Disclosure Obligations

Your son is shot and killed in front of your house. When you sell must this be disclosed?

Recent case law provides the answer to this, and disclosure obligations generally, for agents and sellers with regard to emotional vs physical situations which may have occurred at the property.

Disclosure ObligationsEvery time I lead a discussion on disclosure it becomes a very emotional exchange with people passionate about their position one way or the other. This month the British Columbia Court of Appeal provided some much-needed clarity on items referred to as stigma and when and how to disclose.

In the case of Wang v. Shao, 2019 BCCA 130, the most sensitive of stigmas being murder was considered. In this fact scenario, the seller’s son-in-law was murdered in a gang-related killing on the sidewalk outside the seller’s house. The publicity related to this killing resulted in the seller’s daughter having to change schools. The seller purchased a house closer to the new school her daughter was attending.

The seller put the property on the market. The seller’s agent was asked why the seller was moving and he conveyed that he was informed it was because the seller’s daughter had changed school. No further questions were asked and no further explanation was given. As part of the evidence provided in the resulting the lawsuit, the seller disclosed that she was also moving for the safety of her children.

The Court of Appeal reviewed all the evidence and the decision of the lower court judge and stated that the rule of caveat emptor applies to the purchasing of property. This means the buyer alone is responsible for checking the quality and suitability of the goods before a purchase is made. But there are exceptions. You cannot misrepresent or tell half-truths.

The rule that exists and is upheld by this decision of “buyer beware” is not intended to permit sellers to deceive buyers rather it places the onus on the buyers to ask specific questions designed to unearth the facts relating to the buyers’ particular subjective likes and dislikes.

The Court decision provides a very clear and thorough review of the reasons for the finding that it is the buyers’ responsibility to ask questions to which a seller must truthfully answer.

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The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Caveat Emptor: Buyer Beware

“Caveat emptor, qui ignorae non debuit quod jus alienum emit”
“Let a purchaser, who ought not to be ignorant of the amount and nature of the interest, exercise proper caution”

Caveat Emptor: Buyer BewareCaveat Emptor is a Latin maxim which is defined by Merriam-Webster’s dictionary as follows: “the principle that a person who buys something is responsible for making sure that it is in good condition, works properly, etc.” You may wonder what this has to do with real estate transactions. When dealing in real estate, it is not only the purchaser in a real estate transaction that has to be aware of this maxim but also the seller. The reasoning behind this is the realtors, as well as the sellers, have to be fair and honest when disclosing problems which may not be evident to the purchaser or home inspector.

DEFINITIONS

A patent defect, by definition, is an obvious flaw that would be discovered upon a reasonable inspection of the home. An example of a patent defect would be a hole in the wall of the living room which is visible to the plain eye.

A latent defect is one that was not known to either the seller or the purchaser at the time of sale, and, as a result, was not disclosed. An example of a latent defect would be an inadequacy in the foundation which causes subsidence of the building structure itself.

POSITIVE OBLIGATION ON REALTORS & VENDORS

There is a positive obligation on the seller to do several things if there is a defect with their property. The first is that they should not cover up defects or try to misrepresent the true state of the property being sold. If it is found that the seller did misrepresent the property, or intentionally tried to cover up a defect, it will nullify the concept of “buyer beware” and will most likely result in the seller being held liable to some degree to the purchaser for the defect.

It is not only the seller who has a positive obligation to divulge information regarding defects in a home. Real Estate Agents have an obligation under the Real Estate and Business Brokers Act, 2002 Ontario Regulation 580/05 Code of Ethics, sections 3 and 4, which pertain to being candid and honest with one’s client as well as when dealing with any property in Ontario. Section 21 is also relevant because it sets out what the definition of a ‘material fact’ is. The relevant sections read as follows:

Section 3 – Fairness, honesty, etc.
A registrant shall treat every person the registrant deals within the course of a trade in real estate fairly, honestly and with integrity.

Section 4 – Best Interests
A registrant shall promote and protect the best interests of the registrant’s clients.

Section 21 – Material Facts
(1) A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earliest practicable opportunity, shall disclose the material facts to the client.
(2) A broker or salesperson who has a customer in respect of the acquisition or disposition of a particular interest in real estate shall, at the earliest practicable opportunity, disclose to the customer the material facts relating to the acquisition or disposition that are known by or ought to be known by the broker or salesperson.

EXAMPLE IN PRACTICE

The case of Krawchuck v. Scherbak et al. 2011 ONCA 352 is a prime example of when a REALTOR might be held responsible for not being candid and upfront with purchasers.

Facts

The sellers were aware of plumbing issues with the house but responded ‘no’ to the question about whether there were any issues with the plumbing on the Seller Property Information Statement (SPIS). The buyer was provided with a copy of this SPIS and relied upon it when purchasing the property. The sellers were also aware that the house had issues with the foundation settling. Despite this fact, they told their real estate agent that the house had not faced any settling issues for 17 years. That information was not questioned by the agent but simply conveyed by the agent to the buyer.

Held

The Court of Appeal agreed with the trial judge with respect to the sellers’ negligence, but due to the actions and inactions by the agent, the Court also extended liability to the agent. The Court used the due diligence requirements found in the Real Estate Council of Ontario’s Code of Ethics to establish the agent’s standard of care. It concluded that the agent should have been apprehensive about the information provided by the sellers. In this case, the agent knew about the home’s history of settlement problems, and could also have discovered signs of problems through the agent’s visual inspection of the property. Those factors should have prompted the agent to verify the accuracy of the seller’s statements.

A key factor, in this case, was the fact that the agent acted on both sides. Ultimately, the Court decided to apportion 50% fault to both the sellers and the agent. The finding against the agent was justified by the court because the agent assisted the sellers in filling out the SPIS and should have informed the sellers about the implications of misrepresenting information in the SPIS.

In another case, Sevidal v. Chopra (1987), 64 O.R. (2d) 169 (H.C.J.), the sellers of a house knew, at the time the agreement of purchase and sale was entered into, of the existence of radioactive material in the area and did not disclose it to the purchasers. The Judge found that the amount of radioactive material was sufficient to be considered a potential risk and hazard and although not an immediate risk or danger, amounted to potential danger. The sellers had a duty to disclose to the purchasers the potential danger to the property even though the radioactive material was in the immediate area but not known to be on the actual property in question.

CONCLUSION

It is always important to know what your role is as a seller and an agent to disclose material facts and to know what your disclosure obligations are. Here are a couple of simple tips for real estate agents to keep in mind when acting for either the purchaser or the seller:

When acting for a seller, ascertain what a reasonably prudent agent would discover and advise the sellers of your ethical obligations to them and to other members of the public. If the seller refuses to disclose a defect that you must disclose, do not accept the listing.

When acting for a purchaser, ask questions and record the answers given; ascertain what a reasonably prudent agent would discover and ensure that professional inspections are done.

If all else fails, just remember to follow the golden rule: “Do unto others as you would have them do unto you.”

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Evicting a Tenant from Newly Purchased Property

What to do when the property you are purchasing has a tenant?

If your purchaser wants to move in, the landlord can provide notice to the tenant if the purchaser legitimately intends to use the property as his or her own residence, or for the use of their spouse, same-sex partner, child, parent, or in-law. The applicable legislation that outlines the processes to be followed and the requirements for eviction in Ontario is the Residential Tenancies Act, 2006, S.O. 2006, c.17 (“RTA”).

What is the eviction process and how long does it take to get an order to evict a tenant?

In order to evict a tenant, the landlord must follow a process that is set out in the RTA. First, the landlord must provide the tenant with a written ‘notice to vacate’ which outlines the grounds for termination and sufficient details of the situation. This is addressed in section 44 of the RTA which outlines that 60 days written notice is required. It is important to note that the landlord cannot force a tenant to leave until the end of the tenancy agreement. If the lease agreement is for a fixed term (for example one year), then legally the tenant is not required to leave until the termination of the lease. If the lease is not for a fixed term (for example month-to-month), the tenant must still be provided with the 60 day notification period.

If the landlord wishes to accelerate the process and the tenant is agreeable, the landlord can obtain and submit an Agreement to Terminate Tenancy, referred to as Form N11. This form allows the landlord to specify a date that is earlier than the 60 day notice period that is typically required and can be enforced if both parties sign and agree to the terms outlined in the agreement.

If the notice to vacate expires and the tenant has not vacated the premises, the landlord could then submit an application to the Landlord and Tenancy Board (the “Board”) in order to schedule a hearing for an eviction order.

If a landlord is concerned that the tenant will not vacate on the notice deadline, they can pay a fee of $190.00 (or $175.00 if filed electronically) to pre-file a request for a hearing to obtain an eviction order so that they do not have to wait until after the deadline has passed. For more information on filing and fees click here.

Once an eviction order is issued by the Board the tenant is required to vacate the premises, as the Board’s order is a legally binding decision. If the tenant fails to leave by the date set out in the eviction order then the landlord can take the matter one step further and file the eviction order at the Court Enforcement Office.

What happens when the eviction order is filed at the Court Enforcement Office?

The landlord must present a certified order issued by the Landlord and Tenant Board to the Enforcement Office, and must also fill out an eviction information request sheet, which is provided by the Enforcement Office. At the Court Enforcement Office, the landlord will be required to pay a fee of $315.00 for the Sheriff to force the removal of the tenant from the property.

The Sheriff will provide the tenant with a notice that instructs the tenant to leave the rental property on or before a specified date and time. If the tenant indicates that they will not vacate the premises by the date listed on the notice provided by the Sheriff, the landlord should contact the Sheriff in order to obtain their assistance for the eviction. The landlord will be informed of the date and time the Sheriff will attend at the rental property to enforce the eviction order. The landlord will be required to pay a mileage fee to the Sheriff at 58 cents/km.

Once the Sheriff enforces the order and the tenant is evicted from the rental property then the landlord has full possession of the rental property and should take the necessary steps to change the locks. The landlord is required to wait an additional 72 hours following the eviction before they can attempt to sell, retain, or dispose of any of the evicted tenant’s personal property.

The Enforcement Office of the Superior Court of Justice is located in Barrie at 75 Mulcaster Street, 3rd floor. The phone number is (705) 739-6111. There is also an online directory for court services and various Enforcement Office locations across Ontario which can be accessed by clicking here.

Case Study:

A recent case, Renee v. Simonetti out of the Ontario Superior Court of Justice (the “Court”), involved a tenant who had been living in a property which was sold by her landlord on December 3, 2015. In preparation for closing, the landlord submitted an application to the Board for an order terminating the tenancy due to the upcoming sale and the fact that the purchaser required possession of the tenant’s apartment for personal use.

On September 28, 2015, the Board made the termination order which required the tenant to vacate the property by October 9, 2015. It was further held that if she failed to leave the property by that date, she would be required to pay a daily rate of $49.32 for staying in the unit. As you may expect, the tenant did not leave the property by the October deadline and no daily compensation was provided. As such, by the date of the most recent hearing in relation to this matter (February 9, 2017) the tenant had lived rent-free for over 15 months.

What had happened in the interim was that the tenant requested a review of the termination order, which was subsequently confirmed by the Board on December 17, 2015. Once this decision was made, the tenant was able to appeal the decision based on section 210 of the RTA. As soon as a tenant appeals under this section, the eviction order is stayed which thus allowed the tenant to live-rent free until the appeal was heard.

When hearing the initial appeal, the Court had to consider whether the tenant’s motion for extending the appeal “for perfection” should be granted. This was based on the tenant’s claim that in order to perfect the appeal, transcripts from all or part of the proceedings before the Board were required. The tenant provided the Court with a letter from an Official Examiner stating that they had been “minimally retained by [the tenant] to produce the transcript” but that the request was not able to be fulfilled until funds were received. In considering this letter, the Court determined that it was not sufficient proof that the transcripts had been ordered meaning the tenant had not produced enough evidence to extend the appeal. As such, the appeal was quashed as it had not been perfected and costs in the amount of $2,500 were awarded to the plaintiff.

On February 9, 2017, the Court heard a further motion from the tenant for an order staying the decision to quash the appeal. The Court dismissed this motion. In its decision, the Court stated that “the balance of convenience tilts significantly in favour of the landlord, who requires the premises for her own purposes, and who has been denied that right for more than fifteen months, at the instance of a tenant who is not paying rent.” As such, the Court was not prepared to grant any further extensions because the tenant had failed to indicate why an extension was needed or why one should, in fact, be granted in light of the history of the matter.

The Court dismissed the motion and awarded further costs in the amount of $1,000. Due to the dismissal, the initial order to terminate the tenancy would be reinstated and the tenant would finally be required to vacate the premises.

In one of our recent newsletters, we wrote about a similar situation in which the tenant was able to live rent-free for 18 months, arguably by exploiting loopholes in the system. Thus, it appears that tenants continue to abuse the system which may present difficulties for landlords seeking eviction. The article from this newsletter can be accessed by clicking here.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Joint Tenancy vs. Tenancy in Common

Joint Tenancy vs. Tenancy in CommonWhen two or more people are purchasing a property one of the key questions they are asked at the outset is: how will you be taking title to the property? Oftentimes the parties involved are not fully aware of the implications that this has or the legal relationship that is created as a result. There are two common ways to take title to property when two or more people are involved in the transaction. They include Joint Tenancy and Tenancy in Common.

  1. Joint tenancy involves ownership by two or more persons of the same property, all of whom hold title to the property and share equal ownership of the property.
  2. Tenancy in common is a relationship in which each of the tenants involved has a separate and divisible interest in the property, which may or may not be equal.

As a real estate agent, on behalf of your clients, it is important to be aware of the various considerations that must be made when facing a situation in which there is a joint tenancy or tenancy in common relationship, specifically in situations where one of the tenants passes away.

Where there is a joint tenancy, the surviving joint tenant is automatically entitled to obtain title to the property, and therefore, entitled to sell the property to someone else without any personal representatives of the deceased intervening with the transaction. This key characteristic of joint tenancy is referred to as the ‘right of survivorship’, which means that the full interest in title to a property will transfer over to the surviving joint tenant upon death of the other joint tenant. When acting as the real estate agent for the buyer, and purchasing a property from the surviving joint tenant, it is important to ensure that the seller provides and registers a Proof of Death Certificate on title to the property.

Unlike joint tenancy, a tenancy in common relationship does not have the same ‘right of survivorship’ implications. In this type of ownership relationship, when one individual dies, the death operates to sever the relationship. This means that each party involved would only retain their share of the property in question, and the deceased persons share would be transferred to whomever the deceased had previously determined would be entitled to it, often dealt with by way of a Will. If there is no Will, then the rules set out under the Succession Law Reform Act, R. S. O. 1990, c. S.26 will be applied.

Tenants in Common and Exit Agreements

When you are purchasing property with a friend, a family member (maybe for financing purposes) or with a spouse but in a second marriage, you will likely be taking title as tenants in common rather than as joint tenants.

For instance, often a parent co-signs the mortgage strictly to assist with the financing approval and is then required by the lender to be included on the property title. While that share will likely be a minimal amount (often 1%), the future ownership of this interest should be clearly explained to other family members and be included in that parent’s Will.

In addition to a Will, an Exit Agreement should be entered into by all of the parties involved. This agreement should cover all the reasons which might necessitate a need for the property title to be transferred. As you can probably imagine there are many factors that should be included in an Exit Agreement. It is preferable to have this discussion when you are purchasing and everything is amicable rather than when the reason for the change arises.

Your solicitor can assist with this or the parties can sit down and draft up an agreement between themselves. The truth is that most purchasers and their consultants do not think about this second most important question when the first question is asked; which is “How do you wish to take title?” The second question should be along these lines: “Have you considered: who will receive your share of the property upon your death, what will happen if there is a breakdown in your relationship, what happens if one party wants to sell and the other does not, or even if both parties want to sell, how will that sale be handled? (I.e. privately, real estate agent, what agent etc.?) If all of these factors are taken into consideration at the outset it will allow for a much smoother transition if and when a situation arises where title must be transferred.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

New Record Keeping Requirements for Ontario Corporations

New Record Keeping Requirements for Ontario CorporationsThe Change:

On December 10, 2016 the Forfeited Corporate Property Act, 2015, S.O. 2015, c. 38, Sched. 7 (“FPCA”) came into force and introduced an important new amendment to the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”). This amendment, sets out in Section 140.1 of the OBCA,  a more onerous record keeping requirement on OBCA corporations that have an ownership interest in land in Ontario. This section states:

Register of interests in land in Ontario
140.1 (1) A corporation shall prepare and maintain at its registered office a register of its ownership interests in land in Ontario. 
(2) The register shall,
(a) identify each property; and
(b) show the date the corporation acquired the property and, if applicable, the date the corporation disposed of it. 
Supporting documents
(3) The corporation shall cause to be kept with the register a copy of any deeds, transfers or similar documents that contain any of the following with respect to each property listed in the register:
1. The municipal address, if any.
2. The registry or land titles division and the property identifier number.
3. The legal description.
4. The assessment roll number, if any.

This new record keeping requirement applies ONLY to ownership interests in land located in Ontario; any land owned by an OBCA corporation that is outside of the province is not subject to these new requirements. Importantly, the term “ownership interests” as outlined in s. 140.1(1) is not defined, which may present some problems with regards to interpretation. For example, a broad interpretation would include both registered and beneficial interests in land as well as leasehold and easement interests. Arguably, this is the interpretation that should be adopted and considered by corporations that are implementing these new changes as they will be covering all of the bases until the term “ownership interests” is further defined.

Purpose: 
The purpose of the new amendment can be analyzed by considering the intent behind the FCPA. As noted by the Ministry of Finance, the FCPA has the following primary goals:

  • to mitigate risks imposed upon Ontario taxpayers where corporate property is forfeited following dissolution and thus transferred to the Crown;
  • to reduce the total number of properties forfeited to the Crown;
  • to increase corporate accountability for costs associated with forfeited property;
  • to increase transparency and certainty in the management and disposition of forfeited property; and
  • to increase the productive use of property by having a quicker and more efficient turn around rate.

Previously, when an OBCA corporation was dissolved, any property that had not been disposed of by the date of dissolution immediately vested in the Crown. Under the new scheme, one of the purposes is to ensure that registered interests in land will be identified and transferred to a new owner, by way of a registered transfer, prior to dissolution, thus assisting with the achievement of the above-noted goals.

Implementation Procedure:
These amendments took force on December 10, 2016 and require all corporations incorporated or continued under the OBCA prior to this date to ensure compliance within a two year time frame (thus records must be up to date by December 10, 2018), while those corporations that were incorporated or continued on or after this date are immediately subject to the new record keeping rules.

Practical Implications:
While small corporations with minimal interests in land may not be drastically affected by these new rules, those corporations that have a significant amount of real estate holdings (such as real estate development corporations) will now face additional administrative costs and challenges. For example, some corporations may hold hundreds or thousands of properties and may engage in the acquisition and disposition of property on a weekly/ daily basis. Under the new rules, these corporations are responsible for preparing, maintaining and storing a detailed register that contains all supporting documents relating to each property (s. 140.1(3)). Ensuring that the register complies with the new rules may therefore become an administratively onerous and time-consuming task requiring daily attention.

A further consideration relates to the real estate transactions themselves. Oftentimes, when corporations are selling property, they make certain representations and warranties that their corporation is in compliance with all applicable laws. Therefore, in order for a corporation to be able to provide such representations to purchasers, creditors or other interested parties, they must ensure that their records are completely up-to-date with regard to their current real estate holdings. A failure to comply with this new provision may therefore prevent certain corporations from entering into financing arrangements or other commercial transactions if they are unwilling/ unable to provide these representations.

Failure to Comply: 
Non-compliance with the new record keeping rules can result in significant penalties for both the corporation and its directors and officers. Where a corporation fails or neglects to comply with these requirements, without any reasonable cause, they are deemed guilty of an offence and subject to a fine of up to $25,000. Furthermore, directors and officers can be held personally liable for a fine of up to $2,000, imprisonment for up to a year, or a combination of the two. As such, compliance is crucial.

Conclusion:
As discussed above, the new record keeping requirements may have a significant impact on the overall administration of certain OBCA corporations. These new administrative burdens may be significant meaning it is vital that all corporations incorporated or continued under the OBCA ensure that proper monitoring and compliance programs are established within a reasonable time.

For those existing corporations, it is recommended that they begin preparing and updating their register as soon as practical in order to ensure compliance by the December 10, 2018 deadline. For those corporations incorporated/ continued on or after December 10, 2016, it is important that they are cognizant of these new requirements so that they can ensure immediate compliance. This is especially true considering the substantial consequences that can result in a case of non-compliance.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

18 Months Rent Free – Tenants Abusing the System

18 Months Rent Free – Tenants Abusing the SystemIn the case of Nwabue v Rojas 2016 ONSC 7754, out of the Ontario Divisional Court (the “Court”), a tenant was finally ordered to be evicted after living rent-free for 18 months. The tenant, Nwabue, had not been paying rent since April 1, 2015. From that point on, the landlord had been taking the steps required to have the tenant evicted. However, it wasn’t until this decision was released on December 9, 2016 that an order was made by the Court entitling the landlord to file the order with the Court Enforcement Office who would be directed to give vacant possession of the unit to the landlord immediately, or as soon as practicable.

Background Facts

Following the non-payment of rent, the parties in this case requested mediation conducted by the Landlord and Tenant Board’s mediation service which occurred on June 25, 2015. Following mediation, the tenant consented to an order which terminated his tenancy as of July 31, 2015. The landlord agreed to waive all rent arrears and fees owed by the tenant up to June 30, 2015.

Despite this consensual agreement, the tenant refused to move out by the agreed upon date. Instead, two days after the agreement had been made, the tenant requested a review of the order, which was subsequently refused in an order by the Landlord and Tenant Board (the “Board”). As per section 210 of the Residential Tenancies Act, 2006, S.O. 2006, c. 17, any person who is affected by an order of the Board may apply to the Divisional Court within 30 days after the order is received in relation to questions of law. This allowed the tenant to appeal the matter, however, no effort was made by the tenant to set a hearing date. As soon as a tenant appeals, the eviction order is stayed which thus allowed the tenant to live-rent free until the appeal was heard.

In February, March and June 2016, the landlord’s counsel sent letters to the tenant’s known address suggesting possible hearing dates. No response was received from the tenant. A motion was made by the landlord in September 2016 to quash the eviction appeal and was scheduled to be heard on November 22, 2016 with the Court. The tenant did not show up for this motion hearing. However, instead of dismissing the appeal altogether, the motion judge set a hearing date for the appeal to be heard on December 6, 2016.

On November 23, 2016, the notice of hearing date was served and it wasn’t until December 5, 2016, a day before the scheduled hearing, that the tenant “sprang into action”. The tenant sent a letter to the landlord’s counsel objecting to the hearing date on the basis that he had a university exam for his graduate program, and further, that he did not have adequate time to prepare for, and arrange travel to, the hearing. The president of the panel of the Court requested some form of confirmation of this conflicting commitment but no word was received from the tenant by the morning of the hearing date so the hearing proceeded as scheduled.

Decision of the Divisional Court 

The Court dismissed the appeal for lack of merit and costs to the landlord were ordered in the amount of $5,000. The Court concluded that “it is plain that the tenant was evading contact and avoiding a hearing, particularly in light of the fact that he had been in possession of the apartment rent-free since April 1, 2015.” Since the effect of dismissing the appeal would be to lift the stay of the order terminating tenancy, and the initial eviction order had expired, the Court made a new order for vacant possession to be immediately enforced by the Court Enforcement Office.

Practical Considerations 

This case highlights some of the problems that are commonly faced by landlords under the existing regime. There have been numerous criticisms pertaining to the legislative scheme with regards to the amount of time that it takes to get an eviction and how easy it is for tenants to create delays. These issues have arisen in many of cases.

One example is the case of D’Amico v Hitti, 2012 ONSC 4467 which we have previously written about. In this case, Justice Ted Matlow out of the Ontario Superior Court noted that there are many “unscrupulous residential tenants” that will take advantage of the justice system by manipulating the law and taking advantage of legal loopholes. Justice Matlow recognized this problem when reviewing this case, and a number of other similar cases, which prompted him to call for changes to be made in relation to how landlord and tenant disputes are approached and handled within Ontario. Our article on this case can be accessed by clicking here. 

In response to these widely held criticisms, the government of Ontario has launched a series of consultations surrounding potential changes to the Residential Tenancies Act, 2006, which include proposals relating to how eviction appeals and hearings are handled and a review of rental increase guidelines.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Lawyers’ Approval

Lawyers’ ApprovalAn Agreement of Purchase and Sale is the foundation for every real estate transaction and is one of the most important legal documents many individuals will ever sign. Once an Agreement of Purchase and Sale is signed and all conditions have been fulfilled or waived, it becomes a binding contract between the Seller and the Buyer which cannot be amended unless both parties approve the changes. Typically, it will be difficult to get approval for an amendment once the deal is firm because usually if one party recommends changing the agreement, it is for the sole benefit of that party and therefore, the other party may not agree. A clause pertaining to lawyers approval will help to avoid these problems, as a lawyer can make recommendations before the contract becomes binding on the parties.

It is important that both the Buyer and the Seller include a clause in the agreement pertaining to lawyer approval. By including a clause such as this both parties are provided with the opportunity to have their lawyer review the document in order to approve of it, make recommendations for amendments that should be made to it, or terminate it completely. An example of a clause that could be inserted is as follows:

This offer is conditional upon solicitor approval of the terms of this Agreement of Purchase and Sale in his sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller within 5 banking days following the date of acceptance excluding Sat/Sun & Statutory holidays, that the above condition has been fulfilled or waived, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller within the time period stated herein.

The most common misconception is that you can make the purchase agreement conditional upon your lawyer’s approval and then you have accomplished the same thing as if the agreement were reviewed before it is signed. This condition should not be relied upon to replace seeking legal advice before you sign. Your lawyer will not have discretion to simply approve or not approve the agreement. A solicitor is only entitled to refuse approval of an agreement if there are genuine legal objections or impediments to the agreement the parties have made. The scope of the approval or disapproval will be limited to the form or content of the agreement and the law does not permit your lawyer to disapprove just because you ask him or her to. Nor does it allow the lawyer to insert new terms or conditions or attempt to renegotiate terms that were simply not understood.

An example of a case that highlights a common misconception about inserting a condition pertaining to lawyer approval is Rahall v. Tait, 2006 ABQB 587, where the Buyers of a home were told that their offer had been accepted by the Sellers on April 7, 2006. This agreement of purchase and sale had a condition that it was subject to the Sellers lawyer’s approval and they had up until April 10, 2006 to review this offer with their lawyer. On this day, after reviewing the agreement, the Sellers lawyer informed the potential Buyers that the deal was off. Apparently there was a concern held by the Sellers that the new home they were building was not going to be ready at the time that the proposed deal was scheduled to close. The Buyers were never informed of this concern and were skeptical that the Sellers even asked their lawyer to approve the contract. The Buyers sued the Sellers and a judge concluded that the Sellers did not act in good faith as there was no reason why the lawyer should not have approved of the contract. The fact that the Sellers changed their mind because of a concern that their new home may not be ready in time caused the judge to deem that they were not acting in good faith towards the Buyers.

The judge in this case stated that “the term ‘subject to lawyer’s approval’ is not an all-encompassing condition but must be supported by evidence to determine if it was or was not sought out”. In this case, it was determined that the Sellers did not properly seek out approval and that they could not use the late closure of their new home as an excuse to cancel the deal, especially since this information was not shared with the Buyers. The full case decision can be accessed  by clicking here.

Overall, it is very important that before you sign the agreement and create a binding contract you need to seek out the opinion of someone who has a legal obligation to give you advice based on what is best for you.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Addressing Water and Septic Issues in the APS

Addressing Water and Septic Issues in the APSFor agents who are assisting clients with properties that are in a rural area, there are two things to be aware of, water and septic. If either or both of these items are private you MUST address it in the agreement of purchase and sale. This blog contains sample clauses pertaining to each issue that we recommend should be inserted into the agreement.

Can you Make your Own Kool-Aid?

First ingredient is water. You cannot make your own Kool-Aid if you do not have potable water.

The other thing you cannot do without potable water is purchase a home if you require a mortgage.

It is not particularly easy to address the private water issue. You cannot simply have a representation that the Seller believes the water is potable. If you are obtaining a mortgage for the purchase, the lender will insist on a Water Potability Certificate. Even if you are not required to obtain this Certificate because the Buyer is not obtaining financing when you sell, that person will require this and for your own health, you want the water to be potable. Therefore, I can think of no situation when it would be appropriate to waive the requirement to have a Water Potability Certificate.

I have received a large number of offers over the years where there is either no clause to address the private water well or merely a statement that a Water Potability Certificate is required prior to closing.

It is my strong opinion that a condition pertaining to this MUST be included in all offers for properties with a private water system.

This Offer is conditional upon the Buyer determining, at the Buyer’s own expense and sole discretion, that:

  1. there is an adequate and potable water supply to meet the Buyer’s household needs;
  2. the pump and all related equipment serving the property are in proper operating condition; and
  3. the Buyer obtaining a Certificate of Potability from the authority having jurisdiction indicating that there is no significant evidence of bacterial contamination.

Unless the Buyer gives notice in writing delivered to the Seller no later than _____ p.m. on the _______day of ___________, 20____ that these conditions have been fulfilled, this Offer shall become null and void and the deposit shall be returned to the Buyer in full without deduction. These conditions are 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. The Seller agrees to allow access to the subject property to the Buyer or the Buyer’s agent for the purpose of satisfying this condition. The main differences from the way that I have handled this and the standard clauses (which are set out below) are as follows:

  • The Buyer or the Buyer’s agent are taking the sample. Note, you should visit the following website to be aware of the many ways that one can cheat on a water test: http://inspectapedia.com/water/watercheater.htm.
  • This is a condition so if the Certificate is not obtainable from the samples the Buyer can enter into negotiations about what it will allow the Seller to do in order to obtain the clear certificate. In the example below the Seller can do whatever he deems necessary to obtain the required Certificate.

The standard clauses which should NOT be used are as follows:The Seller agrees to allow the Buyer & the Sales Representative, which has obtained this Offer, to obtain 2 water samples from each water source (well) on the Property and to submit such samples to the health authorities having jurisdiction for testing and submission to the Buyer’s solicitor. Seller agrees to provide access to the property for the taking of such samples at a mutually agreed upon time and to provide any necessary written authority which may be required of him to obtain sample results from the authorities having jurisdiction. 

AND

The Seller agrees to allow access to the Sales Representative for the purpose of obtaining a water sample or samples, and further to provide written permission for results of such tests, within 3 weeks following the acceptance of this offer, in order to provide the Buyer’s Solicitor with a current Bacteriological Analysis of Drinking Water from the local health authority having jurisdiction over the area, with a rating indicating that there is no significant evidence of bacterial contamination and that the water is potable and fit for human consumption. Should the results indicate a concern of bacterial contamination, the Sellers will remedy the problem, and re-submit a water sample until given a new rating indicating that there is no significant evidence of contamination, and further provide the results to the Buyer, prior to the date set for examining title. 

Septic System Sample Clauses

When acting for a Buyer, it is preferable to request that the septic system be inspected, however, in many cases this is not practical (especially during winter months in which access is restricted). Due to this, I recommend that a clause be inserted into the agreement of purchase and sale to warrant the septic system. When you obtain a representation or warranty for your client you need to explain to your client what they have. It is something that can be relied upon if there is a need for a claim in the future. For big items, this is important because it will lay the basis for a claim to be commenced. An example of a clause pertaining to the septic system to be inserted into the agreement is as follows:

The Seller represents and warrants, to the best of the Seller’s knowledge and belief, that at the time of installation:

  1. all sewage systems serving the property are wholly within the setback requirements of the property, and had received all required Certificates of Installation and Approval pursuant to the Environmental Protection Act;
  2. all sewage systems serving the property had been constructed in accordance with the Certificates of Installation and Approval;
  3. all sewage systems serving the property had received all required Use permits under the Act or any other legislation; and
  4. all sewage systems serving the property have been maintained in good working order during the Seller’s occupancy and will be in good working order on closing.
Further, the Seller agrees to provide any and all documentation relating to the sewage system, within the Seller’s possession, or which may be made available to the Seller by the appropriate authorities, and given to the Buyer prior to the last date set for examining title. The Parties agree that these representations and warranties shall survive and not merge on the completion of this transaction, but apply only to the state of the property existing at the completion of this transaction. The Seller agrees to provide evidence if the septic system has been pumped in the past two years or to have the septic system pumped out before the completion of this transaction and will provide a receipt to the Buyer on closing.
Overall, understanding the signs of a failing septic system, and ensuring that they are properly installed and inspected is an important aspect that should be considered by anyone buying or selling a home.

Application in Practice

Given it is my belief that we can learn the most from the discipline of others, I have reviewed the discipline decision of a case referred to as the Kirkfield Offer which can be accessed by clicking here. In this case, the agent for the Buyers of a rural property included only one condition – a home inspection. The MLS listing disclosed it was on a private water and well system. Shortly after closing the Buyers discovered the water supply was polluted and the sewage system was malfunctioning.

RECO ruled that the agent acted unprofessionally in failing to insert into the offer any clauses regarding a water potability test, a well certificate regarding water flow rate and/or a requirement for either a waste disposal certificate or an inspection of the septic system by a qualified person. The agent was ordered to pay a $10,000 penalty and the Brokerage a $5,000 penalty.

The agent in the Kirkfield decision relied on the home inspection condition to be enough to address the private water and septic system. He stated that he thought that in all likelihood the inspector would recommend the water well be checked. While I agree a home inspection is an important requirement to be recommended by agents, it does not absolve agents from knowing about issues related to rural properties and ensuring their clients are properly represented.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Warranties and Representations 101

Warranties and Representations 101In order to understand the use of the terms “representation” and “warranties” we need to begin with a definition of each:

A representation is “a statement of fact made to induce another to enter into a contract”. One party provides information to the other at the time the contract is made and the contracting party decides whether to proceed with the contract.

A warranty is “a promise that a proposition of fact is true”, and they are assurances as to future events indicating that certain aspects of the deal will remain “as is” up to and through the closing.

Both representations and warranties refer to the underlying assurances that one party provides to another party in a contract. These assurances are statements that are supposed to represent factual information and can be relied upon by the both parties involved.

From the point of view of the Buyer, the major purpose of representations and warranties is to require the Seller to reveal certain facts that, when combined with due diligence, will disclose risks that can be assessed allowing the Buyer to make an informed decision as to whether or not to complete the purchase. If any representations or warranties made by either party prove to be incorrect or non-factual the other party is entitled to seek compensation.

What is the difference between the terminology ‘surviving’ closing and ‘merging’ on closing?

In real estate transactions the deal is closed and the transaction is completed once the Transfer/Deed has been exchanged for the money. However, certain warranties and representations can ‘survive’ the closing of the deal, if it is outlined in the contract as such. For example, a common clause that indicates survival is “this warranty (or representation) shall not merge, but shall survive the completion of this transaction”. This wording means that both parties agree that the representations or warranties made shall remain in full force and effect following the closing date. Inserting this type of clause keeps the Seller obligated to the Buyer after the closing has occurred.

On the other hand, representations and warranties can sometimes “merge” on closing which is represented by a clause such as this: “representations and warranties made by the Seller herein shall merge on closing”. This clause relates to the legal doctrine of merger which indicates that the contractual warranties and representations will not survive the closing. Instead, they are “merged” into the final representations and warranties that are stated within the closing documents that conclude the transaction. The Seller’s obligation ceases to exist and future claims cannot be made.

Recently, it has become more common for a hybrid of the merger and survival clause to be used as follows: “the Seller warrants that the chattels are in good working order and this warranty shall survive the closing but only to the condition of the chattels on the day of closing”. This is a way of ensuring that the main items like the fridge, stove and dishwasher that have been sold with the property are in working condition the day of the sale but does not provide any guarantees from the next day forward.

If there is a specific item for which a warranty has been given that is crucial to the transaction (like the pool equipment that is warrantied to be in good working order) a hold back should be set out in the agreement. This money would then be available to rectify any problems up to the amount of money held back for a specified period of time. An example of such a clause would be:

The Seller warrants that the equipment required to operate the pool is in good working order and this warranty shall survive the closing day, but only to the condition of the pool equipment on the day of closing. The Seller’s solicitor shall hold back the sum of $2,000 for 5 business days after the closing. If the Seller’s solicitor is not notified of any concerns with the pool equipment within 5 business days after the closing, the money shall be released to the Seller and this warranty will be deemed expired. If there are concerns expressed as to the condition of the pool equipment on the day of closing the Buyer shall be required to provide details of the concerns and an estimate for repairs to be considered by the Seller.

If you have any questions pertaining to common real estate clauses feel free to send us an email. We would be happy to write about any topics that are of interest to you.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Writs of Execution and How to Avoid a Shortfall

Writs of Execution and How to Avoid a ShortfallWhat is a Writ?

A writ of execution (“writ”) is a court order or other statutory authority that permits a creditor to instruct a sheriff to seize and sell assets/property of a debtor to satisfy an unpaid judgment. The act of filing a writ is the first step toward instructing the enforcement officer to seize and sell the debtor’s property. A variety of federal and provincial statutes, regulations or an order of the court may act as the authority for the issuance of a writ.

A creditor may file a writ against a debtor in one or more of the 49 counties or districts (sheriff/enforcement offices) in Ontario. From the time it is filed, a writ may encumber any land or interest in land presently owned, or land that may be purchased in the future by the debtor, in the county or district in which a writ has been filed. Effectively, the judgement creditor can record the execution to “freeze” the title to real property until the execution is satisfied.

This is KEY. If anyone has a judgement registered in the same county as the property is located, that property cannot be sold until the judgement is lifted either by full payment directly to the sheriff or by reaching a settlement with the creditor whereby they agree to release or lift the judgement.

The effect of a writ is limited to the jurisdiction in which it is filed. For example, a writ filed with the Sheriff of the City of Toronto does not have any effect on real property located within the jurisdiction of the Sheriff of the Region of Peel. If a writ is to be enforced or have effect in more than one location, then separate writs must be filed with each applicable sheriff/enforcement office.

How Does A Writ Get Registered Against An Individual or Property?

Often a writ results from bringing a small claims court action against another person and that person ignores it. If you do not defend a money claim made against you in a small claims court, the party bringing the action will be granted a default judgement. That judgement can be filed with the sheriff and form a writ. This writ can be filed against a person’s name with no further notice to them. Statutory orders related to federal or provincial tax enforcement as well as family support enforcement can also be registered without prior consent.

If a debtor owns property, a creditor is entitled to file an application to the Land and Property Information Office to file a writ on the title to all real property owned by the debtor. The writ once registered on title is active for up to six years, and prevents the debtor from selling the property unless the debt is paid. Each time a writ is renewed, it becomes active for a further six years. A writ may be renewed before its expiration date by filing a Request to Renew (Form 60 E which can be accessed by clicking here).

How Is The Real Estate Agent Affected?

An outstanding writ is one of the most common financial aspects of a transaction that will cause a property to either not close at all or close in a short fall position with no sale proceeds to pay the real estate commission statement.

In the case Re Grant, it is affirmed that real estate agents and brokers are entrusted with significant sums of money and this role carries the expectation that persons working in the real estate industry appreciate the responsibilities they have and will act accordingly.

It is not uncommon for agents to be unaware of a writ registered against a property and to be utterly surprised when these show up during title search, which is often a week before closing. This timeframe is often inadequate to satisfy the settlement timelines of some writs or negotiate a settlement between multiple debtors if there is going to be a shortfall. As a result, this could jeopardize the closing deadline since you cannot sell property without paying a writ if it is registered; neither can you obtain mortgage funds. This should be factored in as early as possible to avoid a short sale or failed transaction and to protect the real estate commission.

Listing agents are advised to run the names that are on title for the nominal fee of $11.00 per person to see whether these names are clear. Of course a writ can be registered any day and it could happen after you run it. In most cases, however, they are in place for a longer period and should have been disclosed and discovered earlier.

In the case Lograsso v Kuchar, a client advanced negligence claims when a real estate transaction was closed even though a writ was filed against the property. This case shows the importance of making the necessary investigations and acting accordingly. Failure to act in a timely manner could result in costly remedial action on the part of the agent and/or solicitor.

What Does It Mean to “Run Clients’ Names” and How Is This Done?

This is where an execution search is performed against the exact name of the registered owner. The Land Titles Act, R.S.O. 1990, c. L.5 provides that if a writ is filed under a different name other than that under which the owner is registered, the writ has no effect. This search determines whether a person, corporation or other legal entity has a writ filed against them which affects all lands owned by such person, corporation or other legal entity within the jurisdiction of the sheriff’s office and/or the land titles office where such writs are filed.

I recommend that agents run an execution search since this is vital to determining if there is going to be sufficient funds on closing. Ideally, this should be run when the property is listed to confirm there are no liens, and hopefully there is no change in status prior to closing. Lenders also require clearance before funds are advanced. The status of your clients may change between the listing date and the sale but at least you will have proven your due diligence to the buyer’s agent and the buyer by taking this proactive step

If buyers appear to be in a situation where money is tight and they might have had a situation in the past which could be a cause for concern, it is advisable that agents have their names checked. This is the only way to ensure there are no outstanding judgments that may affect the transaction, whether a sale or purchase.

If the agents do not run the names as part of the listing process, the first time the names will be checked is by the buyer’s lawyer as part of the title search. The problem with that is that requisition dates are commonly a week prior to closing and there is not enough time to deal with a writ that is discovered that close to the closing date.

Land Registry Office Search

Writ searches can be performed by visiting the local land registry office and performing a Writ search. The process is simple and inexpensive. These searches are performed at designated Teranet terminals within the land transfer office at a cost of $11.00 per name plus $6.00 per writ.

Remote Search

Lawyers can also conduct remote searches on the Teranet eXpress website. This system provides flexible remote access to search writs filed and entered into the Ontario Writs System.  This allows lawyers to retrieve writ details online and print the writ detail reports.  The Teranet eXpress system is available weekdays 8 a.m. to 8 p.m.

What Information Do I Need To Perform A Writ Search?

If you know the exact spelling of the owner’s name and the city in which they reside, you can perform a search. An execution number, if available, can also be used to search a client’s name.

It is important to note however that an execution search can yield a match even though actual identities differ. Should this occur, it is advisable to have your clients contact their real estate lawyer to apply for clearance.

Conclusion

Searching for writs is a necessary part of all real estate transactions. Despite how complicated the execution process may sound, the actual running of a client’s name is fairly quick and inexpensive. If there is a writ that will impact the sale or purchase of a property the sooner the information is known, the more likely a solution can be reached.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.