Are Chattels Subject to HST?

This is an interesting question because if one were to Google this question you would find many conflicting answers. I actually spent a couple of hours with 4 different representatives of the Canada Revenue Agency to determine the answer. The short answer is NO. The first reason that the sale of used chattels is not taxable is due to the fact that the seller of a used residential owner-occupied property is not an HST registrant for the purpose of their home. The other reason is that the Excise Tax Act addresses the situation when the supply is a combined supply. The Act provides that where a supply of any combination of services, personal property or real property is made and the consideration of each element is not separately identified where the value of a particular element can reasonably be regarded as exceeding the value of each of the other elements, the supply of all of the elements shall be deemed to be a supply only of a particular element.

So based on the fact that the seller of a used residential owner-occupied property is not in the business of selling chattels, not an HST registrant and the chattels are not valued separately but rather a smaller item which is incidental to the real property sale, HST is not applicable. The exemption that applies to the real property sale applies also to the chattels.

You can read this full article by clicking here.
If you have any questions I invite you to contact me at shari@elliottlawyers.com.

The content of the articles in this blog are 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.

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Listing a Property Known to House a Grow Op?

What are Your Disclosure Obligations?

The disclosure obligations of Real Estate Agents in Ontario are unclear for what are commonly referred to as stigmatized properties. But disclosure is clearly required for one category of stigmatized properties, that being homes that were used in a grow operation. The RECO website has a notice about marijuana grow houses which states that “Brokers and salespersons are obligated to disclose any material fact about a property that they are aware of that could affect a person’s decision to buy, including if the home is a former grow op.”

There are discipline decisions available on the RECO website that confirm RECO’s position that members are required to disclose if a property was a former grow op. A decision from 2007 and one from 2011 resulted in the same penalty against the agent for failure to disclose a requirement to pay $15,000.

See the full article in the April newsletter on my website to obtain details on how to determine if a property has been the location of a former grow op by clicking here.

If you have any questions about this article, I invite you to contact me at shari@elliottlawyers.com.

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.

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Stigmatized Properties – To Disclose or Not to Disclose?

I am often asked by real estate agents what do I have an obligation to disclose… murder, suicide, death…?

If the property has been the location of a murder, suicide, sexual assault or death these events are considered stigmas. Depending on the facts of each case and your individual purchaser it may or may not impact the purchase price or the purchaser’s willingness to even purchase the property.

Whether or not agents have an obligation to disclose information on stigmatized properties is unclear in Ontario. Ontario has no laws that require disclosure if a house is stigmatized. The law in Canada for purchasing homes is generally accepted as “caveat emptor” let the buyer beware. Exceptions are hiding material defects or making misrepresentations.

The seller is under no obligation to disclose any information about murders, suicides or anything negative that might have happened in the house. Realtors, however, are governed by the laws, guidelines and code of ethics imposed upon them.

Real Estate Agents in Ontario are governed by the rules and regulations imposed by the Real Estate Council of Ontario. RECO requires agents to disclose any material facts that affect the market value of the property. The Code of Ethics defines a “material fact” with respect to the acquisition and disposition of an interest in real estate, as a fact that would affect a reasonable person’s decision to acquire or dispose of the interest.

Most professionals that are writing in this area are advising agents to disclose matters that they themselves would want disclosed if they were purchasing the property as well as facts that you as the agent know this purchaser is sensitive too. For instance that the house was the scene of a sexual assault might not matter to the average purchaser but it would if the purchaser him or herself were sexual assaulted.

You only have one reputation think about this when you are interpreting your obligation against the facts of the properties you list.

Read the full summary in our April newsletter by clicking here.

If you have any questions about this article, I invite you to contact me at shari@elliottlawyers.com.

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.

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The presense of fuel oil tanks – cause to investigate further.

It is just a fact of life that fuel oil tanks inherently leak. That is why there are standards imposed which govern not only the manufacture and installation of fuel oil tanks but the maintenance and removal. A reasonable person would assume if a fuel oil tank is new or fairly new there is nothing to be concerned about.

Not so in the opinion of Madam Justice Healey in a decision out of Bracebridge. This decision involves a fuel tank which leaked after less than 5 months of use. The tank was manufactured to be in service for 10 years and even had a five year warranty. The cause it was discovered was a phenomenon known in the industry as microbally induced/influenced corrosion. In lay man’s terms a small hole developed in the bottom of the tank due to internal corrosion. The expert evidence accepted by Justice Healey was that this could have been avoided if the tank were coated inside at an approximate cost of $150.00. Justice Healey stated “that on a cost benefit analysis it is difficult to justify avoiding such cost for protection of the environment.”

Read the full summary and link to this case in our March 2012 newsletter by clicking here.

If you have any questions about this article, I invite you to contact me at shari@elliottlawyers.com.

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.

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When is a Used Residential Property Subject to HST?

It is important to turn your mind to whether a used residential property is subject to HST if that property is larger than a half hectare. Revenue Canada’s definition of a principal residence includes a limit on the land size to a half hectare. This is the amount of land that is usually considered to be reasonably necessary for the use and enjoyment of the building as a place of residence. This is not a firm rule there is room for the land included in the principal residence to be expanded if it can be shown to be reasonably necessary for the use and enjoyment of the building as a residence. For example, the land in excess of the half hectare could be considered reasonably necessary if the location of the buildings on the lot require land in excess of a half hectare to permit access to public roads, or if there is a minimum lot size restriction.

In cases where you are faced with separating the excess land from the residence land for HST purposes the value assigned to each part must be fair and reasonable i.e. based on the fair market value of each portion. Restrictions that would be placed on the excess lands would impact this assessment.

The facts of each situation must be reviewed carefully. The tax treatment by previous owners should also be considered. For the real estate agent drafting the agreement of purchase and sale knowledge of this issue is required. The agreement should be drafted to acknowledge that lands in excess of that reasonably required for the residence may be subject to HST. The apportionment and valuation should be left to the lawyers to sort out.

If you have any questions about this article, I invite you to contact me at shari@elliottlawyers.com.

The content of the articles in this blog are 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.

 

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The Role of Seller Property Information Statements

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 year, after recent court decisions where real estate agents were held to have not discharged their obligation to properly inform the purchaser about defects with the shanghai property. It is interesting to note that the debate has centered around the SPIS even though it wasn’t even used in all the cases giving rise to this debate.

What is common to the recent caselaw is the reliance by the judges on the Real Estate Agents Code of Ethics. It is important to note that a contributing factor was that in the majority of the cases where negative findings resulted against the real estate agents the agents were double ending the transaction.

In my opinion whether an SPIS is involved or not is not the key question. The important 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. 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 last year. 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.

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.

If you have any questions about this article, I invite you to contact me at shari@elliottlawyers.com.

The content of the articles in this blog are 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.

Title Insurance Primer

What is title insurance? When was it developed and why? What is covered? What should every purchaser, seller and real estate agent know about the disclosure obligations?

I am often asked what title insurance is and why a purchaser should obtain it. Title insurance protects your ownership interest, or “title” to your property, from losses incurred as a result of unknown title defects or other covered matters that exist at the time of your purchase, but are unknown to you at that time.

Title insurance differs from car and fire insurance in that it does not primarily cover losses that occur after the purchase is complete. However, it does provide protection for most post-closing challenges to your title by a litigious neighbour or a fraudster.

Title insurance also protects you from most losses arising from surveying issues without the need to purchase a new survey of the property as well as issues involving existing unknown work orders, zoning violations, unpaid taxes or liens.

Title insurance was developed because the traditional method of conveying property did not provide adequate safety to the parties involved. Historically, title searches were performed by conveyancers who were generally not lawyers and therefore there was limited protection afforded if errors occurred.

In Canada, most purchasers engage a lawyer and do not rely solely on a conveyancer to complete a real estate transaction. That likely explains why title insurance was not offered by the Canadian market until 100 years after its introduction in the United States.

Traditionally, Canadian purchasers and lenders would rely on a lawyer’s opinion that they were receiving good title. Most lawyers do not perform the title searches directly but rather contract the search of title to a conveyancer.

Title insurance is now common for all residential real estate transactions because the protection provided is beyond that of a lawyer’s opinion. A lawyer’s opinion is limited to the state of the property as of the date of closing and must be qualified by many matters including the accuracy and authenticity of searches obtained, both on and off-title as well as any defects that might be revealed by an up-to-date survey. Title insurance specifically covers most unknown title defects and errors in survey and public records.

The one-time title insurance premium is off-set by the many inquiries, all of which have a fee associated with them, which are not required. Prior to title insurance the sale of a property required there be an up-to-date survey. Surveys are not required by lenders if the property is title insured. Additionally, the Law Society requires lawyers to charge a transaction levy of $65.00 on all real estate transactions if not title insured.

The cost savings far outweigh the one-time premium and the protections go beyond what a lawyer’s opinion can provide. In fact, some title insurance policies will cover financial losses you might sustain in the event that your lawyer makes an error or omission.

While it is good to know what title insurance will cover it is even more important to know what it will not cover. Title insurance will not cover the functionality or quality of the property or any changes to the current use of the property as well as known defects or something that was revealed to the purchasers before the transaction closed.

This exclusion is important for both the purchaser and the real estate agent to understand. A real estate agent is required to make reasonable inquiries and convey information to the purchaser.
The recent Krawchuk decision from Sudbury illustrate the considerable onus the courts are imposing on sellers and real estate agents to make reasonable inquiries and share all information with purchasers. If a defect is known prior to closing most title insurance companies will work with the parties to provide insurance.

The moral from the recent case law and the title insurance regime is; if you know it, disclose it. If you have further questions about title insurance, please contact me at shari@elliottlawyers.com.

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Environmental Law Meets Real Estate Law

There is no excuse today for real estate agents not to be aware that the environmental status of properties needs to be addressed in the purchase agreement.

By becoming aware of the issues, real estate agents can avoid the discovery of unexpected environmental issues. Environmental liability is applied to a wide range of actors, not just the polluter.

The level of due diligence required will vary with the nature and use of the property, both past and future.

There are many activities that are inherently high risk to cause contamination. A short list would include chemical plants, battery manufacturing, recycling facilities, asphalt manufacturing, electroplating, metal fabrication, circuit board manufacturing, steel works, leather tanneries, ship building, repair yards, textile mills, drycleaners, scrap yards, service stations and properties with underground storage tanks.

There are methods to investigate and, if required, remediate the contamination. The primary tool is an Environmental Site Assessment (“ESA”) for this investigation.
An ESA starts with what is referred to as a Phase I. A Phase I is mainly a paper search to determine actual and potential site contamination both on and off-site. A Phase I usually takes between 2-3 weeks and costs approximately $2,000 – $3,500.

A Phase II is considered an intrusive investigation to assess potential or known impacts to the soil and groundwater. Usually boreholes and monitoring wells are installed and samples are taken and analyzed at a laboratory. The cost will vary with each project.

ESAs are important to allow for the risk/cost to be allocated properly. If a vendor has an ESA completed prior to offering the property for sale, the vendor can dictate the terms in the agreement. This would include restrictions on the future use of the property in order to limit liability. The vendor might also choose to remediate the property prior to the sale to maximize the sale price and increase interest.

Professionals should be involved early. Full disclosure and indemnities are key to limiting liability.

A Record of Site Condition (“RSC”) which is available under the Environmental Protection Act can provide immunity to the current and future owners if required in the purchase agreement. It is important to be aware that an RSC is required under the Environmental Protection Act when the use is changing to a more sensitive use i.e. industrial to residential.

Real estate agents need to be aware that environmental contamination is best addressed in the purchase agreement. Former owners may still be liable even when selling on an “as is” basis. Purchasers may be liable for existing contamination, ongoing mitigation or off-site discharges.

Agreements that properly allocate the risk and cost are complicated. Representations and warranties need to be clearly drafted. Covenants and conditions to closing are likely required. Indemnities are key, but only as good as the party providing the indemnity which is why holdbacks, securities and environmental insurance might be required.

To avoid the tricks and traps associated with contaminated properties, environmental issues should be addressed early. Knowledge of the risks/issues can lead to solutions. For more information on contaminated properties, please contact me at shari@elliottlawyers.com.