Domestic Contracts (Cohabitation Agreements/Marriage Contracts) and What to Consider Congratulations! You have survived spending months of COVID-19 lockdowns with your significant other and still love each other! Perhaps you have now both decided that you are ready to move in together permanently. While the thought of a possible separation in the future is not at the forefront of your mind when you are in the process of happily building a life together, there are certain legal implications that are much easier and less stressful to address at the outset of your cohabitation, rather than in the unfortunate event of a separation. When you and your intimate partner 1) cohabit for at least three years, 2) have a child together and are in a relationship of some permanence, or 3) are married, you gain certain automatic rights in Ontario primarily pursuant to the Family Law Act (FLA). A domestic contract (also known as a Cohabitation Agreement or Marriage Contract) permits these automatic rights to be varied in order to better suit the intentions of the partners. There are a number of questions that can be answered and agreed upon through a domestic contract that may not be so stress-free and straightforward to answer in the event of a separation. What Impact Will Our Relationship Have on Our Property Rights? One of the main questions asked and argued about when partners decide to part ways is, “Who gets what?” Unmarried partners do not have automatic rights concerning property and therefore ownership is determined solely by who is named on an asset. For example, if your partner is the only individual named as the owner of the house that you are both living in, then you will not have any default rights to an interest in the value of the house, nor will you have a right to stay in the house in the unfortunate event that you separate. If you had been contributing to the house, it is possible to establish an interest in the property through an equitable claim in court. However, there are numerous legal thresholds to exceed in order to establish such an interest and the results of these types of claims are unpredictable. A domestic contract allows you and your partner to be clear as to who owns what, how assets will be distributed, and the permitted living arrangements in the event of a separation. It is also important to note that, if you become married without a domestic contract in place, there are certain property rights that you and your partner immediately acquire. While the details of these rights are beyond the scope of this article, the general impact is that 1) the value of most assets acquired by either partner during the marriage essentially become a part of the marriage and 2) the value of the “matrimonial home” becomes a part of the marriage, regardless of who owns it or when it was obtained. What is critical to understand here is that this means there is an obligation to split the value of the home that you live in with your partner, regardless of who owns the property or for how long they have owned it (even if it was owned prior to the marriage). A domestic contract remains enforceable in the event that you get married (and can also be entered into in the event that you are already married) and allows you to vary these automatic property rights in order to reflect your intentions with regard to your assets. Do Either of Us Expect Financial Support From the Other? If cohabiting or married partners separate, the partner with the lesser income may be eligible for spousal support payments pursuant to the Family Law Act. Unfortunately, the framework for determining whether spousal support payments will be ordered by a court is unclear and is very case-specific. In order to avoid unexpected surprises and expensive litigation, a domestic contract can contemplate whether spousal support will be payable in the event of a separation and if so, how much will be payable and for how long. While it is possible for a court to determine that the spousal support provisions of a domestic contract are unconscionable and therefore unenforceable, the fact that the partners have come to an agreement with regard to the matter will be a major factor considered by a court. If We Have Children, How Are We Going to Raise Them? The Family Law Act also permits partners to agree upon the education and moral training of their children as well as each partner’s support obligations for the children through a domestic contract. This allows partners to come to a greater understanding of each other’s values, beliefs, and intentions with regard to the upbringing of children ahead of the final hour. Note that partners are not permitted to determine the decision-making responsibility or parenting time with respect to their children within a domestic contract (this is only permitted to be contemplated in writing in the event of a separation). Preparing a Cohabitation Agreement Overall, a domestic contract allows you to outline the obligations and rights of each partner during their time living together. It also allows for you to determine how matters can be settled between you and your partner in the unfortunate event that the relationship comes to an end. If you are considering entering into a domestic contract, it is strongly recommended that you consult with a family lawyer in order to ensure that the agreement is enforceable and accurately reflects your intentions (see the article here on the enforceability of domestic contracts: Domestic Contracts – The Importance of Accurate Financial Disclosure and Legal Advice). If you have any questions about the impact that your relationship will have on your future rights and obligations or about the draft and execution of a domestic contract, please contact our family lawyer, Jason Lane, at jason@durhamlawyer.ca, or you can call 289-220-3241 for assistance. “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 or speak to 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 Fauzan SiddiquiBlogSeptember 23, 2021July 10, 2023
The Buyers Guide to New Construction Homes The purchase of a new construction home or condominium can differ from a property that is a resale. This is due to the fact that you are purchasing directly from the builder. The residential sector for the development industry is strong in Ontario. With the growing population and more residents moving outside the city, more new build development projects are expected to be completed to meet the province’s housing needs. However, purchasing a new construction home will come with additional obligations specific to the purchase of the new build. Outlined below is what to expect when considering purchasing a new construction home. New Build Agreement of Purchase and Sale New build Agreements of Purchase and Sale do not use the standard OREA form that is used in resale agreements. The ones provided in new construction homes are more descriptive and tailored to the developer. Included with the Agreement of Purchase and Sale are TARION Addendums which are added to include the following: Statement of Critical Dates Conditions Rights and Obligations Occupancy Termination Clauses Early Termination Conditions List of closing adjustments the vendor proposes. With these additions, it is important to have a lawyer review everything as some Agreements of Purchase and Sale can shift time frames for review. As well, there are a number of clauses and conditions that can be reviewed, removed, and negotiated for the purchaser’s needs. Along with hidden restrictions for Purchasers before purchasing the home, there are some that could come into place upon taking possession of the home. TARION Ontario’s new home Agreements of Purchase and Sale include a Warranty by the Tarion Warranty Corporation (“TARION”). This regulates and enforces the Ontario New Home Warranties Plan Act (“ONHWPA” or “Act”). Most new homes fall within the purview of TARION; with this, TARION Addendums. These will consist of a Statement of Critical Dates, which outlines the terms of the agreement and two schedules. Schedule A, the first schedule, will list types of permitted termination conditions. Schedule B, the second schedule, will identify all closing adjustments that the Vendor intends to charge the Purchaser. The Statement of Critical Dates is a crucial aspect of the new build agreement. Depending on the Firm Closing Date or a Tentative Closing Date, the Vendor could have the chance to extend the closing date numerous times. Similar to this is the Interim Occupancy Date which can be tentative or firm. This differs from the closing date as condominiums are generally available to occupy before the Vendor transfers ownership. If this happens, the Purchaser will pay Occupancy Rent until the closing date. If there are any delays in closing, there is compensation available through the TARION Warranty. This will come into effect after closing. Schedule B Adjustments in a new build agreement differ from resale purchases where the adjustments include property taxes and other common expenses. Purchasing a new home or condominium can come with lots of excitement. While there are new developments appearing every month, the importance of enlisting a real estate lawyer to thoroughly review your agreement of purchase and sale and other related documents is paramount. If you have any further questions on New Build Construction Homes or would like to speak to someone about reviewing your New Build Agreement of Purchase and Sale, please contact Woitzik Polsinelli Lawyer Jonathan Dippolito at jonathan@durhamlawyer.ca Or you can call him at 289-220-3229 for assistance with this matter. “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 or speak to 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 Fauzan SiddiquiBlogAugust 27, 2021June 10, 2023
The Know On Shareholder Agreements What is a Shareholder? A party becomes a shareholder in a corporation when shares are issued to them from the corporation in exchange for money paid, property transferred, or past services rendered to the corporation. Shares can also be acquired through purchasing existing shares from another shareholder, as long as this complies with applicable securities laws. Shareholders hold certain rights, powers, and duties such as: Election of Directors Right to Receive Financial Statements Right to Appoint Auditors Approval of Fundamental Changes Submission of Proposals at Meetings, if they have voting power Shareholder Agreements There are risks and benefits to be aware of when establishing a new business or potentially investing in an existing corporation. Parties considering these ventures should create a contract to minimize risks and maintain the benefits. A shareholder agreement is a typical contract for corporations with more than two shareholders to manage these risks. There are several elements in shareholder agreements; however, they will vary depending on the individual needs. There is broad scope in negotiating and drafting a shareholder agreement. A shareholder agreement can potentially outline how the parties of the corporation will operate and how important decisions will be made. Critical Provisions for Shareholder Agreements: A shareholders’ agreement can address the following matters: The election and composition of the board of directors; What constitutes a fundamental matter, and who gets to approve them; When a shareholder can transfer their shares, and restrictions relating to that transfer: Right of first refusal Drag along Tag along Pre-emptive rights; and What happens if a shareholder dies, becomes disabled or is unable to work in the business (usually a shotgun clause). Shareholder Agreement vs. Unanimous Shareholder Agreement: While a shareholder agreement is a contract between more than one shareholder and is viewed as a commercial contract, it is subject to the articles and by-laws of the corporation and the provisions of the relevant corporate statute. A shareholder agreement binds only the shareholders that signed the agreement, and any future shareholders will have to expressly sign the existing agreement to be bound by it. A unanimous shareholders’ agreement, authorized by s.146 of the Canadian Business Corporations Act (“CBCA”), is in some facets created from the statute. Therefore, it can restrict the directors’ powers and bestow such powers to the shareholders of a corporation. This is done for the supervision and management of the corporation’s matters. A unanimous shareholder agreement does not require consent for future shareholders, as long as a notice is provided. The need for a unanimous shareholder agreement would be to: Override the discretion of directors; It forms part of the contesting documents for specific purposes; They are considered in all provinces except for British Colombia, Nova Scotia, and P.E.I. The provisions set out in a unanimous shareholders’ agreement allow shareholders to contract out of statutory requirements of the CBCA such as: limiting a director’s discretion in an individual capacity and requiring altered voting percentages for directors’ or shareholders’ resolutions. Why should you include a shareholders’ agreement or a unanimous shareholders’ agreement? Business relationships are constantly evolving. A complete and comprehensive agreement benefits your business because it avoids risks and conflict; it lays the foundation and groundwork for the guidelines and structure of your business. If you have any questions on whether you need a shareholders’ agreement or would like to discuss your corporate organization, please feel free to contact Stephen Sforza at stephen@durhamlawyer.ca or by phone at 905-668-4486 ext. 239. “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 Fauzan SiddiquiBlogJuly 28, 2021June 10, 2023
CHANGES IN ONTARIO ESTATE LAW FOR 2021 There have been many new changes to Ontario estate law and there are more to come. This is the start of a much-needed refresher in this area of law. Among these changes are the new simplified procedure for small estate administration, Bill 245, witnessing wills and Powers of Attorney, and the proposed legislation on spousal entitlement on intestacy (dying without a Will). In discussing the summary of these changes, there are also potential influences these changes could have on Ontario estate administration and estate planning. The first topic of discussion is the New Processes for Administering Small Estates: As of April 1, 2021, new legislation and regulations have been implemented. The new procedures aim to deliver a smooth administration process by accelerating probate timing on smaller estate matters and providing a more cost-effective option. The term “Small Estate” was introduced in The Estates Act under The Smarter and Stronger Justice Act. A Small Estate is valued at $150,000 or less, and the details of these procedures are as follows: Completing more accessible application forms for a “Small Estate Certificate,” which is an alternative to the standard process for a “Certificate of Appointment of Estate Trustee with/without a Will.” The application form for a Small Estate Certificate is used when a person dies with or without a will. The requirement for the applicant to provide supporting documents has been removed for specific cases. The applicant can complete a form stating notice has been provided, without the necessity to include an affidavit of service. The application does not require the express consent of interested parties to the applicant’s appointment as an estate trustee. However, the applicant must provide at least a 30-day notice to all interested parties. Estate trustees will not be required to post a bond unless there are minor or incapable beneficiaries. Estate trustees will typically have to wait until probate is granted before going to any bank or financial institution. With the new administration process on Small Estates, there is a greater chance that these estates will not be left unsettled due to the costs related to probate. However, the estate administration tax will still be applicable and payable on estate monies over $50,000.00. The second topic of discussion is Bill 245, the Accelerating Access to Justice Act, 2021. Introduced in February of 2021 and receiving royal assent on April 19, 2021, it is a point of reform to an outdated system, as reflected in Schedule 9. The Succession Law Reform Act (“SLRA”) now provides remote witnessing of wills upon its amendment. This is done through audio-visual communication technology for wills. As well, the execution of a will must be completed in counterpart executions moving forward (you cannot have a single document circulated and signed by all parties). This shall be mirrored for Powers of Attorney, once proclaimed. The following sections will also be updated, once proclaimed: Section 16 SLRA has been repealed concerning the automatic revocation of any pre-existing wills by marriage so that any susceptible or older Ontario citizens are protected from predatory marriages. The rights of separated spouses have also been updated to safeguard those who did not attain an official divorce. Subsection 17(2) SLRA is modified to include separated spouses. Section 21.1 is added to the SLRA to provide authority to the Superior Court of Justice to either revoke, alter, revive or validate documents on an application if those documents are believed to be the deceased’s testamentary intentions. Section 43.1 has been added to SLRA to exclude separated spouses from inheriting on intestacy. The third topic of discussion is Spousal Entitlement on Intestacy; this will occur when a deceased person does not have a will or dies with a will that does not fully encompass all of their assets. A spouse under this legislation is referred to as a married spouse only. A framework is outlined in the Succession Law Reform Act to determine how assets are distributed. These are based on the surviving kin. A spouse is entitled to “preferential share,” and any children have an interest in the balance. The spouse does not receive the full amount of estate rather the preferential share being $200,00 for the estates of persons who die before March 1, 2021 and $350,00 for the estates of persons who die on or after March 1, 2021. O. Reg. 122/21, S.1. and the remainder divided dependent on the specific facts of the estate matter (i.e. between children and spouses). There are significant changes in the legislation in regards to wills and estates. If you require advice relating to your estate or managing the estate of a loved one or have questions regarding Ontario’s new procedures, please feel free to contact Vanessa Romanino at 905 668-4486 ext. 246 or at vanessa@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. By Fauzan SiddiquiBlog, Wills and EstatesJuly 9, 2021October 22, 2021
The Changes To The 2021 Mortgage Stress Test, What You Should Know Changes are coming for homebuyers and uninsured mortgages. Those immersed in the current real estate market will know that there has been a dramatic increase in current house prices. According to the Canadian Real Estate Association, some markets have reached up to a 30% upsurge. To calm the popularity of the in-demand housing market, the Office of the Superintendent of Financial Institutions (OSFI) has proposed strengthening the present Mortgage Stress Test. The Bank of Canada has acknowledged this and has shown its support for tighter regulations. The proposed changes from Canada’s banking regulators have begun as of June of 2021. These changes increase the qualifying rate for uninsured mortgages to either two percentage points above the market rate or 5.25%, whichever is greater. The former stress test rate had a minimum qualifying rate of 4.79%, about 50 basis points lower. How could the Mortgage Stress Test affect you? If you are looking to buy a home, these new mortgage rules could affect the price of the home you can afford. As a new homebuyer, you will have to show a lender that your current income supports a mortgage loan at the above rates. If you are in the process of purchasing a home, you will have to prove that the monthly mortgage payments would still be manageable if the interest rates were to rise at all in the future. This test is not just for homebuyers but for those who want to refinance their home, take out a homeowner line of credit, or switch to a new lender. There will be about a 5% decrease in affordability, and it will be slightly more challenging to qualify for the mortgage amount a home buyer needs. On every $300,000, it will increase the qualifying payment by approximately $80,000, therefore decreasing affordability by around $4,600 per $100,000 of a mortgage. The former Mortgage Rules as they stand are: Credit Scores will need to be at least 680. Credit Score evaluation has increased from the previous requirement of 600. If you are buying a home with a partner, at least one applicant’s credit score must be 680. Borrowed funds will not count towards a down payment and will not count as equity in considering the mortgage default insurance. The gross debt ratio is now limited to 35% from 39%, and the total debt service ratio is 42%, down from 44%. The Mortgage Stress Test Impact on the Housing market While the increase of regulation in the housing market could lead to a decrease in activity and the number of potential buyers, it could also decrease the price of listings in certain areas. The market has reflected a win for home sellers, despite the pandemic. However, this could soon change, as the Canadian housing market might see a change in demand since the new rules have come into place as of June 1st, 2021. If you require assistance with your real estate transactions and your rights and obligations, please feel free to contact Paria Katie Rad, a real estate lawyer at Woitzik Polsinelli LLP Lawyers and Mediators. You can contact her at 905-640-4242 or 905-668-4486 ext. 230 or paria@durhamlawyer.ca or paria@yorkregionlawyer.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.” By Fauzan SiddiquiBlogJune 16, 2021June 10, 2023
ONTARIO AND TORONTO’S LAND TRANSFER TAX RATES One of the most considerable closing costs when purchasing a home is the Ontario Land Transfer Tax. This tax is a cost you may not be familiar with if you are a first-time homebuyer. When purchasing a home and property, there is a tax fee associated after the close of the transaction. This tax goes towards the province and depends on the value of your property and the amount paid for the land. It could be the most significant cost associated with your closing. The Ontario Land Transfer Tax will apply to all conveyances of land and property in Ontario. If you live in Toronto, you will also incur an additional tax along with the Ontario Land Transfer Tax, which is Toronto’s Municipal Land Transfer Tax. In some instances, both Ontario and Toronto Municipal Land Transfer Taxes are centered on the fair market value of the vacant land. Examples of this would be: The transfer of a lease with a remaining term that can exceed 50 years. The transfer of land from a corporation to one of its shareholders. The transfer of land to a corporation if the shares of the corporation are issued. If you are a first-time homebuyer, you might be eligible to save in government-sponsored rebates, which in turn will reduce the charge of land transfer fees. This rebate will vary depending on where you purchase your property. Ontario Land Transfer Tax If you are purchasing a property in Ontario, you are subject to pay the Ontario Land Transfer Tax. The tax is payable upon the registered transfer of the title of the land. Below is the updated Ontario Land Transfer Tax rates as of 2017: Purchase Price of Home Marginal Tax Rate First $55000.00 0.5% $55,000.00 to $250,000.00 1.0% $250,000.01 to $4000,000.00 1.5% $400,000.01 to $2,000,000.00 2.0% Over $2,000,000 2.5% If you are a first-time homebuyer in Ontario, you are entitled to a Land Transfer Tax reduction by $4,000.00 on closing. Your eligibility is based on the following: The buyer must be a Canadian citizen or permanent resident of Canada. The buyer must be older than 18 years of age. The buyer must occupy the home within nine months of transfer of title to the buyers. The buyer cannot have owned a home before in Canada or anywhere else in the world. The buyer’s spouse cannot have owned a home during the course of the marriage. To obtain this refund, the purchaser will need to apply within 18 months after purchasing the property. Municipal Land Transfer Tax for Toronto If you are purchasing a property in Toronto, you will be required to pay the Municipal Land Transfer Tax in addition to the Ontario Land Transfer Tax. First introduced in 2007 and implemented in 2008, it is now a large part of the city’s budget. The boundaries for this tax apply to Steeles Avenue at the North border, Etobicoke at the west border, Scarborough at the East border, and Lake Ontario at the South border. Similar to the Ontario Land Transfer Tax, the Municipal Land Transfer Tax is calculated based on the sale price of the property. Below is the updated Toronto Municipal Land Transfer Tax rates as of 2017: Purchase Price of Home Marginal Tax Rate First $55000.00 0.5% $55,000.00 to $250,000.00 1.0% $250,000.01 to $4000,000.00 1.5% $400,000.01 to $2,000,000.00 2.0% Over $2,000,000 2.5% If you are a first-time buyer in Toronto, the Municipal Land Transfer Tax will reduce by a maximum of $4,475.00 on closing. Your eligibility for this is based on the following: The buyer must be a Canadian citizen or permanent resident of Canada. The buyer must be older than 18 years of age. The buyer must occupy the home within nine months of purchase. The buyer cannot have owned a home before in Canada or anywhere else in the world. The buyer’s spouse cannot have owned a home during the course of the marriage. The Ontario Land Transfer Tax and the Municipal Land Transfer Tax will be payable on closing. If you are uncertain whether you qualify for the First Time Home Buyer rebate in Ontario or in Toronto respectively, contact a lawyer. If you have any questions regarding the Ontario Land Transfer Tax and the Toronto Municipal Land Transfer Tax, please feel free to contact Ashley Almeida, real estate lawyer at Woitzik Polsinelli LLP Lawyers and Mediators at ashleydurhamlawyer.ca or 289-220-3235. “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 Fauzan SiddiquiBlog, Real EstateJune 2, 2021June 10, 2023
Domestic Contracts – The Importance of Accurate Financial Disclosure and Legal Advice In Ontario, common-law couples and married partners are able to enter into Cohabitation Agreements and Marriage Contracts (“pre-nuptial agreements”). In the unfortunate event of a breakdown of the relationship, partners are then able to enter into a Separation Agreement (collectively, all of these agreements are known as “domestic contracts”). One function of these types of agreements/contracts is to allow the parties to vary the Family Law Act rules and provisions as they relate to spousal support and the division of property in the event of a separation or divorce. Whether you are entering into a Marriage Contract, Cohabitation Agreement, or Separation Agreement, it is very important that both spouses provide complete and accurate financial disclosure in order for the agreement to be valid and enforceable, as section 54(4) of the Family Law Act states the following: (4) A court may, on application, set aside a domestic contract or a provision in it, (a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made; (b) if a party did not understand the nature or consequences of the domestic contract; or (c) otherwise in accordance with the law of contract. Marriage Contracts and Cohabitation Agreements As mentioned, a Marriage Contract or Cohabitation Agreement is an agreement between the parties that will determine their respective property rights in the unfortunate case of a divorce or separation. Both parties need to fully understand and be aware of the property rights that they are waiving and/or obtaining by signing the agreement. The parties cannot fully understand and be aware of the implications of the agreement without complete and accurate financial disclosure from both sides. Separation Agreements All of the above is equally true for Separation Agreements. This is quite clear when spousal or child support issues are being negotiated between the parties, as these support payments depend on the income of the spouses. When the parties agree on everything and do not wish to claim support from each other, they may be tempted to skip this step in order to get the separation over with, as providing all of the documentation for full disclosure can be a tedious and time-consuming process. However, it is still very important to provide full financial disclosure to ensure that the whole or parts of the contract are not deemed unenforceable, should the contract ever be reviewed by a court. Independent Legal Advice It is also strongly advised that both parties obtain independent legal advice (“ILA”) before entering into a Marriage Contract, Cohabitation Agreement or Separation Agreement. While ILA is not a requirement prescribed by law, it is a recognized way of demonstrating that each party entering into the agreement fully understood the domestic contract’s “nature or consequences” and therefore prevents parts or the whole of the domestic contract from being set aside pursuant to section 54(4)(b), noted above. When providing ILA, a lawyer will not only review the agreement but will also review the financial disclosure of the parties to the agreement. Proper ILA can only be provided when complete and accurate disclosure has been given. If financial disclosure is incomplete or inaccurate, the lawyer providing ILA cannot appropriately consider all pertinent factors. For example, the advice as to whether or not one should sign the agreement may be different if additional debts or additional assets were disclosed. If you require advice regarding your domestic contract, please feel free to contact Jason Lane at (289) 220-3241 or 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.” By Fauzan SiddiquiBlog, Family LawMay 18, 2021June 10, 2023
Real Estate Transactions During the Time of COVID-19 A lot has changed in the world since the COVID-19 pandemic began just over one year ago. The real estate industry has been no exception. We have seen clarifications by the courts respecting the impact the pandemic has on contractual obligations in real estate transactions. These decisions have resulted in parties seeking practical solutions in the face of pandemic-related issues in a transaction. As real estate lawyers, we have also had to adapt how we conduct our practice in order to continue to provide quality legal service in our real estate transactions. COVID-19 Not an Excuse to Fail to Close a Transaction The standard Ontario Real Estate Association Agreement of Purchase and Sale (“the Agreement”) does not include a provision addressing the pandemic as an event, that is, in itself substantial enough to enable either party to walk away from their contractual obligations. Without specific language in the Agreement, parties have had to turn to case law. Since the pandemic began, case law has emerged demonstrating that the courts will not accept COVID-19 as an excuse to avoid closing a real estate transaction. In Burrell v Burrell, 2020 ONSC 3269, a seller signed an Agreement of Purchase and Sale in early 2020 before the pandemic began. The Ontario Superior Court of Justice refused to allow the seller to terminate the Agreement of Purchase and Sale, despite the seller’s argument that it would be difficult, and possibly even unsafe, to move during the pandemic. For a claim of frustration of contract to succeed, the bar has been set very high. In Naylor Group Inc. v Ellis-Don Construction Inc., 2001 SCC 58, the Supreme Court of Canada held that to successfully claim frustration of contract there must be an unforeseen event that renders meeting obligations under the contract impossible. At this time, it would be difficult to argue that COVID-19 related risks are unforeseen or render the person incapable of complying with one’s obligations under the contract. Buyers and Sellers Should Act Reasonably Despite the complications that COVID-19 may add to completing a real estate transaction, buyers and sellers must continue to fulfill their obligations under an Agreement of Purchase and Sale. Real estate remains an essential service and therefore services ancillary to real estates, such as home inspections, continue to operate. If an Agreement of Purchase and Sale allows for a home inspection or final walkthrough by the buyers, sellers are obliged to allow for the same and the pandemic in and of itself would not be an excuse to breach the contract. The parties should act reasonably with each other and look toward solutions to reduce COVID-19 related risks while continuing to meet their contractual obligations. For example, a final walk-through could be conducted with all persons entering the home wearing face coverings and gloves and, in some cases, virtual final walkthroughs may be appropriate and necessary. How Our Operations Have Changed: When it comes time to close the transaction, our operations have adapted to ensure changes as follows: 1. Virtual Signing of Documents Although our offices remain open, drop-ins and in-person appointments are discouraged. Meetings to sign closing documents can now be conducted via videoconferencing systems, and it is also possible to sign closing documents through electronic systems such as DocuSign, in certain circumstances. 2. Wire Transfer of Funds Funds are now transferred electronically instead of through delivery of cheques. Our firm has been added as a payee at most banks so that our clients may electronically transfer funds to our trust account. We have also transitioned to the utilizing wire transfers when sending closing funds to the sellers’ and to our seller clients. 3. Keys left in lockboxes Gone are the days when the seller’s lawyer would deliver or courier keys to the buyer’s lawyer. To reduce points of contact, sellers or their realtors now leave keys in a lockbox on the property. Once the transfer has been registered, the buyers are provided with the lockbox code to access the property, allowing the buyer to avoid having to travel to the lawyer’s office solely for retrieving their keys. We continue to adapt how we close our transactions to ensure that we consistently provide the highest quality service in the most safe manner possible for our clients and our team. If you have any questions regarding real estate transactions during the pandemic, please feel free to contact Ashley Almeida, real estate lawyer at Woitzik Polsinelli LLP Lawyers and Mediators at ashley@durhamlawyer.ca or 289-220-3235. “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 Fauzan SiddiquiBlog, Real EstateApril 14, 2021April 14, 2021
DUE DILIGENCE CONSIDERATIONS FOR PURCHASERS OF COMMERCIAL PROPERTY Conducting appropriate due diligence is a fundamental part of any commercial real estate transaction. For purchasers, due diligence is a necessary step to determine the nature, use and condition of the property, and to assess the covenant of the vendor before committing to the purchase. This article will outline how commercial real estate lawyers can assist purchasers with their due diligence in respect to the purchase of commercial properties. It is paramount for purchasers to establish and consult with a team of professionals when conducting their due diligence. Depending on the nature of the commercial transaction and property being purchased, the team members required may differ. Brokers who have experience dealing with commercial transactions should be used to assist in the negotiation between the purchaser and vendor of the business terms of the deal. Planning consultants would be consulted to help with advising on the development, zoning and land use planning aspects of the transaction. If the property may be contaminated or the transaction involves some environmental risk being assumed by the purchaser (e.g., due to the nature of the vendor’s (or any previous owners’) current and past business activities or the purchaser’s intended business activities on the land), then environmental consultants should be involved. If buildings and other structures are intended to be built or renovated, construction experts and possibly architects should be involved. Accountants would be vital to your team when there are important tax consequences that need to be understood. Finally, although lawyers must be retained to close the transaction, they should also be consulted during the due diligence process to perform and advise on title searches, off-title searches, and searches against the vendor. A title search will be one of the most critical due diligence procedures that commercial real estate lawyers will conduct on behalf of their purchaser clients. By reviewing the title search, the lawyer will be able to advise on the registered owner(s) of the property, confirm any rights of way or easements affecting the property, identify any registered encumbrances that cloud the vendor’s ownership (e.g., mortgages, liens), confirm the accuracy of legal descriptions for the subject lands, determine if the property has legal access to a highway or public road, reveal any violations of the Planning Act, and more. While a title search will reveal the quality of the title, the quantity of the title will require reviewing a survey of the property. An up-to-date survey will reveal the dimensions of the property and location of boundary lines, the location of public and private improvements relative to the boundary lines along with the setbacks to the property boundaries, the location of adjacent properties, roads, lanes, etc., as well as the location of easements and rights of way and other encroachments on the property. Although almost all real estate transactions involve obtaining title insurance to cover defects that would have been revealed by an up-to-date survey, reviewing a current survey is still highly recommended, especially if the purchaser is making substantial alterations or renovations to the property or building on it. If there is no survey available, the purchaser must decide whether the cost of hiring a certified land surveyor to develop a survey would be worthwhile; this can be an item of negotiation between the purchaser and vendor. Off-title searches are inquiries made to governmental authorities to determine the existence of outstanding claims, restrictions and regulations affecting the property being purchased. Many governmental regulations can have a significant impact on the use of real property and because some do not need to be registered against title, they will not be revealed by reviewing the property’s parcel register. The nature of the property, its intended use and the time available are all factors that will dictate which type of off-title searches should be undertaken. Some of the off-title searches that should be considered include, but are not limited to, the following: Realty Tax Certificates (to determine if there are tax arrears) and local improvement charges; Public Utility Certificates (to disclose if there are arrears under any existing water or sewer accounts); Building/Zoning search (to determine the current zoning of property, and the existence of any open permits, work orders or deficiency notices); Fire Department search (to determine if there are any violations of the fire code); Electrical Safety Authority search (to reveal if there are any open or outstanding notifications pertaining to electrical work improperly done at the property); Technical Safety Standards Authority search (to check for compliance with certain safety regulations) Conservation Authority search (for greenbelt and other rural properties); Environmental searches (to check for any records of non-compliance with environmental laws); Public Health search (to check for outstanding matters or breaches of the regulations under the Health Protection and Promotion Act (Ontario), or under any applicable municipal by-laws); Condominium Status Certificates (for condominium properties); Unregistered Hydro Easements; Liquor License Board (for restaurants, hotels, bars, etc.); Development charges and occupancy permits (for new construction or redevelopment properties). If there will be agreements to be assigned to the purchaser on closing, there may be additional “off-title” due diligence required, such as reviewing commercial leases, service contracts, licenses, permits, etc. Searches against the vendor should also form part of the purchaser’s due diligence process. When the vendor is a corporation, a corporate profile report and certificate of status should be pulled to ensure the corporation remains in existence and is in good standing, and to reveal the directors/officers of the corporation for signing authority. Other recommended searches against the vendor include the following: Personal Property Security Act search (to indicate whether the personal property of the vendor is subject to security interests of a secured creditor); Execution search (to identify any outstanding judgements against the vendor); Bank Act search (to determine if any bank has taken security over any of the vendor’s inventory and/or equipment); Bankruptcy and Insolvency Act search (to reveal if there is any record of any bankruptcy or insolvency proceeding against the vendor or whether the vendor is or has been bankrupt); Litigation searches (to identify if there are any formal legal proceedings involving the vendor at various levels of court and in various jurisdictions). In addition to assisting in the due diligence process, a commercial real estate lawyer should also be involved in preparing or at least reviewing the agreement of purchase and sale while it remains conditional. The lawyer will work to ensure a purchaser’s intentions are clearly acknowledged, risks are mitigated through appropriate conditions and representations and warranties made by the vendor, and, more generally, that the purchaser’s rights are protected. Feel free to contact our lawyer Stephen Sfroza for your queries via email at stephen@durhamlawyer.ca or call 905-668-4486 Ext. 239 “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 Fauzan SiddiquiBlogMarch 18, 2021June 10, 2023