A practical guide to purchasers of residential property

For many, the purchase of a home is the single most important transaction in life. Home owners often spend countless hours searching for the right home on the internet and visiting numerous properties. They have to provide information to banks to obtain approval for a mortgage and analyze what would be an acceptable monthly instalment. When the decision is made as to which home to purchase, there is often a blur of activity culminating in the payment of a deposit and the signing of an agreement for sale. This is often followed by a period of silence until it is time to sign the relevant deeds and receive the keys to the home. The following are useful points to consider before entering into that agreement for sale and an insight into what is going on during that period until you complete the sale and what you should be doing during that time.

The Agreement for Sale

Frequently, the purchaser is presented with a ‘standard’ form of agreement for sale which they often sign without consulting an attorney. Again, as this is often your largest financial transaction, it would be in your best interest to have an attorney review the agreement or even draft it on your behalf. The agreement for sale governs every aspect of the transaction and it is critical especially in the event that a problem occurs. Consider the following which can be negotiated into the agreement:

• Traditionally the purchaser pays a 10% deposit directly to the vendor. In the event the vendor is unable to complete the sale (for example where the vendor does not have proper title to the property) the purchaser will need to get back their deposit from the vendor. As you may expect, there are often delays and costs associated with trying to recover this money as the vendor may have used it for his own purposes. During this time, the purchaser may not have sufficient funds to pay another deposit and until the money is recovered you may miss out on an opportunity to purchase another home that becomes available. To avoid this situation the deposit can instead be paid to a ‘stakeholder’ such as a bank or an attorney. The stakeholder will place the money into an interest bearing account and in the event the vendor is unable to complete the sale it is easier for the purchaser to recover the deposit plus any interest from the stakeholder.
• As far as the law is concerned an agreement for sale is primarily concerned with the transfer of land rather than the transfer of a house. There are cases therefore where a purchaser has been required to proceed with a sale in situations where the building has been damaged by fire. This certainly would not be what the purchaser would want. In the event of damage to the house the agreement for sale should be drafted to give the purchaser the option of either proceeding with the sale and receiving the insurance proceeds or simply terminating the agreement and recovering their deposit.
• Agreements for sale typically include a provision that ‘time is of the essence’. This means that if the purchaser is required to pay the balance of the purchase price on a particular day, if they are one day late the vendor has the right to terminate the agreement and keep both the deposit and the property. The agreement for sale can therefore be drafted to avoid such a result.

What is taking so long?

During the period between the signing of the agreement for sale and the closing of the transaction, your attorney is working to ‘certify the vendor’s title’ which essentially means that the vendor has the legal right to sell the property to you. For most properties, the attorney will be required to cause his clerk to research the history of all transactions related to the property for the last twenty years. The attorney will also conduct searches on the vendor to determine whether any other person can validly claim to have an interest in the property. These searches can easily take between two weeks to an entire month. Once all of the investigations are complete, the attorney may need to write to the vendor asking for certain documents which are required to ensure that the once the transaction is completed only you will have an interest in the property. For example, your attorney may need releases of previous mortgages or receipts from the vendor’s landlord or homeowners association confirming that all rent and maintenance fees are paid up to date. Again, another month can pass before the vendor provides all required documents therefore it is essential that the entire process begins as soon as possible after signing the agreement for sale. Finally the attorney drafts the conveyance which transfers the property to you and the mortgage deed if you are taking a loan to acquire the property.

Hopefully your attorney will be providing you with updates during this process but if not consider:

• asking for periodic updates such as whether the searches have been completed and are there any issues. It would be useful if your attorney provides you with copies of correspondence so you are aware what if anything is outstanding from the vendor;
• asking if there are any ‘covenants’ related to the property. A covenant is a rule related to the property that you will have to obey and gated communities and townhouse and condominium developments usually have quite extensive covenants. You should obtain a copy of any covenants so that you can comply with all rules related to the property; and
• requesting a draft of the conveyance and the mortgage well in advance of the closing date. This will allow you time to read and digest the documents so that you may ask any questions that you may have

Closing

You will be surprised how often vendors turn up to a closing without keys to the property! In advance of the closing your attorney should notify both you and the vendor of what to expect on the day of closing and what you are required to bring: from keys and certified cheques for any outstanding amounts to the company seal and share certificates if a company is involved in the transaction.

At the time of the approval of your mortgage your banker would have advised you of the closing costs you would be expected to pay. You should confirm these costs with your attorney to avoid any surprises as the attorney will be in a position to confirm all fees, stamp duty taxes and other costs payable.

Finally, you should arrange to meet with the vendor two or three days before the closing to inspect the property. This will give you the opportunity to confirm that there has been no damage to the property since the last time that you saw it and that any items that the vendor agreed to leave in the property have indeed been left behind.