When is Spousal Consent Required?

Spousal consent is required when you are listing a matrimonial home.

Sounds easy enough, however, you need to know what is considered a matrimonial home to ensure you have the consent of both spouses for every step of this transaction.

The definition for the matrimonial home comes from the Family Law Act, R.S.O. 1990, c. F.3 (“FLA Act”). A matrimonial home is “every property… ordinarily occupied by a person and his or her spouse as their family residence”.

In order to understand this definition, it is necessary to understand that a ‘spouse’ for these purposes only includes married couples (both same and opposite sex). Common-law couples are not subject to the same legislative provisions.

Also, because the definition includes the wording “every property”, it is possible for there to be more than one matrimonial home, as long as it is used as a family residence. It is interesting to note that who holds the actual title on these matrimonial homes is irrelevant, as the spouse simply just has to occupy the home as a place of residence for the family.

The FLA Act provides spouses with an “equal right” to possess the matrimonial home, while also prohibiting one spouse from disposing of the home, or encumbering it without the consent of the other spouse. If this condition is breached, and one spouse tries to dispose of, or encumber a matrimonial home without consent, the transaction may be set aside in certain circumstances.

One circumstance where the sale may not be set aside is if the buyer acquired the home for good value, in good faith, and without any notice or disclosure that the home was considered a matrimonial home for which spousal consent was required.

Information that could constitute notice that it was in fact a matrimonial home would include information obtained by the buyer’s solicitor when conducting the title search which could indicate that a spouse exists. In that case some sort of spousal consent would be required, and if none is obtained, the validity of the transaction may be put at risk.

Overall, it is important for you as a real estate agent to ensure that you familiarize yourself with who owns the property and determine whether or not a spouse exists. If so, you should ensure that you get both co-owners to execute the Agreement of Purchase and Sale, as to avoid any potential conflicts down the road which may lead to the transaction being set aside. I advise agents when in doubt get both spouses to sign.

This article was prompted by an agent sending me the following email:

I’ve heard contrasting opinions around spousal consent. Here is the scenario:
– matrimonial home
– only 1 party is on title
– 1 signs the Listing Agreement under Seller while the other signs the Spousal Consent line

Does the non-titled spouse need to sign all documents outside of the listing agreement? The APS? Amendments/Price Reductions???

I am sure after confirming that spousal consent was required for the listing you all understand that all dealings require both spouses to consent. Why would you only be required to obtain consent to the listing agreement and initial asking price and not any amendments or price reductions if both spouses have equal rights to the property?

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.

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.

For agents who are assisting clients with property 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. I previously provided a handout on septic systems. For septic you will want a warranty that it is in good working order, a copy of the use permit and evidence of a pump out in the last two years or a requirement to have it pumped.

It is not so easy to address the private water issue. You cannot simply have a representation that the vendor 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 for your lender, 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.

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 purchasers 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 owners 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.

I have received a large number of offers in the past few months 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 clause similar to that which I have set out below 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, 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, by clicking here. you can visit a website which identifies the many ways that one can cheat on a water test.
• 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.
• If the certificate is not obtainable it is arguable whether the buyer can walk from the transaction given this was not a condition.

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 sample 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.

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 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.

Septic Systems and Ontario Law

The Ontario Onsite Wastewater Association noted in their publication Septic Smart that investigators in Ontario estimate that 30 per cent of the one million household septic systems installed are failing to adequately protect the environment. When a change must be made to a septic system, such as repairs, replacements or installations, it is very important that you are familiar with the legal limitations imposed upon you in relation to where the system can be located with respect to your house, your well, your neighbour’s house and well and any bodies of water within the vicinity. Knowing the distances required is important in order to help ensure that wastewater from septic systems is unable to reach and contaminate any nearby water supplies, therefore, keeping our environment cleaner and our water safer.

In Ontario, all residential septic systems are regulated by the Ministry of Municipal Affairs and Housing (“MMAH”) under the Building Code Act, 1992, S.O. 1992, c. 23 (the Act). One of the main requirements of this Act is that any individual who plans to engage in construction, installation, extension, enlargement or alteration of any sewer system or building connected to the system, must obtain a building permit from their local Building Department. In Barrie, this Department is located at the City Hall on 70 Collier Street L4M 4T5, and an application for a Building Permit can be obtained by clicking here.

On July 13th 2010, the Act was amended by Ontario Regulation 315/10 in order to help protect Ontario’s drinking water as well as the environment, and to help support the Lake Simcoe Protection Plan. This regulation established a requirement for on-site sewage system maintenance inspection programs to be conducted in specific areas by principal authorities such as municipalities, health units and conservation authorities. Many of the programs established in this regulation did not take effect until January 1, 2011. There are maps located on the MMAH website (which can be accessed by clicking here.) which indicate the areas that have been selected for maintenance programs within five years of January 1, 2011. If any concerns are identified in the initial inspection, further investigation may be required and authorities will address which steps need to be taken next.

The Lake Simcoe Region Conservation Authority also has a program which provides funding to landowners who are required to replace or repair defective or failing systems in order to protect ground/surface water. This program allows for landowners to qualify for 50 percent of the funding, up to a total of $5000.00, for eligible projects. In order for a project to be eligible, the system must be located 100 meters or less from surface water, or water sources which lead directly to surface water. Upgrades to septic systems due to household expansion, or any work that proceeds before approval under this program is granted will not be covered. For more information on this program click here.

When acting for a home buyer, it is preferable to request that the septic system be inspected, but in many cases this is not practical, especially during winter months which do not provide for easy access. Due to this, I would recommend that you ensure that a warranty is included in the agreement prior to finalizing the sale in order to protect against any unexpected delays or costs. For an inspection such as this, it may be conducted by simply hiring a licensed septic system installer, a sewage hauler or a professional engineer.

It is also important to insert a clause in the agreement of purchase and sale to warrant the septic system. Examples of a clause that should be inserted include:

“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 purchasing a home or trying to sell a home.

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.

Backup Offers

What is a Backup Offer?

A backup offer is the term used to refer to an offer that is submitted to a seller after the seller has already accepted an offer.

The first offer that is submitted to and accepted by the seller becomes the primary contract in a real estate transaction. Any further offers which are submitted to the seller and accepted become backup offers. The reason a buyer would submit a backup offer would be to ensure they are next in line if for any reason the first contract is terminated. This is especially common when the first contract contains conditions that appear likely to be unfilled like the sale of a home by a certain date or financing.

There can be more than one backup offer in place for a home and therefore the language used in submitting a backup offer should be carefully considered. In situations where the primary contract is not completed, and the deal fails to close, the buyer holding the backup offer should always inquire as to why the deal failed. This is especially important if the termination was due to something revealed during a home inspection.

If your client holds the first contract in a backup offer situation you as the agent should be very careful in advising your clients. As can be seen in a case out of the Provincial Court of British Columbia, Wright v. Hampster, some amendments will constitute a collapse or non-completion of the primary contract.

In Wright v. Hampster, the plaintiff (the purchaser who held the backup offer) claimed that the defendant (the seller) had altered a material term in the primary contract to the effect that the deal would have failed. The amendment that was made by the defendant (the seller) to the primary contract was that an extension was to be granted to the original buyer in order to obtain financing. As a result of this amendment, the plaintiff (backup purchaser) brought forth an action claiming that this had amounted to a “collapse” of the transaction; therefore, the defendant (seller) had breached their contract with the plaintiff (backup purchaser).

The judge in this case was left to determine whether or not the amendment did in fact amount to a collapse. To reach this decision the judge turned to a previous case, B.D. Management Ltd. V. Tajico Holdings Ltd., out of the British Columbia Court of Appeal. In this case, the backup offer was stated to be “subject to the non-completion or collapse of the [original] offer”. The original offer was amended in such a way as to allow for an extension to the closing date and increase the amount required for the deposit. The plaintiff (backup purchaser) in this case also argued that these changes constituted a breach of the collapse clause that was set out in the backup offer. Originally, the plaintiff (backup purchaser) was awarded damages, however, on appeal the judge determined that the amendments that were made were “all of a character which affirm and do not reject the original contract”. As a result, the judge determined that the original contract was amended in “non-fundamental” ways which confirmed “the continuing existence of that contract” and the appeal was allowed.

Due to this decision, the judge in the Wright v. Hampster case determined that “the amendment at issue in this case is not of a character which rejects the original […] deal, but is of a character which affirms it.” Therefore, the original contract did not collapse and damages were not awarded.

We can learn from these decisions that any amendment that is made to an original accepted offer, where there is a backup offer in place, should be approached cautiously. These two actions were commenced by the backup purchaser to challenge the seller’s right to continue to accept the primary contract. This is because some amendments may result in the termination of the original contract and others would be open to the seller to allow and confirm the first contract. From the two decisions that I was able to locate on this topic the position of the court is that if the amends are in character with the existing terms they are allowed, but if they would change the agreement in a fundamental way this would terminate the contract. For example, a change to the purchase price or additional terms not merely an extension to existing conditions would likely terminate the first contract. Therefore, in situations in which a backup offer is in place it is recommended that both the seller’s and buyer’s agents advise their clients to seek legal advice.

What are the best clauses to insert in a backup offer?

The backup offer should contain a clause outlining that it is contingent upon the cancellation of the original contract, and that it automatically becomes a contract if the first buyer does not satisfy their conditions as stated in the original offer. A recommended clause is as follows:

The parties acknowledge that this agreement is accepted as a backup offer only and is in first position behind the primary contract previously accepted by the seller. All time frames in this contract shall commence after written notification from the seller to the buyer that the primary contract has been cancelled. The buyer reserves the right to withdraw this offer prior to being notified by the seller, in writing, that the primary contract has been cancelled. For the purpose of this contract, acceptance will be defined as the date the buyer has been notified that the primary contact has been cancelled.

What is a clause to be inserted by the Seller to allow backup offers?

A seller that accepts a conditional offer, especially a long conditional period or complicated conditions, should protect his position in the market by inserting a clause to allow for backup offers to be accepted. A recommended clause is as follows:

The seller reserves the right to continue marketing the property and to accept an offer as a backup offer which would become a primary offer only in the event of the buyer’s default or non-performance of this contract.

While this clause is not required for a seller to have the right to accept backup offers, it would be a good way to signal to the buyers that long or complicated conditions may be problematic.

Of course a clause to trigger the conditions to be waived or fulfilled upon acceptance of another offer is in your seller’s best interest in a good market. A recommended clause for this purpose is:

The seller may continue efforts to sell the property. If a third party submits an offer to purchase the property at a price and upon terms acceptable to the seller, the seller shall give written notice to the buyer and the buyer shall have 48 hours after receipt of the notice to waive or fulfill all conditions herein. If the buyer fails to execute and deliver the waiver/fulfillment in the time specified, the seller may accept the third party’s offer, in which event, this contract shall be null and void, and the seller and buyer shall be released from all their obligations hereunder.

As the listing agent am I required to disclose to all individuals putting in an offer that their offer is in competition?

It is important to note that in Ontario the seller’s real estate agent is required to disclose the number of competing offers to all buyers who have submitted a written offer. The agent is not allowed to disclose any terms or conditions. I have discussed this disclosure requirement with the RECO’s Manager, Complaints, Compliance and Discipline and his response was that Section 26 of the Code is very clear that any offer in writing must be disclosed and all terms and conditions must be kept confidential.

Competing offers

26. (1) If a brokerage that has a seller as a client receives a competing written offer, the brokerage shall disclose the number of competing written offers to every person who is making one of the competing offers, but shall not disclose the substance of the competing offers.

I intend to continue my discussions with the Manager at RECO in light of the fact Fusion Computer Systems contains information on the conditions and time lines that he has considered confidential, while in practice, this information is very much relied upon by the agents to draft backup offers. You can view the RECO’s consumer publication by clicking here.

A question that requires further consideration: if the information on the terms of the backup offers is to be treated as confidential how is this impacted by a listing agent who represented both sides?

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.

Home Verified: The Home History Report

Over the past three years a Canadian company known as Home Verified has created a comprehensive home history report that provides important information for the various parties involved in a real estate transaction.

This report is available for homes located in major municipalities across the country and can be purchased through Teranet, which is the company that developed, owns and operates Ontario’s Electronic Land Registration System (ELRS). For real estate agents, the report can be accessed through Teranet’s GeoWarehouse. If you have a subscription the report can be purchased for an additional $30.00 after a property search is conducted. For non-subscribers, a report can be obtained through the Home Verified website for a cost of $49.95, or it can be purchased by non-subscribers and homeowners for $69.95, plus HST.

It is important to note that the home owner must provide consent to anyone who would like to purchase and/or distribute the report.

The typical home history report available from Home Verified includes the following information:
– insurance claims related to the property;
– available grow-op and meth lab records;
– claims analysis for a neighbourhood;
– local school rankings;
– neighbourhood amenities; and
– local political representatives and contact information.

One of the most notable aspects of the home history report is the fact that grow-op information is available. As discussed in previous articles on the disclosure requirements related to grow-ops (which can be accessed by clicking here. ) agents are required to disclose any material fact about a property, including if the home is a former grow op. Typically this is done by making an inquiry to the local municipal police services Freedom of Information (FOI) Coordinator, and in some cases, a formal FOI request must be submitted, which costs $5.00.

With Home Verified, the report that you are able to access contains grow-op data that is constantly updated and compiled through the information available from these various FOI requests that are made to police services across Canada, as well as database searches and public websites/ registries. The records that are available through Home Verified date back to the year 2000, which is different from most public/ online grow-op registries which only contain information related a more recent time period. With the Home Verified report not only are you able to obtain accurate information related to grow-op properties but you are also able to access insurance claims and important details related to the neighbourhood where the property is located.

The insurance claims information that is provided in the report is another important detail which should be considered. The report can provide information related to past claims associated with the property, for example water or fire damage, sewage back-ups, vandalism, break-ins, theft, building collapses/structural damage, and natural causes such as wind/hail to name a few. The insurance information provided in the report is assembled through records that are available from insurance companies across the country and can provide useful insight into the condition of the home.

HERE IS THE WARNING SECTION. While this can assist a listing agent with obtaining information on the property it should never been relied upon in place of a home inspection. Additionally, I wonder what issues might be revealed in this report that the current owner may not even be aware of. What if your seller consents to you obtaining this report and something is included in the report that would be considered a “material fact”?

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.

Why Warranty Chattels and Fixtures?

Standard in most Agreements of Purchase and Sale is the following provision:

The Seller represents and warrants that the chattels and fixtures as included in this Agreement of Purchase and Sale will be in good working order and free from all liens and encumbrances on completion. The Parties agree that this representation and warranty shall survive and not merge on completion of this transaction, but apply only to the state of the property at completion of this transaction.

My question is why?

If you are acting for the Seller I recommend that you strike out the above provision if it is in the offer you are assisting the Seller with and include the following:

The Buyer acknowledges that there is no express or implied warranty by the Seller on the chattels and fixtures included in this Agreement of Purchase and Sale.

If you are acting for the Buyer of course you would ask for this BUT even if you get it – it is your responsibility to explain to the Buyer when and how this can be relied upon.

You need to explain that this is a promise that the items listed will work on the day of closing not one day longer. If they in fact do not work on the closing day (i.e. the first day you try the washer it does not work) of course the Buyer should feel they can tell their agent about it. The agent should be the first person to get involved. If between the agents there is no satisfaction of course the next step should be for the Buyer to inform their solicitor. The solicitor should then write to the Seller’s solicitor and request reimbursement for repairs or a payment representing a fair price for that used item. More times than not the solicitor will write back and say it was working on the day of closing, go fish.

Your/my clients need to be prepared for this result. If it is a small item it is best to have the buyer acknowledge this item was not a factor in the purchase price and move on. If it is a large costly item, the Buyer should be informed that they can bring a small claims court action for an amount up to $25,000. The warranty set out above will be the basis of such a claim.

Another alternative would be to include a holdback. Holdbacks were commonly used in the past. I assume they are not standard any longer because of the extra work involved to administer the holdback. Also the holdback is only the solution if it is very carefully drafted to allow for no need for further agreement to be required.

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.

Power of Attorney 101

Sometimes situations are encountered where clients are away at the time of closing a real estate transaction, and therefore, unable to sign the legal documentation. In these situations, one way to ensure that the transaction closes on time is by using a Power of Attorney (POA). However, a few years ago, the Law Society of Upper Canada tightened the rules pertaining to the use of a POA for real estate transactions due to a high incidence of fraudulent activities. For example, forged POA’s have been used to fraudulently mortgage properties or transfer title out of the legally registered owner’s name, as was the situation in the case of Reviczky v. Meleknia, 2007 CanLII 56494 (ON S.C.). As a result of fraudulent circumstances such as these, it has become rather uncommon to see a POA being used. If the person relying on the POA cannot provide satisfactory evidence that the POA is valid and enforceable, a buyer/seller, his/her lawyer or the lender could refuse to close the transaction.

A POA for property refers to a written legal document which authorizes one person (the “attorney”) to make legal decisions regarding another person’s (the “grantor”) financial affairs and property. This document can be general or specific in nature in relation to the scope of the authority that is given to the attorney, or any specific conditions or limitations that are imposed upon them.

In Ontario, individuals are permitted to appoint any person over the age of 18 (they do not have to be a lawyer) to act as an ‘attorney’ for property. An attorney for property can effectively act for an individual in relation to financial dealings, including but not limited to, banking, paying bills, signing cheques, and buying or selling real estate or consumer goods. There are two things which are strictly prohibited for an attorney for property to do on another individual’s behalf: appoint a new POA for property, or create a Last Will and Testament.

There are two main types of POA for property: continuing (enduring) and non-continuing (general or non-enduring). A continuing POA for property will continue in full force and effect even if at some point in the future, the grantor should become somehow mentally incapacitated, and therefore, unable to make decisions on their own behalf. A non-continuing POA, as the name suggests, would not continue in the same effect. If the grantor were to become incapacitated, the POA would be subsequently discontinued. This type of document is often used for a limited time period and often for a specific purpose, such as enabling your attorney to complete legal paperwork for the sale of your property if you are unable to be present to complete the paperwork on your own behalf, for example, if you were out of the country at the time of closing.

Procedural and legislative requirements when using a POA to sell land
When using a POA for the purchase and sale of land it is important to understand the various requirements that must be adhered to, as many problems can arise as a result of omissions by real estate agents in this regard. The purpose of these requirements is to ensure that the documents involved with the real estate transaction have been executed properly and that they accurately reflect the existence of a POA. The agent must ensure that the agreement of purchase and sale contains a signature line that is signed by the attorney with a brief sentence underneath indicating their status as the attorney, giving them authority to execute the document.

The Land Titles Act, R.S.O. 1990, c. L.5 and the Registry Act, R.S.O. 1990, c. R.20 both contain certain registration requirements that must be adhered to. This legislation identifies the need to register the POA on title (or provide a notarial or certified copy of it). In order to register the POA you must go to the appropriate registry and pay the registration fee, or ask your solicitor to do it through the electronic registry system. Currently, at the Simcoe Land Registry Office the fee is $70.00 to register a POA under the Land Titles Act, and $60.00 to register a POA under the Registry Act. These Acts also discusses how to revoke a POA. The revocation must be registered or evidence must be filed with the land registrar showing that the POA is no longer in force.

It is also important to note that some lenders will no longer allow mortgages to be secured and signed by a POA under certain circumstances and the requirements of each lender can differ. As a result, real estate agents must take the necessary steps to find out the specific requirements and potential limitations that exist in relation to each of the lenders. Unless the POA specifies that it is meant to form a continuing/ enduring relationship, a POA that deals specifically with real estate is only valid for three years from the date of signing.

Another important rule relates to signing the document; it is required by law to have two witnesses present at the same time in order to witness the grantor signing, and to sign the document themselves. However, if the witness is a lawyer or notary public, only the one witness is required while the grantor signs the document. There are also certain restrictions on who can act as a witness. The following people cannot be a witness for a POA for property: your spouse, partner or child, anyone under the age of 18, or anyone who has a ‘Guardian of Property’ or ‘Guardian of Person’ appointed for them by a court because they are deemed to be mentally incapable of managing their own personal property and/or health care decisions.

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.

Client Identification Requirements for Real Estate Agents

As a real estate agent you are subject to abide by certain legislation and regulations with respect to confirming your client/customers identity and personal identification information. Since June 23, 2008, real estate agents have been required to collect personal identification information from buyers and sellers, and to complete a report on all funds that are received throughout the course of the transaction, even those less than $10,000.

The main requirements that are applicable to real estate agents under this legislation include:

– documentation of personal information and proof of identity of clients in each and every transaction, including occupation (acceptable forms of identification verification include a government issued identification document such as a drivers licence, passport, or residency card);

– if the client is located in another city, province or country, and a face-to-face meeting is not possible, realtors are required to use an agent in that city, province or country, in order to identify third parties and verify the accuracy of their personal information;

– when a buyer/ seller is conducting a private transaction, in which a real estate agent is representing the other party involved, the realtor is required by law to verify the private buyer/seller’s information;

– if there is a third party involved in the transaction, a realtor must obtain their identification information;

– any time that funds are deposited or exchanged in a transaction a realtor must complete a report outlining the amount that was received and how it was obtained, no matter what the monetary amount is; and

– in relation to clients who are corporations, realtors must obtain the corporation’s confirmation of existence, the corporation name, the corporation address, the names of the directors, and any other relevant corporate documentation in order to complete an accurate Client Information Record.

All of these requirements are to be met for every single transaction that a realtor is involved with, whether they are representing the clients directly or acting for the other side involved in a private transaction. Realtors are required by law to keep this information on record for a period of five years at their brokerage office. This information is collected only to comply with the federal legislation, and is not to be used in any commercial way or given out to anyone else.

If you are an agent acting on behalf of a broker, the broker has the sole responsibility for everything except suspicious transaction reporting, which is the responsibility of both the agent and the broker. The broker is responsible for keeping any records that were retained for the broker by an employee or independent contractor acting on their behalf. This means that the real estate agent is required to leave all records in relation to the transactions that they conducted while working with that brokerage at the brokerage office. The broker is then responsible for keeping the records for five years, and the real estate agent is not required to keep those records once the relationship with the brokerage has been terminated.

If a real estate agent is unable to comply with any of these requirements and adequately establish the identity of the client in accordance with the prescribed measures, they are legally not allowed to open an account/file for that client. It is important to note that any breaches of this legislation may be subject to certain penalties under the Criminal Code of Canada. The criminal penalties that apply may include the following:

– Failure to report suspicious transactions: up to $2 million and/or 5 years imprisonment.

– Failure to report a large cash transaction or an electronic funds transfer: up to $500,000 for the first offence, $1 million for subsequent offences.

– Failure to meet record keeping requirements: up to $500,000 and/or 5 years imprisonment.

– Failure to provide assistance or provide information during compliance examination: up to $500,000 and/or 5 years imprisonment.

– Disclosing the fact that a suspicious transaction report was made, or disclosing the contents of such a report, with the intent to prejudice a criminal investigation: up to 2 years imprisonment.

If you are interested in obtaining more information on this topic you can refer to a guide that was put out by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) in June 2010. The document, Guideline 6B: Record Keeping and Client Identification for Real Estate, contains important information on what records are to be kept, how records are to be stored, when and how clients are to be identified, and the various penalties associated with non-compliance. This guide can be accessed by clicking here.

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.

Agreement of Purchase and Sale Conditional upon Lawyer’s Approval

An 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 10th, 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.

This article can also be found in our November 2012 Newsletter which can be accessed by clicking here.

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.

Remedies Available in a Collapsing Real Estate Transaction

I was informed by one of my clients that they were not concerned with waiving the condition inserted in an offer to purchase that they sell their property first, because their lender informed them they were only risking their deposit. They deposited $1,000.00 with this in mind.

It is important to consider what the purpose is of a “deposit”. Typically, a deposit is money that is paid prior to the completion of a contract to represent the purchaser’s honest interest and intention to complete the real estate transaction. After entering into a binding agreement of purchase and sale there is still the possibility for the buyer or vendor to default on the transaction. Commonly, the default will occur as a result of the buyer wishing to back out of the deal, leaving the vendor to once again look for a purchaser and claim damages that resulted by the breach.

The deposit is not given much thought in most real estate transactions. The standard OREA form says this: “The Buyer submits, upon acceptance/herewith/as otherwise described in this Agreement, $______.00 by negotiable cheque payable to ______ ‘Deposit Holder’ to be held in trust pending completion or other termination of this Agreement and to be credited toward the Purchase Price on completion.” This clause does not address what happens if either party breaches the agreement.

If no special clauses are inserted there is no language to address what should happen if either party breaches the agreement after the conditions are waived and the transaction is considered firm by both sides.

Many people misunderstand the terms surrounding a deposit and often assume that this deposit is automatically lost once a breach occurs, or that the deposit represents the limit on what damages can be recovered by the vendor from the purchaser. If the parties do not address this possibility when the agreement is drafted, the parties are left to either negotiate a settlement to allow for the deposit to be released in whole or in part to one of the parties or for the wronged party to bring a court action and have a judge decide. If the parties litigate the matter the deposit will most likely be either held by the deposit holder or paid into court. This could tie up the deposit for a purchaser and not allow them to move on until this matter is settled.

I will discuss what a court will consider and the obligation for the wronged party to mitigate their losses below but first this can be avoided if the parties turn their mind to this possibility at the outset.

The options available to address what will happen with the deposit if the agreement is terminated are:

• Rely upon the standard language which does not address it directly and leave it to be negotiated or litigated if and when required.
• Insert language to make it clear the vendor will be retaining the deposit in full and their right to an action if there are additional damages. “Upon termination by the buyer, for any reason, after the conditions have been waived the deposit shall be non-refundable, subject to the seller reserving its right to take action for full recovery of any damages incurred.”
• Insert language that makes it clear the vendor will retain the deposit as full satisfaction for the breach. “Upon termination by the buyer for any reason after the conditions have been waived the deposit shall be absolutely forfeited by way of liquidated damages.” This would allow the vendor to keep the deposit even if they did not suffer any damages. The vendor will also most likely be limited to that amount even if the damages incurred are more.

Regardless of how clear you attempt to draft the language in the agreement it often comes down to a negotiation between the parties. In most cases whether the deposit is in a lawyer’s account or the broker’s account, the deposit holder will require a signed mutual release to ensure all parties are agreeable to the money being released.

When the parties are left to resort to the courts to reach a resolution the judge will generally try to put the wronged party in the position it would have been had the breach not occurred. The items that will qualify for damages include difference in purchase price obtained through further sale, closing costs on abandoned purchase, rental costs, interest costs, real estate commission etc. There is an obligation imposed on everyone, however, to take all reasonable actions to mitigate their losses. In most cases this means to relist the property and take all reasonable actions to obtain the best price.

A 2010 case out of British Columbia, Hargreaves v. Brar, 2010 BCSC 538, highlights what will be considered unreasonable. When a buyer was unable to close on the date agreed upon, because the buyer’s property had not sold, the buyer asked for an extension. The seller needed the sale proceeds to close on the seller’s purchase and denied the request. The seller took the first step to mitigating her losses and relisted the property. The original buyer submitted a new offer at the same price with a later closing date. The seller did not accept the new offer from the original buyer but rather accepted a different offer at a significantly lower price from a new buyer. The seller sought damages including the difference in the purchase price in the original offer and the price that was accepted from the new buyer. The court found that it would have been more reasonable for the seller to have renegotiated her deal with the first buyer. As a result of her failure to act reasonably the original buyer was not required to pay anything to the seller; the seller’s claim was dismissed. The full case can be accessed by clicking here.

If as a real estate agent you are involved in relisting a property in an attempt to mitigate losses from a failed transaction, agents should be aware that the actions taken by them on behalf of the client will be subject to review by the court if a damage claim is made. A rushed sale that does not reflect the market value of the property may prevent or lessen a damage claim. If a substantially lower price is being entertained it should be supported by an independent appraisal.

This article can also be found in our November 2012 Newsletter which can be accessed by clicking here.

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.