contribution to the reserve fund and the reason for the

assessments;

the address for service of the corporation;

the names and address for service of the directors and officers of the corporation;

a copy of the current declaration, by-laws and rules;

a statement of all outstanding judgments against the corporation and the status of all legal actions to

which the corporation is a party;

etc.




Under s. 15 of the Regulations, condominium corporations are required to keep copies of the status

certificates that it issues under s. 76 of the Act for a period of 10 years.

What’s the benefit of having the Status Certificate?

Basically, the status certificate provides valuable insight into the financial and governance health of the

condominium corporation. It can tell you trends in the receipt and expenditure of funds, the current year‟s

budget, the last annual audited financial statements and the auditor‟s report on the statements, and the amount

of the reserve funds available. It also tells you about legal proceedings and claims made against the

condominium corporation. Finally, by examining the corporate governance documents (e.g. by-laws, director

meeting minutes, rules, etc.), you‟ll have a better glimpse into the inner workings (and challenges) faced by

the corporation‟s board of the directors. The corporation has an obligation, within a reasonable time, to

provide copies of the agreements to a person examining them, if the person so requests and pays a reasonable

photocopy and administration fee to the condominium corporation.

How much does it cost?

Pursuant to the Act and the Regulations, a condominium corporation can charge the person making the

request for a Status Certificate up to $100, inclusive of all applicable taxes: s. 18(1) of the Regulations.

What Form Does it Take?

Status Certificates must be in prepared using Form 13 under the Regulations.

Sample Clause in Offer

Here‟s an example of a Status Certificate that I‟ve come across:

“This Offer is conditional upon the Buyer‟s Lawyer reviewing the Status Certificate and

Attachments and finding the Status Certificate and Attachments satisfactory in the

Buyer‟s Lawyer‟s sole and absolute discretion. The Seller agrees to request, at the

Seller‟s expense, the Status Certificate and Attachments within 10 days after acceptance

of this Offer. Unless the buyer gives notice in writing to the Seller not later than 11:59

p.m. on the third day [Excluding Saturdays, Sundays and Statutory Holidays] following

receipt by the Buyer of the Status Certificate and attachments, that this condition is

fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in

full without deduction.”




Title Insurance

Title means legal ownership. So title insurance is a policy you purchase (typically one-time fee) in order to

protect the title of your property as against you (as purchaser and perhaps borrower) and your lender (if

applicable).

Is it mandatory in Ontario? Nope. But it‟s a very good decision to pay the few hundred bucks to get it (it

typically ranges in the GTA from $200-$300). It can help protect against unknown title defects,

encroachments, title fraud, errors in surveys, existing liens against the property‟s title (e.g. construction liens,

property taxes, unpaid debts from utilities, etc). You should refer to the terms and conditions of your

particular title insurance policy to determine exactly what it covers!

You should be aware of the following things when considering what kind of title insurance policy to

purchase:

What types of losses does the policy cover?

Will the policy cover legal expenses relating to restoring title?

How long will the policy last?

Who is the designated beneficiary under the policy?

Possible exclusions and exceptions to the policy (e.g. known title defects, environmental hazards,

aboriginal land claims, zoning by-law violations, etc.)

You should contact a lawyer or insurance agent/broker to determine whether or not you should purchase title

insurance and what kind of title insurance, if any, you need.

Backing Out

Once an offer or counteroffer has been made, it cannot be withdrawn unless there is a time limit on the offer

or counteroffer which passes without being accepted.

An Agreement of Purchase and Sale may also be terminated if it becomes impossible to perform through no

fault of either party (lawyers say such a contract is “frustrated”). An example is property destroyed in a

flood or a fire before the buyer has taken possession.



Buying and Selling Residential Real Estate in Ontario of 42 If there is no relevant termination clause in the Agreement of Purchase and Sale, a party cannot claim

frustration if the supervening event resulted from a voluntary act of the buyer or seller. Furthermore,

frustration is not available if the parties contemplated the possibility of the supervening event arising during

the term of the agreement and provided for in the agreement. In Dinicola v. Huang & Danczkay Properties,

2 R.P.R. (3d) 267, a condominium developer failed to develop 3 buildings and returned all deposits and down

payments. The condominium unit purchasers, however, sued for breach of contract. In its defence, the

developer argued that the municipal council‟s refusal to approve the site plan for the development of the

buildings frustrated its agreements with the purchasers. The Ontario Court of Justice (General Division)

rejected that defence and found the developer liable to pay damages assessed at $4.9-million. The court

reasoned that frustration was not available as a defence because the developer and the purchasers had

contemplated the possibility of the municipal council‟s refusal at the time the purchase and sale agreements

were entered into. That possibility was also provided for in the agreements. Frustration was also not

available because the developer relied on its own refusal to negotiate terms of the approval with the

municipality to excuse itself from liability under the agreements.

Purchasers of new condominium units in Ontario have a cooling-off period of 10 days to back out of their

purchase agreements.

Once the offer or counteroffer has been formally accepted, the buyer and seller are bound legally by its terms.

If you walk away from a deal you may not only lose your deposit, but may also be liable for any damages

suffered by the other party, such as the lost opportunity to sell to someone else, expenses arising from a

delayed move, or the seller‟s loss of deposit on another home intended for purchase. The legal remedy, called

“specific performance” (making you complete the purchase), is an unlikely event, but a court could still hold

you responsible for the entire purchase price, plus expenses and court costs.

Defaulting on Your Mortgage

Defaulting on your mortgage…dreaded topic if you‟re going through it…but important to know if you‟re

unaware or considering it…

Let‟s start off with some basics: What‟s a Mortgage?




A mortgage is a loan made by one party (called a lender) in order for a party (called a borrower) to purchaser

property. In exchange for getting the loan, the borrower has to use the property as security or collateral to

guarantee repayment of the loan. If there is a default, the borrower is entitled (among other things) to

foreclose on the home and sell it in order to realize back the borrower‟s indebtedness.

So here‟s the situation: how can a person default on their mortgage and what happens if they do?

Event of Default?

Mortgages are very similar in nature but differ in details. That‟s why it‟s important to have a lawyer review

your mortgage before you accept it or to have a lawyer review it after you‟ve accepted it so that you know

your and the lender‟s legal rights in case of a default.

Here are some of the more common ways in which a person can default on a mortgage:

Defaulting on a mortgage payment;

Becoming insolvent or bankrupt;

Abandoning the property;

Putting another mortgage on the property;

Canceling or failing to renew or keep an insurance policy;

Failing to pay property taxes; and

Selling the property without the bank‟s consent.

Lender Rights Upon Default

The mortgage will stipulate what the lender‟s rights are upon default. Typically, this includes:

Demanding full and immediate payment of the outstanding balance;

Initiating a lawsuit to collect the full outstanding balance;

Taking rental payments which are due to you;

Leasing the property;

Selling the property; and

Foreclosing on the house.

If it appears as though you are about to default on your mortgage, you should contact the lender immediately

to see if they can delay enforcing their rights to give you sufficient time to remedy any anticipated breach.




Once you‟ve defaulted, lenders will generally send reminder letters or phone calls to start, followed by

demand letters and then formal court proceedings. If the lender has to apply to the court to foreclose on the

property, they will add those legal expenses to what you owe.

Worth noting is that, if the value of your home is worth more than what you owe on the mortgage and you

have significant equity in your home, then may want to consider selling your home before you go into

default. In this situation, you‟ll be able to pay off what you owe to the lender while keeping the equity that

you have built up.

Will Going Bankrupt Prevent Me from Losing the House?

Be sure to review your mortgage terms with a lawyer. It‟s important to note that GOING BANKRUPT will

not always prevent you from losing your home. Some people may think that, so long as you continue to pay

your regular mortgage payments, you will not lose your house. THIS IS NOT TRUE. If you breach a term of

the mortgage – whatever term that may be – and therefore cause an event of default to occur (e.g. by going

bankrupt!), then you could lose your home. In these situations, the lender will be entitled (assuming it has

properly registered the mortgage in the land title‟s office) to enforce its rights under the mortgage outside of

bankruptcy proceedings to take possession of the home to sell it to recoup debts owed. Don‟t be fooled! Do

your due diligence and speak with a lawyer about your mortgage terms and conditions! The last thing you

want is to lose your home because you thought going bankrupt was the ideal situation.

Victims of Real Estate Fraud

As a homeowner, the thought of being a victim of real estate fraud is scary. While uncommon, identity fraud

exists and should be guarded against. A fraudster, for example, can impersonate the registered owner of real

property and transfer the property to him, herself or a third party. Moreover, a fraudster could acquire a

mortgage fraudulently through false information or identification and then run away with the money. This

could happen several times with the same property before the fraud is discovered. If you are a victim of real

estate fraud, you should consult with a lawyer immediately to discuss your legal options – some of which are

discussed below.




Title Insurance

First, you might be able to make a claim to your title insurance company under your policy. Have a lawyer

review your policy to determine whether your claim would be eligible for coverage. Claims should be in

writing and include your policy number, contact information, and all relevant documents related to your

claim. Claims should be submitted as soon as reasonably possible. If your claim is covered, then the title

insurance company may (depending on the policy):

pay your actual loss and out-of-pocket expenses;

pay the amount required under the policy;

prosecute or defend a legal proceeding related to the claim (and pay for doing so);

negotiate a settlement of any claim; and

if applicable, pay for rent until you can live on the property or the claim is settled.

It is important to note that, once your title insurance company assumes the claim, your rights are transferred

and you will generally have no recourse against it for failing to pursue your rights or if amounts are not

recovered.

Civil Action

Second, if coverage under your title insurance is not available, you may still be able to sue the fraudsters in

civil court for, where applicable, deceit, conspiracy, and unjust enrichment among other things. To establish

the tort of deceit, there must be proof of fraud as demonstrated by a false representation made knowingly,

without belief in its truth, or recklessly and carelessly as to whether it is true or false. The motive of the

fraudster is immaterial.

If two or more fraudsters are involved, then the tort of conspiracy by unlawful means may be available.

Here, there must be an agreement or combination between two or more persons, a predominant intention to

injure you (or unlawful conduct which the fraudsters knew would likely result in injury to you), and actual

injury or damages suffered by you. Finally, a claim for unjust enrichment may be available. An unjust

enrichment exists where there has been an enrichment or conferral of a benefit to the fraudsters, coupled with

a corresponding deprivation to you, and no juristic reason for that enrichment.




If a court finds that wrongs have been committed it may, among other things, award damages and legal costs

and rectify title to the rightful owner.

Criminal Action

Third, you may consider contacting the police to have them lay charges against the fraudsters and prosecute

them in criminal court. Where applicable, the police may charge the fraudsters with fraud, criminal theft,

forgery, uttering forged documents, and possession of property obtained by crime. These are all very serious

charges, all of which carry maximum penalties of up to 10 years imprisonment (with the exception of fraud,

which carries a prison term of up to 14 years in certain cases).

Legislative Offences

Fourth, real estate fraud offences committed under the Land Titles Act, R.S.O. 1990, c. L.5 or the Registry

Act, R.S.O. 1990, c. R.20 carry fines of up to $50,000 for individuals ($250,000 for corporations) or

imprisonment of up to 2 years, or both. A court imposing such penalties may also order the fraudster to pay

compensation or make restitution.

Land Titles Assurance Fund

Finally, the Ontario Land Titles Assurance Fund (“LTAF”) is a government fund designed to compensate

people for certain financial losses due to real estate fraud. There are currently two procedural tracks that

apply to claims made to the LTAF: (1) the traditional process for claims arising before October 19, 2006 and

(2) a new earlier payment process for claims arising on or after October 19, 2006. October 19, 2006 is the

date that new amendments were introduced to the Land Titles Act which created the two-track system.

In cases of fraud that occurred before October 19, 2006, claimants must follow the traditional process. In

these situations, the LTAF can only be turned to as a fund of last resort. The LTAF can cover clear financial

losses and reasonable legal fees where a judgment has already been made and/or rectification has been

ordered.

To be eligible to apply to the LTAF, you must commence your claim within 6 years of the date of the fraud.

There are a number of rules concerning eligibility, such as the requirement that you must have tried other

avenues (e.g. criminal, civil, title insurance, etc.) to rectify the fraud before applying to the LTAF. You will

not be entitled to recover out of the LTAF if (among other things) your negligence caused or contributed to

the loss or if you knowingly participated or colluded in the fraud.




After a claim is made, it will be assigned to a hearings officer for investigation. You may be asked for

additional info or documentation to help clarify the claim. If compensation is not paid out directly, hearings

may be held by the Director of Titles to determine if you have met the requirements for compensation and

how much you will be paid. You will be notified of the Tribunal‟s decision in writing. That decision can be

appealed to the Superior Court of Justice within 30 days after the date of mailing of the Tribunal‟s decision;

in the event of no appeal, no further action will be taken by the Tribunal pending the outcome of the court

process.

For frauds that occurred on or after October 19, 2006, the new earlier payment process is available. This

process is available to homeowners and individuals who are purchasers, in good faith and for valuable

consideration of land used for residential purposes. Importantly, this new process makes the LTAF a fund of

first resort for eligible fraud victims where the loss is not covered under a policy of title insurance. This

means that applicants no longer need to pursue their loss through other means (e.g. civil, criminal, etc.) prior

to being entitled to compensation from the LTAF. Straightforward cases can be resolved (and title rectified)

within 90 days of being reported where there is no court action and all parties are cooperating.

Remember: if you believe you are a victim of real estate fraud, contact a lawyer immediately to discuss your

options.




About Us

Dynamic Lawyers is a website that allows users to freely and anonymously post their legal issue(s) online

and get free information and quotes from Ontario lawyers focusing on the legal area required. Multiple

lawyers respond to user posts via e-mail and users can follow up with the lawyers of their choosing. Since

launching in November 2008, Dynamic Lawyers has been featured in various local and national media.

Michael Carabash is a Greater Toronto Area Business Lawyer

and the Founder/President of www.DynamicLawyers.com

He can be reached at (647) 680-9530.

Joseph Khlaif is a Greater Toronto Area Realtor

and the Vice-President of www.DynamicLawyers.com





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