War Stories From The Summer 2013

September is always a good time to reflect on the transactions over the summer to see what trends there are that caused issues with closing and how to learn from them.

PRIVATE WATER – WHAT HAPPENS WHEN THE WELL GOES DRY?

This summer so far I have been notified by three purchasers of properties with private wells that have gone dry. This is not a temporary issue, in all three cases the well-driller consultant has advised the only remedy is to install a new well. Each of these files have been transferred to a litigation firm and a small claims court action has been commenced.

As a result of the quantity of water becoming a problem, I have investigated what a real estate agent can do to have the quantity not just the quality of the water investigated. In all three of my client’s situations the well-driller company retained has advised that the water quantity issues had to have been long-standing and known.

There are two things that agents can do to protect their clients: The first is to have your client retain the services of a well-driller, to perform a flow-test. I have prepared a full handout on this topic which I have attached. The second thing is to insert in the agreement a representation and warranty clause. This is on the basis of the owner representing and warranting (also can be referred to as guaranteeing) that there is and has been proper quantity of water while under the owner’s occupancy of the property that a small claims court action can be commenced if this is later discovered to not be true. A sample representation and warranty is as follows:

The Seller represents and warrants that during the Seller’s occupancy of the property, the pump and all related equipment servicing the property have performed adequately and will be in good working order on closing and are capable of supplying an adequate quantity of water to meet the household needs. The parties agree that this representation and warranty shall survive and not merge on closing, but apply only to the state of the property existing at closing.

As a purchaser you do not want this clause:

This offer is conditional upon the Buyer determining at the Buyer’s own expense that:
i) There is an adequate supply of water to meet the Buyer’s household needs;
ii) The pump and all related equipment serving the property are in proper operating conditions; and
This puts the onus on the Buyer and if the Buyer has a consultant attend and perform a flow test it might pass on that day but for any number of reasons will not be enough if there are known problems which have not been disclosed. Without a representation or warranty from the Seller there will be no basis for a small claims court action.

RETAINING WALLS – WHAT IF IT IS NOT ON YOUR PROPERTY?

I have been involved in two files where a retaining wall existed to protect my client’s property, but the retaining wall was not located on that property, but rather the adjacent property. In both cases the transactions were not completed, upon the discovery of this fact. In the first situation the Sellers were not aware that the retaining wall was not on their property until the title search commissioned by my office revealed it. There was a survey registered on title that the Sellers did not have, that clearly showed this. During the home inspection my clients had the retaining wall inspected and upon discovery of the need for repairs had been provided an abatement in the purchase price, so they could address the repairs after closing. In this situation the Seller’s solicitor was the same solicitor who acted on their purchase and this fact was never discovered. I required, on behalf of my client, an encroachment agreement with the adjacent landowner to be registered on title acknowledging the fact that the retaining wall is the property of my clients and providing access for repair and maintenance. This was refused and the position was taken this was not substantive enough to refuse to close the transaction. It was my position this was substantive the retaining wall in place to protect my client’s property was not on their property, they had no right to access it and it was in need of repair. The transaction was not completed and after threatening a small claims court action the deposit was eventually returned.

The second situation was just this past week. In this case the retaining wall was located 7 inches on the adjacent property and was discovered during the lawyer approval conditional period. In this situation because it was so close to the boundary and without a survey it was unknown whether or not it was in fact on the boundary. The easy fix appeared to be to enter into a boundary fence agreement with the adjacent landowner and have it registered on the title to both properties. This would allow terms for the existence of the retaining wall in that location and for repair and maintenance to be agreed upon. This was also refused. After explaining the ramifications of not owning the retaining wall for the duration of my clients occupancy and more importantly on the resale of this property this transaction was terminated.

It is important for agents to know that fences are exempt from title insurance coverage. As well, items that are off-site or are known at the time of the closing are exempt. In this second situation the listing real estate agent could not understand why we would not just rely on title insurance. Not sure what that coverage would have even provided but what is clear is when you are aware of an issue you do not have coverage.

STATE OF PROPERTY ON CLOSING – SAME DAY FINAL INSPECTION.

The third item that appears small when the clause is inserted in the agreement but becomes a big issue on the day of closing is “leaving the property in a clean, broom swept manner with all debris removed”. Almost every week we had a problem on the day of closing with debris being left at the property and not in a minor way. In one instance my clients had to take their children to relatives and put their dogs in a kennel because the property was so disgusting. My clients had to rent a bin and spent a full-day removing items from the house before they could start to clean it to be ready to move their things in. In this instance I was able to get my clients, expenses totalling $1,000 paid. This payment was made voluntarily upon request as the transaction was already closed. If it had not been paid voluntarily, my clients would of been responsible for these unforseen costs or may have needed to rely on the real estate agent because the amount is to minimal to warrant a small claims court action.

To avoid having the place not be in a proper state on the day of closing, agents should make it a habit to arrange a final inspection the morning of closing. It is a common law right, based on case law, that clients are entitled to an inspection on the day of closing, which is not something that is required to be set out in the agreement of purchase and sale. This right is based on the common law principle that the buyers are entitled to walk through on the day of closing to ensure the property has not been damaged or altered such that it would not be insurable or of the same value for the mortgage. A recent problem with obtaining access for same day closing has been access to keys. I recommend that agents make same day inspections part of their practice and ensure keys will be available for this purpose.

Every year there are new items that occur in real estate transactions that change the advice I give to agents and what I do during solicitor approval. I trust that this review from the summer of 2013 will assist you.

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