Just One More Inspection Please?

I am often contacted by agents to report that the purchasers have already used all their rights to attend at the property set out in the agreement and now they are asking to come in again. The first inclination is to say NO.

This issue has been firmly settled by the Ontario Court in 1979. The famous case is known as Harkness vs. Cooney. The Court stated in this case “I fail to see why the purchaser should have to wait to be notified by a vendor of defects in the property… It also seems ridiculous that he should have to complete the transaction and pay over his money before ascertaining whether or not he had been entitled to terminate the contract prior to completing it.”

This right of inspection is limited as it is meant to assess for damages prior to closing. It is not a right to bring in relatives, consultants or measure for drapes etc. It is simply a walk through.

The fact that the purchasers can go in right up until a few minutes before closing does not negate the need for real estate agents to include the provision for whatever number of inspections the purchasers’ desire and the vendors are willing to give in the offer. The right to visit the property set out in the agreement is a much broader right than the common law right of inspection obtained through the Cooney decision.

In fact, if there is anything to be completed by the vendor before closing I recommend that a visit be included to allow an inspection to ensure that item is completed in advance of closing.

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.

The County of Simcoe’s Home Ownership Program

The Home Ownership Program is offered by the County of Simcoe and is aimed at assisting the “low-to-moderate income renter” to purchase a new home by way of providing a 10 percent down payment in the form of a “forgivable loan”.

Although the loan is forgivable, there are certain conditions in which repayment would be required. The only situation in which repayment is not required is if the home is sold after the 20 year time period that is set out. The conditions can be reviewed in the application for this program which can be accessed by clicking by clicking here.

The conditions are as follows:

• An individual would be required to repay the original loan, as well as a percentage of the realized capital gain if the home is sold before the required 20 year time period.
• In situations where there is a capital loss when the home is sold before the 20 year time period, the repayment amount would be reduced by the amount of the loss incurred. This only occurs if the property is sold at fair market value, and the purchase and sale is an arm’s-length transaction.
• If the purchaser defaults on any of the terms contained within the Loan Agreement within the 20 year time period, it is deemed a sale. In this situation, the loan amount, plus a percentage of the market value increase becomes due immediately.

The Homeownership Program contains a ‘Revolving Fund’ meaning that any money that is paid back to the County by the purchasers involved will be placed back in the fund, and redistributed in the future to eligible home buyers.

The funding for this particular program is provided by the “Investment in Affordable Housing for Ontario Program” which is both a federal and provincial program aiming to create and repair affordable housing in Ontario over the next four years. $480 million dollars has been allocated under this program, $12.5 of which has been provided to the County.

On August 28, 2012, shortly after changes were made by the CMHC to mortgages and amortization periods (which we previously discussed in an article that can be accessed at the following link: https://elliottlawyers.com/real-estate-law/feds-force-canadians-to-lower-debt-via-regulatory-changes-again) the County increased its down payment assistance for this program from five percent to 10 percent. Funding was available before the end of 2012 (for the year of 2012 and 2013), and another $450,000 will be available in 2014.

Due to the limited amount of funds and the popularity of this particular program, it is highly unlikely that any funds will be distributed in the year of 2013. There is a waiting list and it is estimated to be a year long at this point. If you decide to go on the waiting list you will most likely be reached sometime in 2014. The funds that are available will be allocated according to the wait list.

Once you reached from the waiting list, and accepted for the program, you will be required to update your information. You will also be required to provide proof that you are a current renter and you will have to obtain a pre-approved mortgage. You have two weeks to submit this information and approximately 45 days to go house hunting. If you are unable to find a home within the allotted time period you will either be removed from the list or moved back down to the bottom.

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.

UFFI – The Stigma Lives On?

Typically every residential real estate sale agreement contains a clause concerning urea formaldehyde foam insulation (UFFI). This clause warrants that the vendor has never caused the house to be insulated with UFFI and to the best of the vendor’s knowledge the house does not contain UFFI.

First I will set out a brief history of UFFI use in Canada to set the stage.

1960 UFFI was introduced to the building industry. It has been estimated that 100,000 homes, mostly in Eastern Canada, were insulated with this product.

1977 CMHC approved use of UFFI under certain conditions.

1975-1978
Period in which most homes had UFFI installed under a government assisted program called Canadian Home Insulation Program.

1978 Health complaints arose from occupants of UFFI homes.

1979 Health and Welfare Canada set exposure guidelines for homes at 0.10 parts per million.

1980 UFFI was banned in Canada. No number was considered acceptable.
United States banned UFFI in 1982 and the sale prohibited. In 1983 the Court of Appeal struck down that law on the basis there was no substantial evidence linking UFFI to health complaints. UFFI is not widely used in the US but is not banned.
Interesting to note, UFFI is still used in Europe and considered one of the better retrofit insulations.

1981 Federal Government created removal assistance program.

1981 Ontario Government reduced property assessments on homes with UFFI by 35%.

1995 Test case in Quebec Court of Appeal against UFFI manufacturers concluded there was no basis for fear of health risks and no justification for removing UFFI.

As you can see from a review of the background, even though the health claims could not be substantiated, there was clearly a reduction in the value. The fact that removal was costly and there was a stigma associated with a home known to have ever been insulated with UFFI prompted the warranty and full disclosure that exists to this day.

UFFI has been the most thoroughly investigated building product to date and the result is that UFFI is simply not the problem it was feared to be. Anyone who researches this subject will come across many articles and positions authored by people with the credentials to properly provide an opinion on this subject stating that owners of homes with UFFI should not be financially penalized and no stigma should attach.

That said, I was retained to act for a purchaser of a home in which the standard agreement had the UFFI clause stroked out. The deal was firm when it came to me but the removal of this clause caused me concern. I made enquires of the agent who referred the transaction and was informed the vendors just would not confirm there was no UFFI and therefore they were unwilling to include this clause. I was also advised that this fact was brought to the attention of the home inspector and the home inspector confirmed after his investigation that there was nothing to lead him to believe the property contained UFFI. I quickly reviewed the caselaw in this area and it is clear that the courts have accepted that there is no clear link between health effects and UFFI and damages have not been awarded. But what is also clear is that there is a stigma caused by the ordinate amount of media attention surrounding when there was health claims made and there was in fact a government funded removal system.

There does not need to be a basis for fears for the existence of fears to amount to a stigma and the resulting reduction in the purchase price on homes. The fact that this clause remains in the standard agreements supports the concerns of purchasers. In this situation the real estate agent cannot do anything more to assist his purchasers with determining for sure that UFFI does not exist. An acknowledgement can be used to set out the facts at the time of the purchase and confirm the position of the purchasers to proceed to close the transaction based on the information known. Below, I have set out an example of an acknowledgement that was used in the transaction I have explained.

While I would include myself in the long list of people calling for the removal of the UFFI clause I do believe until it is standard to be removed it should be respected. To remove the clause and not take any precautions to find out the reason for the removal, lawyers and real estate agents are leaving themselves open to liability.

UREAFORMALDEHYDE INSULATION ACKNOWLEDGEMENT

FROM: [NTD: enter purchaser’s name]
TO: [NTD: your name and broker]
RE: [NTD: * purchaser from * enter address]
______________________________________________________________________
THIS WILL CONFIRM THAT:

We, [ENTER PURCHASERS NAMES], acknowledge that the vendors, [ENTER NAMES] removed from the agreement of purchase and sale the standard clause with regard to ureaformaldehyde insulation. We were informed it was removed because the vendors were not comfortable with making this representation because they did not know whether there was or was not ureaformaldehyde insulation.

We acknowledge that this matter was brought to the attention of our home inspector, [ENTER NAME]. We further acknowledge that our home inspector concluded after his inspection that there was no evidence to lead him to believe the property is or has ever been insulated with ureaformaldehyde insulation.

We have been advised by our real estate agent, [ENTER NAME], that he has no information to lead him to believe the vendors removed this clause for any reason other than that which has been stated. We have decided to complete this transaction even though there is a possibility that the buildings may contain UFFI.

Dated at _________, Ontario this ____ day of ________, 20__

__________________________

__________________________

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.

Seller Property Information Statements (SPIS)

I am often asked what my opinion is on whether Seller Property Information Statements (SPIS) should be used in a real estate transaction. This question has become more common in the past few years after recent court decisions where real estate agents were held to have not discharged their obligation to properly inform the buyer about defects associated with the property.

The SPIS was introduced by the Ontario Real Estate Association (OREA) who encourages its use. The document asks questions pertaining to the condition of the home and property that is being sold. It is stated on the form that the answers to the various questions posed are being provided for information purposes only and are not considered to be warranties. It also warns that sellers are responsible for the accuracy of all answers that are provided on the form.

I am writing about this topic again due to a reported decision out of the Divisional Court this past November related to SPIS forms: Costa v. Wimalasekera (“Costa”). In Costa the seller’s agent completed an SPIS form with regard to a property located in Erin Ontario, and each response was initialed by the seller indicating that it was true to the best of the seller’s knowledge and belief. Contained in the Agreement of Purchase and Sale was the following condition:

This Offer is conditional upon the Buyer receiving a Seller Property Information Statement completed by the Seller and the Buyer accepting the information on the form as satisfactory in the Buyer’s sole and absolute discretion […] The Seller hereby agrees to deliver to the Buyer within 48 hours of acceptance of this Agreement a Seller Property Information Statement for the property with complete and accurate answers to the best of the Seller’s knowledge and belief to the questions contained therein.

The issue that arose was related to a statement that was made under the “Environmental” heading. It was a question related to whether or not the property in question was subject to flooding; the seller responded “No”. Within a month after the closing date, the buyers noticed that the backyard of the property would fill up with water after every rainfall. It turns out the sellers knew that flooding was a problem that impacted both their property and the surrounding properties due to issues with the original grading of the property. In response to this, the seller tried to argue that “property” referred to the house and not the land. The judge rejected this view and said this interpretation was unreasonable, negligent, and deceitful. Furthermore, he found the statement that there was no flooding to be untrue, inaccurate and misleading.

The lawyer representing the buyers made the argument that SPIS are not that common but when a seller agrees to complete this form there is no room for fudging. The Divisional Court upheld the trial court’s decision, and the buyers were awarded $25,000 in damages from the sellers based on a cost estimate for an engineering study and to undertake the work to fix the problem. You can obtain a full copy of the decision by clicking here.

In my opinion whether an SPIS is involved or not is not the key question. The question is: did the real estate agent discharge his/her obligations to their clients or customers? In Ontario, real estate agents are governed by the Real Estate and Business Brokers Act, 2002, S.O. 2002, c. 30, Sched. C . Under this legislation, agents are required to demonstrate reasonable knowledge, skill, judgment and competence in providing opinions, advice or information. In addition, agents are required to advise a client or customer to obtain services from other persons if the agent is not able to provide the services with reasonable knowledge, skill, judgment and competence or is not authorized by law to provide the service.

While a SPIS can assist agents in discharging their duties under the Code of Ethics it is not a full response to an action against an agent. Undue reliance on the SPIS can even be the reason for the agent not fully discharging his or her obligations. I would suggest that was the situation in the decision out of Sudbury in the Weddell v. Scherbak case. This decision is an example of an agent placing too much reliance on the SPIS resulting in the judge finding that the agent failed to properly discharge her obligations to both the buyer and the seller. Attached is the previous article on the Weddell decision.

The question should not be whether or not an SPIS should be used in Ontario. The proper question is what is the obligation of the real estate agent to both the purchaser and the seller and how best should that obligation be discharged. If the agent feels the SPIS will assist in discharging that duty, then it should be used as a tool to ensure the agent’s duties are fully and properly discharged. What I mean by this is not that agents should have the client fill it out, but rather, the agent should use this document to assist them with creating their own checklist of questions to ask their clients about their property before listing.

To read Advocate Daily’s post on this article, “Information Statements and the Obligations of Realtors”, click 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.

Does Irrevocable Mean Irrevocable?

I have been asked on more than one occasion by real estate agents if they can withdraw an offer after it has been submitted and prior to the irrevocable date and time.

I think the misunderstanding around this comes from the fact that in regular contract negotiations after an offer is submitted it can be withdrawn at any time prior to acceptance. A real estate agreement of purchase and sale is different. Here is why: the agreement of purchase and sale contract, once signed and submitted, is in fact a unilateral contract. In addition, the OREA standard form has clear language around the terms of an offer to purchase, which includes that once an offer is submitted it is irrevocable until the date and time set out.

The caselaw relevant to agreements of purchase and sale is the same as the caselaw related to procurement law. When a company puts out a call for tenders this is considered to be a unilateral contract. A properly submitted bid constitutes an acceptance of this offer resulting in another unilateral contract. The process is similar to buying and selling a property. The offer to sell a property is one contract and the offer to purchase is the second.

The procurement process is more complicated but the basic premises are relevant. If the contract contains a provision that the offer is irrevocable for a certain period of time, that provision is binding on the parties. When this term is used one need only to look to the definition of irrevocable for the answer. Irrevocable is defined as incapable of being recalled or revoked. It means your offer is unchangeable and unalterable.

It is important to note that the last page of the standard form agreement has the following words above the signing line “signed, sealed and delivered”. This language is used intentionally to indicate that once this agreement is signed it is considered final and binding. The word “sealed” is used to indicate that even in absence of any other consideration this is a firm contract.

This is a small item but an important part of the contract. Every real estate client should have this section explained so they are fully aware that once the agreement is signed it is binding.

This article can also be accessed in our January 2013 Newsletter by clicking here.

Don’t Automatically Consent to Assume the Hot Water Tank Rental

A new trend which is becoming more common in residential purchase agreements is for purchasers not to automatically agree to assume the hot water tank rental. It is the owner who has entered into the rental agreement and in many cases the terms are not attractive. As a purchaser you should give yourself the option to review the contract before consenting to assume the contract.

It is interesting to note that two companies that rent hot water tanks in Ontario have had proceedings commenced against them by the Competition Bureau under the abuse of dominance provisions of the Competition Act. Both Direct Energy Marketing Limited and Reliance Comfort Limited Partnership are named in this proceeding seeking $25 million, alleging that they each intentionally implemented anti-competitive practices related to their hot water tank return policies and procedures aimed at preventing consumers from switching to competitors and, therefore, forcing them to continue their rental agreements with each of them.

You can access a copy of the Notice of Application filed by the Competition Bureau against Direct Energy by clicking here.

You can also access a short blog which was posted by Advocate Daily by clicking here.

Scarcity of law and regulation over stigmatized properties

The Lawyer’s Weekly has published our article in the December 21, 2012 issue on disclosure obligations of real estate agents, specifically in relation to murder and burial plots. You can access the Lawyer’s Weekly article entitled “Three bed, two bath…one undisclosed crime: Scarcity of law and regulation over stigmatized properties” by clicking here.

Advocate Daily has also posted a condensed version of this article to their website 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.

Dissecting the document that binds real estate deals

Check out the Advocate Daily Post in relation to our November 2012 Newsletter by clicking here.

This newsletter focuses on some commonly asked questions related to the agreement of purchase and sale.

The first article deals with agreements that are conditional upon lawyer approval, which provides both parties with the opportunities to have their lawyer review the offer, which can help to avoid many problems that may arise in the future.

The second article focuses on the deposit posted by a buyer making an offer. There are many common misconceptions surrounding this aspect of the deal.

To access the complete November 2012 newsletter click here.

Disclosing information to buyers not an issue of if, but when

The contents of this article were obtained directly from an article posted on Advocate Daily’s Website which can be accessed by clicking here.

The definition of “material fact” in the Real Estate and Business Brokers Act’s Code of Ethics regulation should be amended to add clarity, says Barrie real estate lawyer Shari Elliott.

“There is not enough guidance provided,” she says of the regulation, found under s. 21 of O. Reg. 580/05, adding it is a “very grey area.”

A recent Toronto Star report tells the story of a Bowmanville couple who sued those involved in selling them their home after learning it was the scene of a double murder 15 years earlier. Read Toronto Star

That discovery led to a lawsuit against the real estate firm, an agent and the house’s former owners for allegedly failing to reveal the home’s history, the report says.

Elliott says home owners and real estate agents are “not legally bound to disclose historical facts about the home,” though the agent is required to follow the Code of Ethics that calls for material facts to be disclosed.

“The problem stems from the fact that the definition (of material facts) provided is ‘a fact that would affect a reasonable person’s decision to acquire or dispose of the interest,’” says Elliott.

“I believe that the definition of what is considered a material fact needs to be amended to provide more clarity. You will never be able to cover all the items that might be considered a potential stigma as this list will likely grow over time and is specific to each purchaser, but by having a ruling on items that are commonly occurring, new items could be handled by making a comparison.”

Elliott says Ontario legislation doesn’t address the obligation to disclose a murder, whereas guidance exists in Quebec and many American states.

“It is interesting that this story is about a 15-year-old murder and a property that has changed hands already since the murder,” she says. “Even if you look to the jurisdictions that have a law requiring disclosure of a murder it is generally limited to the past three years.”

The advice Elliott says she provides to agents who have properties with potential stigmas is to let the sellers know their consent is needed to disclose the information if and when it becomes necessary.

“I suggest that sensitive information not be included in a listing which would unnecessarily impact the marketability of the property for the seller,” she says. “I suggest that the listing say simply ‘before presenting an offer contact the list agent for further information.’ This allows the agents an opportunity to share information that might be considered a potential stigma but only to an interested purchaser. The issue for me is not whether to disclose but when and how.”

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.

Landlords Must Protect Their Property

This article was originally posted on Advocate Daily’s Website which can be accessed by clicking here.

The priority for landlords in disputes with their tenants is to protect their property, Barrie real estate lawyer Shari Elliott tells Law Times. You can read the Law Times Article by clicking here.

“What landlords have resorted to is (to) provide a cash incentive for the tenant to leave to assist them with securing a new place to live with a different landlord,” Elliott says in Law Times. “The upside to this is you typically avoid the upset tenant and the corresponding damages to your rental unit.”

The article discusses D’Amico v. Hitti, where a 12-month rental arrangement was agreed upon and a lease was signed, but as time passed, the rent wasn’t paid. Read D’Amico v. Hitti by clicking here.

The landlord filed an application with the Landlord and Tenant Board to get the amount outstanding and be rid of the tenants, the article states.

A cheque for the outstanding amount then appeared on the condition that the landlord suspend all action, and when the landlord agreed and accepted the cheque, payment on it was suspended, the article continues.

Elliott says she’s seen many troubling situations like this one.

“The first hurdle is to free up your income property so that you can rent it again,” she says in the article. “The second is to attempt to recover the rent that was not paid. While the legislation provides for recovery like any other cost award, you are left to enforce the order. For a tenant that has not paid their rent, there is not much luck of recovering any money owed.”

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.