Review of Real Estate agreement by a Lawyer
Do you need your real estate agreement reviewed by a real estate lawyer?
When you enter into an agreement to buy or sell a property, you are entering into something that may very well turn into a binding legal contract. A standard agreement of purchase and sale has all the necessary legal elements of a contract, such as the offer, acceptance, consideration as well as a meeting of the minds. In other words, entering into an agreement of purchase and sale is a serious legal commitment, not to be taken lightly.
It is a good idea to have this document reviewed by a lawyer that is experienced in real estate law. Particularly where the obligations and responsibilities are not well understood. In reality, however, buyers and sellers often rely on their real estate agent to start and complete the agreement of purchase and sale process and it is not until this contract is final and binding that the law office sees the paperwork for the first time.
Our suggestion is that if someone is unfamiliar with the process, or has any questions about what any of the terms of their agreement stand for, give us a call. As the law firm retained to close the transaction, the review of the real estate agreement is completely free – it is included in the lawyer fees as a part of the legal service provided for closing the property.
There can be numerous considerations that warrant a review of the agreement of purchase and sale. Some of these are included herein for general information.
Example 1: Issues with sellers’ capacity or authority to sell
Suppose you’re purchasing a property. You have been searching for quite some time and finally found the right place. You present an offer which the seller accepts. The conditions are now waived and it is time for closing and you now wait for the transaction to close. However, prior to closing it turns out that the ‘seller’ does not have the authority or capacity to sell. How can that be?
Is the seller is a corporation?
Have all the authorized signing officers agreed to the sale? Is the corporation identified correctly on the agreement? Was a corporate search conducted to validate the information shared by the seller or its respective agent. You can imagine the impact any of these situations may have on your transaction.
Is the seller selling by way of a power of attorney?
In this case, the buyer should be on alert to ensure that first, a power of attorney for property is presented and that the power of attorney is a validly executed copy that would stand in court. Is it a limited, general, or continuing power of attorney? Your real estate lawyer that also handles wills and estate matters should be consulted. Such documents have been the subject of fraud plenty of times. Last thing you want is a transaction subject to challenge and tied up in a court battle.
Are there multiple owners of the property ?
Have all the owners signed? If for some reason it is discovered later that all of the correct parties have not consented to the transaction, you may have your rights limited to the party that entered into the agreement with you – thereby hindering your ability to purchase.
Are you buying from an Estate?
Is there a certificate of appointment that allows the estate trustee(s) to sell the property? Essentially, is it an authorized sale?
Is the property a matrimonial home?
Family Law Act prohibits a spouse from selling a house where the subject property is considered a matrimonial home unless the other spouse has consented to the transaction. It is also possible that a power of attorney may be used by the spouse selling. The power of attorney itself needs to be reviewed to ensure that such authorization exists in the document.
Example 2: Conditions
Have you inserted the necessary conditions prior to the agreement becoming a binding agreement?
For example, just because a bank advisor once told you that you may be approved for a mortgage for $ 500,000 does not mean that you will be approved in this case and for this specific property.
Banks have a detailed process to ensure that the property they are providing the loan (security) for is actually worth what you say it is. In other words, if you have overpaid for the property, does not mean the bank will just accept the agreement as the actual price. They will conduct their own due diligence which may include obtaining a current appraisal on the property. You do not want to find yourself in such a situation. Therefore, it is advised that you consider negotiating a financing condition to allow your bank advisor or mortgage broker some time to have written confirmation from the bank that they will finance the property and will provide the amount that you will require to close the deal. However, in a hot market, the seller may not be willing to wait a long time for you to get your approval, if at all.
Needless to say, a home inspection condition is also often inserted to allow the buyer and his or her inspector be satisfied of the condition of the property.
There are a variety of conditions that may be suitable depending on the nature of the property and the type of transaction.
Example 3: Which items stay with the property?
Are there specific items on the property that you think the seller will leave after closing? If so, it is best to put this in writing and best to describe in detail what the specific item is. Typically, unless the chattel (item of personal property) is specifically listed, it goes with the seller. Therefore, unless stated in the agreement, you may find yourself surprised when you move in.
This also applies to the sellers as items considered as fixtures typically stay with the property. If there was an item that the seller wishes to take which can be considered a fixture, it is best this is negotiated and specified in the agreement.
Example 4: Is the seller a non-resident? Or, is the buyer subject to the NRST tax?
I am often surprised at how little thought goes into the seller’s status as a non-resident. There may be a holdback required under s. 116 of the Income Tax Act if there is concern that the seller is not a resident of Canada. If such a situation exists, an involvement of an accountant is crucial at the outset as a clearance certificate from the CRA need to be obtained and to avoid surprises.
If the buyer is not a citizen or permanent resident, there may be non-resident speculation tax payable at the time of closing. Often, parties are not aware of this relatively recent requirement imposed which amounts to 15 per cent tax on purchase of a residential property. If not discovered until the last few weeks or after an offer is “binding”, it can become immensely difficult to complete a transaction and may result in loss of deposit.
Example 5: Title search date?
Does your lawyer have enough time to conduct the necessary searches on title? Without adequate time, or sometimes, no time, your interests may be jeopardized.
The above are just some general examples of why and when a review of the agreement may be required by a lawyer. Not only do we assist potential buyers and sellers, but we also often assist local Kitchener-Waterloo realtors with clarifying the rules and laws in order to property advise their clients. There are numerous situations that can be present in any given transaction and as a result, it is a good idea to have a lawyer review the agreement upfront to avoid unnecessary surprises.