The Importance of a Well Drafted Agreement of Purchase and Sale

by Howard Oldham

It is essential that in all the excitement of a purchase or sale of your property you have the support of a good Real Estate Agent and Lawyer.

What is an Agreement of Purchase and Sale?

When buying or selling a home the first, and most important thing, that will be handled is the Agreement of Purchase and Sale or PSA. This is a legally binding contract that you are entering into and you should ensure that it has been properly drafted either by your lawyer or trusted real estate agent and reviewed by a lawyer.

Entire Agreement Clause

This document is important because it alone sets out all your rights and obligations, whether you are buying or selling. An error we have seen before is that a client buying a home will read the listing and see that within the listing an item or asset or characteristic of the property is listed. Then once they have purchased the home and moved in, when said item, asset or characteristics is not there as set out in the listing, they believe they have an entitlement to whatever is missing. This is often not the case. If you have an APS drafted on an OREA form, and most drafted by hand will also include, what is known as an Entire Agreement Clause or Whole Agreement Clause. These are used to limit and clearly define the contractual rights and obligations of the parties. These clauses state that the ONLY rights and obligations of the parties are those set out in this single agreement. Meaning, this agreement, being the APS, is the ENITRE agreement, or WHOLE agreement. It ensures that the APS is the only legally binding contract, and there has been nothing agreed to outside of its scope, i.e. no listing or oral agreement.

Conditional Agreements

Some agreements or offers may be conditional, and this is different than a “firm” agreement. When an agreement is conditional, this is not yet a binding agreement, not until the conditions are met or waived. Extensions can be requested if more time is needed, however, again the APS is not firm nor binding until all conditions are met or waived. Conditions can be included for a variety of reasons, most commonly financial, meaning the offer may be conditional on the purchaser being approved for a mortgage, or their current home selling. You can tailor your APS to suit your needs and could ask for conditions such as conditional on an inspection by a building inspector.

Additional Clauses

The APS sets out details of your rights for inspection of the home before purchasing. Whether you want one or more inspections again prior to closing date will be set out in the APS. Additionally, whether you want the APS to be conditional on those inspections or the inspection of a building inspector, that will need to be set out. This is truly where the benefit of using both a Real Estate Agent and lawyer are their years of experience and knowledge when it comes to including clauses that clients typically would not know to include. Particularly in the Parry Sound and Cottage Country area, this expertise should not be underestimated. Lawyers and real estate agents know the area and know what issues may arise, this means they will be able to ask about issues such as road access and rights of ways, which may be otherwise overlooked. As well as clauses dealing with septic, water testing, and wood burning fireplaces.

Conclusion

Make sure to keep the sale or purchase or your home or property exciting and avoid as much stress as possible by using a well experienced Real Estate agent and Lawyer. A good real estate lawyer can help guide you through the process, answer any questions you may have along the way and ensure you understand all your rights and obligations. Make sure you start out on the best footing possible by having a lawyer draft or review your agreement.

DISCLAIMER – Please note that the information in this newsletter is of a general nature and it is not to be considered as legal advice nor presumed to be indefinitely up-to-date.

The Challenges of Chattels and Fixtures

by Howard Oldham

When purchasing a property (other than vacant land) you need to take care in understanding the difference between chattels and fixtures to make sure that what you think is included in the deal is actually included.  Fixtures are things that are fastened or otherwise attached to the property in some way such as furnaces, garage door openers and lighting fixtures.  The law is that unless the agreement specifies otherwise, then fixtures are included in the purchase price.  Chattels are items that are not fastened or otherwise attached to the premises such as refrigerators, stoves, furniture, personal items and the like.  The law is that chattels are excluded from the purchase price unless the agreement specifies otherwise.  This is why the standard real estate agreement ask for a list of chattels to be included and a list of fixtures to be excluded.

Rarely are  fixtures excluded from the agreement as these items are usually required for the typical use of the property.  Chattels are a whole different matter.

The proper way to make sure that you know what you are purchasing is to have a thorough and complete list of chattels included in the agreement.  The list would include whatever appliances, furniture, tools etc. that you want as part of the deal.  This is important because if they are not included in the agreement then the law is that you are not entitled to them.  You can also forget trying to argue that you had some sort of side deal or verbal agreement because the standard real estate agreements contain a clause which says only the written agreement governs and that no other side deals or verbal agreements have any merit.

Unfortunately, in the rush of reaching a deal, often Chattels are described without much detail.  For instance, we often see Chattels described as “… all chattels as seen when visiting the property”.  Obviously, that can cause many disputes when the purchaser arrives and less is there than what they expected.  Another common description we see is “… all chattels excluding any personal items.”  What is personal to one person may be quite different to another person.  For this reason, we see many disputes over what was intended by this language.

Ideally, it is a good idea to do an inspection as close to the closing date as you can.  This is something that you should have inserted into the agreement  - that you have the right to attend the premises to inspect before closing.  That way you can ascertain whether the chattels that you bargained for have been left behind.  If Chattels are missing, you can ask your lawyer to try and negotiate a holdback from the purchase price until the Chattels are returned or a reduction of the purchase price. 

Unfortunately, if you don’t find out that the Chattels are missing until after closing, the options for getting compensated are not great.  Essentially, you would have to sue the vendor for breaching the contract/agreement.  That is not a very practical option given the cost and time required to pursue litigation. 

For these reasons, it is best to take the time and make the effort to outline the Chattels included in the deal.   

 

 

CHANGES TO THE PRINCIPAL RESIDENCE EXEMPTION  

by Howard Oldham

Most people are familiar with the principal residence exemption which allows one property to be designated as a principal residence for each “family unit” in any given year.  This prohibits two spouses from each claiming the principal residence exemption which exempts the property from capital gains tax.

The principal residence exemption has been abused by non-residents who claim the tax exemption but do not reside in Canada.  In order to prevent non-residents from claiming the exemption in the same year that they acquired the property, the government has changed the rules so that an individual will not qualify for the principal residence exemption in the year they acquired a residence if they were a non-resident of Canada in that year.

The government has also added an additional reporting requirement.  For all dispositions of property on or after January 1, 2016, individuals must report the sale of a principal residence to the Canada Revenue Agency as part of their income tax return.  If you fail to report, the CRA may impose a penalty and worse – they may deny your ability to claim the exemption!  Furthermore, the new changes allow them to review previous dispositions of real estate and to go back in time indefinitely – rather than the standard three years.

 

The bottom line is to make sure that you report the sale of your principal residence on your income tax return.