5 Things to Consider When Purchasing a Pre-Construction Property Looking at floor plans and picking custom finishes when purchasing a brand-new property is an exciting time. However, the size and complexity of an Agreement of Purchase and Sale for a pre-construction property, commonly referred to as a “new build”, can be daunting and intimidating for prospective purchasers. Prior to entering into a binding Agreement of Purchase and Sale for a new build, it is of the utmost importance that you understand exactly what you are signing, as the majority of the clauses in the agreement are drafted to be advantageous for the builder. Below are 5 items to watch out for when executing an Agreement of Purchase and Sale with a builder. (1) Adjustments on Closing When you enter into a pre-construction agreement, there will often be provisions relating to “adjustments”. These adjustments are costs that are in addition to the purchase and are payable to the builder on the closing date. These additional charges may contain, but are not limited to, the following: Tarion Enrollment Fee Cost associated with utility meters and installation Realty taxes Levies and Development Charges (charges imposed by the Municipality) Miscellaneous Builder Fees (i.e. builder’s mortgage discharge fee) If left uncapped, adjustments on closing can exceed tens of thousands of dollars. Note that the exact amount of adjustments payable will not be known until shortly before closing. Your lawyer may be able to negotiate reasonable caps and deletions to these adjustments. This can provide clarity for purchasers when budgeting for the final closing date. (2) Restrictions Relating to Assignments and Leasing If you intend on assigning an Agreement of Purchase and Sale or leasing the unit during a potential occupancy period, you should be mindful of any restrictions contained in the agreement. Builders will often incorporate a provision stating that all assignments, leases, and sales are prohibited until after the final closing date and that you are prohibited from advertising the unit on any platform. For example, a clause of such nature would prohibit you from advertising or listing on Multiple Listing Services (MLS). These provisions also usually contain a clause stating that if the vendor consents to a request for an assignment or lease, you will be required to pay the vendor’s “administrative fee”, in addition to their lawyer’s legal cost. Note that these assignment and lawyer fees can exceed $10,000.00. (3) Harmonized Sale Tax (HST) When purchasing a newly constructed property, the transaction will be subject to HST (13% of the purchase price). Some builders will incorporate the HST into the purchase price, while others will make it payable in addition to the purchase price. If HST is included in the purchase price, the builder will usually insert a provision stating that you will qualify for all HST rebates and that you agree to assign the benefit of same to the builder. To qualify for the HST rebates, you will need to occupy the property as your principal residence. If you do not meet the requirements for these HST rebates, you may have to pay the equivalent of same on closing. Note that this amount can be approximately $24,000.00. (4) Tarion Statement of Critical Dates When entering in to a pre-construction agreement, it is important to be mindful of the Tarion Statement of Critical Dates and the vendor’s ability to extend such dates with proper notice. The Tarion Statement of Critical Dates provides purchasers with tentative closing dates, in addition to the “Purchaser’s Termination Period”.1 In certain circumstances, you may be entitled to delayed occupancy compensation, however, it is important to note that the maximum delayed occupancy provided under Tarion is $7,500.00 ($150.00 per day up to this amount). Therefore, if a delay exceeds 50 days, you will not be entitled to further compensation under Tarion’s delayed occupancy regime.2 (5) Occupancy Fees (if applicable) Some pre-construction properties may be subject to an occupancy period (i.e. an interim or occupancy closing). During this period, you will effectively rent and occupy the dwelling from the builder until the final closing can take place. You will often be required to pay a monthly occupancy fee, which is usually comprised of interest on the unpaid balance due to the builder, condominium fees (if applicable), and property taxes. Outside of the occupancy fee, you will often usually be responsible for the payment of all utilities. It is important to note that these monthly occupancy fees are not credited towards the purchase price. Importance of a Real Estate Lawyer’s Review Prior to finalizing a pre-construction agreement with a builder, it is imperative to have a real estate lawyer review your agreement. Your real estate lawyer will be able to highlight any concerning provisions and may be able to negotiate favourable amendments with the builder’s lawyer on your behalf. If you are looking for a lawyer to review your pre-construction agreement or act on your behalf in a real estate transaction, please do not hesitate to contact Jason Lane, lawyer at Woitzik Polsinelli LLP at 289-220-3241 or at jason@durhamlawyer.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” This blog was co-authored by Articling Student, Jaimin Panesar. By alyssaBlog, Real EstateApril 15, 2024April 12, 2024
Transferring Business Assets to a Corporation: An Overview of Section 85 Rollovers Suppose you’ve been diligently building your business as a sole proprietor or in a partnership, accumulating valuable assets like equipment, cash, and goodwill. As your business expands, the idea of incorporating crosses your mind – not only for tax advantages but also to shield yourself from personal liability. However, did you know that transferring such assets to a new corporation can trigger capital gains tax? Section 85 of the Income Tax Act (ITA) offers a solution in the form of a tax-deferred transfer, commonly known as a Section 85 rollover. Section 85 of the ITA enables a joint election between you and your new corporation, facilitating a tax-deferred transfer. By entering into an agreement with your corporation to exchange business assets for common shares in the corporation or a combination of shares and non-share consideration (such as a promissory note or the assumption of existing debt) (the “Consideration”), you can defer the tax liability until a future date – typically when the asset is sold to a third party or disposed of. To execute a Section 85 rollover effectively, you, in consultation with your accountant, must determine the fair market value of the assets being exchanged, as well as the elected amount for transferring such assets. Your accountant will also need to advise as to the particulars of the Consideration to be given by the corporation to you in exchange for the assets. The key is to ensure that the value of what you receive matches the fair market value of the assets transferred. Completing a Section 85 rollover involves the preparation of various legal documents and the filing of necessary CRA forms after the exchange. Once such rollover is completed, in addition to the tax deferral benefits, you’ve helped safeguard your assets and ensured the smooth continuity of your business. This tool is versatile, extending beyond sole proprietors or partnerships transitioning to corporations. It can also be instrumental in estate freezes, estate planning and corporate reorganizations. It is crucial to always consult your corporate lawyer and accountant before undertaking a Section 85 rollover. These professionals can guide you through the technical requirements, evaluate the benefits for your business, and prepare the necessary documentation for a seamless transfer. For expert advice, contact corporate lawyer, Stephen Sforza at stephen@durhamlawyer.ca or call 289-220-3239. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By alyssaBlogJanuary 16, 2024January 16, 2024
Safeguarding Against Post-Closing Defects Before placing an offer on a property, it is important to understand the principle of “caveat emptor”, which is also known as “buyer beware”. While purchasing a new home can be an exciting time, it is crucial to conduct your own due diligence in seeking out any potential issues prior to firming up your transaction. A quick walk-through of the property may not reveal certain defects that could have been discovered through a reasonable inspection of the premises. The Principle of “Caveat Emptor” in relation to Patent and Latent Defects The principle of caveat emptor is one of the governing principles in determining who is financially responsible for defects that are discovered after closing. Essentially, this principle states that potential purchasers are to buy a property at their own risk and if they wish to investigate about potential defects, they are to satisfy themselves in relation to same. Defects that are discovered by the purchaser after closing are thus usually their own responsibility. The principle of caveat emptor applies to patent defects. Patent defects are defined as defects that could have been discovered through ordinary diligence or a reasonable inspection. Examples may include holes in the wall, broken windows, damaged floors etc. They are effectively defects that are either visible to the naked eye or can be reasonably discovered. It is important to note that a vendor has no obligation to disclose of any patent defects, however, they may not knowingly conceal or hide same. Alternatively, latent defects are defects that could not have been discovered by ordinary due diligence or a reasonable inspection of the property. One key difference between the two types of defects is that vendors have a duty to disclose to purchasers of any latent defects that they have knowledge of. While the principle of caveat emptor also applies to latent defects as well, if the vendor fails to disclose of a latent defect that they had knowledge of, they will be liable for same. It is important to note that if a purchaser has knowledge of a defect and fails to raise same prior to closing, they will likely have no claim for any damages relating to the defect. Potential Issues that may Arise Not all post-closing issues can be classified as either patent or latent defect, as some may be related to contractual issues or warranties. The following is a non-exhaustive list of common issues that purchasers experience past closing: Property is left in a messy state, with the vendor’s unwanted personal items left behind There is damage/leaks/defects to various parts of the property (i.e patent or latent defects) The chattels included in the agreement are not operating properly The pool or hot tub is not in working order The septic or well is not in working order The vendor has failed to provide vacant possession There are arrears in taxes for the property Equipment was not disclosed as a rental item in the Agreement of Purchase and Sale (i.e a hot water tank) Addressing Defects Throughout the Transaction It is best to address potential defects and issues prior to firming up your Agreement of Purchase and Sale. The most common safeguard for purchasers is to require the transaction to be conditional upon an inspection from a certified inspector. Professional inspectors are most suitable for identifying any defects with the property and will produce a report listing same. Another common safeguard available to purchasers is to have the vendor agree to certain written warranties and representations that will be included in the Agreement of Purchase and Sale (often in Schedule A). For rural and cottage properties, it is best to consult with a real estate lawyer prior to signing an Agreement of Purchase and Sale, as it may be advisable to insert conditions in relation to a potential well and/or septic system. If any issues are to arise or be discovered after closing, it is best to contact your realtor and/or lawyer so that the other side can be put on notice. Your realtor or lawyer may try to negotiate some form of compensation on your behalf, without the need to immediately litigate the matter. Note that post-closing issues are often outside of retainer agreements with real estate lawyers, so they may be unwilling or unable to negotiate on your behalf. If your realtor or lawyer is unable to successfully negotiate with the vendor or their counsel, your next recourse may be to file a claim with the Small Claims Court, or, if the amount of your claim is greater than $35,000.00, the Superior Court of Justice. If you elect to litigate any post-closing issues, you may wish to speak with a litigation lawyer. Importance of Making Your Agreement Conditional on Your Lawyer’s Review Making your Agreement of Purchase and Sale conditional on your lawyer’s review can be extremely beneficial in the future. A competent real estate lawyer will be able to recommend, draft, and insert certain provisions that specifically relate to your transaction. These provisions may be able to protect you from defects that are discovered in the future. Moreover, after your agreement becomes firm, your lawyer may be able to request an abatement of the purchase price in relation to defects raised prior to closing (i.e. defects discovered through your last walk-through of the property). If you are looking for a lawyer to act on your behalf in a real estate transaction or have any questions, please do not hesitate to contact Jonathan Dippolito, lawyer at Woitzik Polsinelli LLP at 905-668-4486 ext. 229 or at jonathan@durhamlawyer.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” This blog was co-authored by Articling Student, Jaimin Panesar. By alyssaBlog, Real EstateOctober 16, 2023October 13, 2023
Extended and Collapsed Real Estate Transactions It is important to note that not all real estate transactions close on their targeted completion date. The recent rise in real property prices accompanied by strict lending requirements has resulted in a surge of real estate transactions dissolving or requiring an extension of the completion date. Whether you are the breaching party or the one being faced with the detriment, it is crucial to have a capable real estate lawyer to guide you through what can be a taxing process. What Occurs When a Party Indicates That They Cannot Close on the Originally Agreed-Upon Closing Date? When one of the parties reveals that they cannot close the transaction on the closing date stated in the agreement amongst the parties, they have committed what is known as an anticipatory breach of the Agreement of Purchase Sale. Although both parties can be subject to this breach, it is usually the purchasing party who cannot close the transaction on the originally targeted closing date, often attributable to issues related to their financing for the matter. The breaching party, once apprised of these circumstances, will customarily request an extension of the closing date through their counsel. Thereafter, the innocent party will receive the request for an extension of the closing date, and, through their respective counsel, will proceed to note the other party in anticipatory breach of the agreement, putting forward terms which would permit the extension, provided the breaching party assumes the costs incurred and agrees to the demands imposed by the innocent party. Note that the innocent party is not obligated to accept an extension request related to the closing date – however, it is often the most viable solution for all parties, with the intent to proceed in ultimately closing the transaction. Requests for an extension are often met with strict extension terms from the innocent party which are put forward as non-negotiable. The parties’ respective counsel will engage in negotiations, seeking favourable extension terms for their clients. The following is a non-exhaustive list of possible extension terms that a seller’s counsel may request in the event of a purchaser’s request for an extension of the closing date: The Purchaser is to pay for utilities and property taxes from the original closing date to the then extended closing date; The Purchaser is to pay the Seller’s cost of insurance for extending the transaction; The Purchaser is to pay an additional deposit to further secure their obligation to close the transaction on the then extended closing date; The Purchaser is to sign an Irrevocable Direction authorizing all deposits held in trust to be released to the Seller either immediately, or, in the event that the Purchaser fails to close on the then extended closing date; The Purchaser is to pay for the Seller’s per diem interest for any existing mortgages or bridge loans secured against the property in question; The Purchaser is to cover the Seller’s increased legal fees, if any. Once the terms of the extension are agreed upon and executed by all parties, the transaction is permitted to close no later than the agreed-upon extended completion date. While not a common occurrence, should a further extension be requested, and the innocent party is willing to grant the same, new extension terms would then be negotiated. What if the Seller Requires the Sale Proceeds for Their Own Purchase? Circumstances may arise where the seller in the extended transaction is also purchasing a property by way of a separate transaction. In situations where the closing date for the seller’s own purchase is prior to the then extended closing date of their sale, they will not be able to rely on the funds from their sale to immediately fund their purchase transaction. In such a circumstance, the seller will have several options: To obtain bridge loan financing to fund their purchase transaction in the interim, which would later be paid from their sale transaction funds; or Request an extension for their purchase transaction. A bridge loan occurs where a lender provides short-term financing for the purpose of a purchase transaction, with the payment obligation for the funds in question secured, albeit temporarily, against a property to be sold by the borrower (or against the property being purchased) – upon which, the funds would be issued to the lender, in addition to any applicable interest for the duration between the two closings. Note, as previously mentioned, that the lender can require the bridge loan to be secured against the property being sold, the property being purchased, or both. The bridge loan serves to rectify any funding issues that the seller may incur due to the purchaser’s anticipatory breach in requesting an extension of the original closing date. Essentially, the funds that you were expecting to use from your sale, had it closed on time, are substituted with the funds from the lender. This allows you to close your purchase on its original closing date when your sale funds are not available. Upon the closing of your sale, the bridge loan will be paid out in full using your sale proceeds. The second option that a seller has is to ask the seller in their own purchase for an extension. It is important to note that even if this extension is due to the purchaser in your sale and not the fault of the seller, in theory – this can still be viewed as an anticipatory breach of contract, and your lawyer will need to negotiate extension terms on your purchase as a result. Steps to Take When the Breaching Party Walks Away from The Transaction, or Does Not Meet the Extension Terms Agreed Upon: As the seller, if the breaching party walks from the deal, or the closing day has passed without an extension, the property is often relisted and resold to mitigate damages. The seller may wish to also obtain litigation counsel to start a proceeding against the original purchaser for any loss or damages incurred. The most common source of damages that the seller would seek against the breaching party is the difference between the purchase price in the original agreement and the purchase price in the transaction that ultimately closed, should there be a shortfall or loss in resale value as a result of the original purchaser’s breach. Forfeiture of the Deposit in the Event of a Breach: A common question that the innocent party has upon breach of the agreement is “What happens to the deposit being held that was originally put forward by the purchaser?” Even though the innocent party bears no responsibility for the breach, they are not automatically given the deposit. The deposit can be released in two ways: If the breaching party consents to the release of the deposit in writing; or The innocent party applies to the court and receives a Court Order for the release of the deposit. The deposit will continue to be held in trust by the brokerage or counsel should one of these conditions not be met. Importance of Having a Competent Real Estate Lawyer Competent real estate counsel is essential for a smooth and efficient closing. Whether it pertains to negotiating favourable extension terms or noting a party in breach, a party will seek to ensure that they have a diligent, efficient individual acting in their best interests under the circumstances faced. If you are looking for a lawyer to act on your behalf in a real estate transaction or have any questions, please do not hesitate to contact the following members of our real estate team: Jason Lane – Jason@durhamlawyer.ca, 905-668-4486 ext. 241 Jonathan Dippolito – Jonathan@durhamlawyer.ca, 905-668-4486 ext. 229 This blog was co-authored by Articling Student, Jaimin Panesar* “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By alyssaBlog, Real EstateSeptember 11, 2023September 11, 2023
Importance of Having Your Status Certificate Reviewed If you’re planning on purchasing a condominium unit, it is vital that you have a real estate lawyer review your status certificate. Unlike the vast majority of freehold properties, when purchasing a unit in a condominium, you are also buying a “share” of the common elements and must abide by the Condominium Corporation’s governing documents. Once you purchase a unit, the Condominium Corporation has a considerable amount of power over the monthly common element fees, so it is imperative that you know if you are buying into a healthy Condominium Corporation. The financial health of the Condominium Corporation will determine its marketability and as such, you want to ensure that you are purchasing into a financially healthy condominium. What is a Status Certificate? A status certificate is a document that gives an overview of the current state and health of the Corporation at the time it is issued. The status certificate is often prepared by the Corporation’s property manager and is supplemented by several documents, which give further insight into the current condition of the Corporation. In accordance with Section 76 of the Condominium Act, the following is information that the Corporation must include in their status certificate package: a statement of the common expenses for the unit and the default, if any, in payment of the common expenses; a statement of the increase, if any, in the common expenses for the unit that the board has declared since the date of the budget of the corporation for the current fiscal year and the reason for the increase; a statement of the assessments, if any, that the board has levied against the unit since the date of the budget of the corporation for the current fiscal year to increase the contribution to the reserve fund and the reason for the assessments; a statement of the address for service of the corporation; a statement of the names and address for service of the directors and officers of the corporation; a copy of the current declaration, by-laws and rules; a copy of all applications made under section 109 to amend the declaration for which the court has not made an order; a statement of all outstanding judgments against the corporation and the status of all legal actions to which the corporation is a party. Are Status Certificate Reviews Mandatory? Although tremendously important, it is not mandatory for you to obtain or have your Status Certificate reviewed by a lawyer. Nevertheless, to limit their risk, most lending institutions may make it a requirement for your status certificate to be reviewed. When Should a Status Certificate Be Reviewed? The best time to have a status certificate reviewed is before you put in a firm offer for the unit. This allows your lawyer and real estate agent to include favourable provisions in your Agreement of Purchase and Sale that may reduce any risks associated with the unit and Condominium Corporation. For example, if the unit is default of common expense payments, your lawyer may recommend including a provision that the Vendor is to pay out same before closing. If the Vendors are not agreeable to such provisions, you still have the option to withdraw from the transaction. If you are unable to have your status reviewed before making a firm offer, you should ensure that your Agreement of Purchase and Sale is conditional on your lawyer reviewing the status certificate. If the status certificate reveals issues and the Vendors are not agreeable to an amendment, you can still legally withdraw from the transaction. If you have your status certificate reviewed after your offer is firm, you run the risk of not being able to address any issues contained in the status certificate and accommodating documents. Vendors may be unwilling to sign any amendments and you will be legally obligated to close the transaction. What Does a Lawyer Look for When Reviewing a Status Certificate? When looking through a status certificate package, lawyers look for a variety of indicators. Firstly, in the status certificate itself, without limitation, lawyers will look for the following information: Ensure the unit number and address are correct; Note any parking or lockers conveyed with the unit; Determine the monthly common expense amount for the current fiscal year and whether the unit is in default of same; Whether common expenses have been increased or any special assessments have been levied in the current fiscal year; Any legal judgements against the Corporation or ongoing legal disputes that may result in increased common expenses; Overview of the budget and reserve fund of the Corporation; Whether the Corporation has adequate insurance in place. The governing documents of the Corporation with also be reviewed to highlight any provisions that may interfere with your use and enjoyment of the property. For example, many Corporations have restrictions on the number of pets, if any, that are permissible. It is important to review these documents so prospective purchasers are aware of any restrictions. Lawyers will also review the Corporation’s budget, audit, financial statements and reserve fund study. Although much of this information goes beyond the scope of a real estate lawyer, there are still many indicators to look for to ensure the Corporation is financially responsible and in a healthy state. This may include noting any large increases in liabilities, observing future funding recommendations, noting expected future increases to common expenses and determining whether the Corporation has been following their budget. Your lawyer’s objective when viewing the status certificate is to disclose any deficiencies or areas of concern so that you can make the most informed decision possible. A good real estate lawyer will often follow up with the Corporation on potential issues to gather further information or seek a solution. Your lawyer, however, will not provide a conclusive opinion on whether you should proceed with the transaction, nor will they provide in-depth financial insights. It is imperative that prospective purchasers review the status certificate themselves, as at the end of the day, you are the one making the final decision. A good lawyer, knowledgeable in condominium purchases, is essential for having a smooth real estate transaction. If you are looking to purchase a property or wish to have your status certificate reviewed, please contact Paria Rad, lawyer at Woitzik Polsinelli LLP at 905-668-4486 ext. 230 or at paria@durhamlawyer.ca “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” This blog was co-authored by Jaimin Panesar* By alyssaBlog, Real EstateSeptember 5, 2023September 5, 2023
