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
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
What are some key considerations for tenants when negotiating a commercial lease? Tenants must carefully consider a variety of factors in the process of negotiating a commercial lease in order to protect their business, maintain the landlord-tenant relationship and avoid unexpected costs. This article outlines some key factors and considerations that tenants should consider when reviewing and negotiating the terms of a commercial lease. More Than Just Base Rent—Operating Costs & Additional Rent Most commercial leases today are net leases, wherein a tenant is responsible for some or all of the costs associated with the property in addition to paying the base rent, such as costs for utilities, property taxes and insurance. Additionally, landlords incur a multitude of other expenses in order to operate, maintain, repair, replace and manage the common areas of the commercial property. These are called operating costs. Most landlords will attempt to transfer some of these operating costs over to the tenants by using broad or unspecific language in the lease. These operating costs are paid by the tenant as additional rent. When negotiating the lease, a tenant should fully understand and be very clear about what operating costs they are responsible for and how those costs are calculated. The tenant might also consider implementing specific language in the lease that limits or prevents the landlord from charging certain costs back to the tenant that both parties agreed the tenant would not be responsible for. A tenant can include a positive obligation on the landlord in the lease to annually provide an estimate of additional rent on a per square foot basis, respond to any and all questions relating to calculating operating costs, along with an obligation to produce substantiating documentation for those calculations. A tenant should also always negotiate to include in the lease an obligation on the landlord to provide an annual statement (ideally audited) setting out the additional rent for the property/project for that fiscal year and the tenant’s proportionate share of the additional rent. The lease should stipulate how discrepancies between the amounts in annual statement and the amount of additional rent paid in such fiscal year by the tenant will be handled. Repair and Maintenance Where a lease requires that a tenant assume responsibility for repairs, restoration and maintenance, the tenant should negotiate the terms of the lease to limit the extent of its responsibility in this regard. For example, the tenant’s repair and maintenance obligations should exclude reasonable wear and tear, structural and capital repairs and repairs arising due to the negligence of the landlord or its contractors. Furthermore, if a landlord requires the tenant to repair or replace mechanical and electrical systems in the leased premises, the tenant might want to add the condition that it will be assigned any of the landlord’s current warranties with respect to such systems, and that the landlord provide its own warranty as to the good operating condition and repair of such systems on the commencement of the lease. Hazardous Material and Environmental Liability A landlord might require a tenant to remove any hazardous material from the premises, but this requirement should be limited to only those hazardous materials brought onto the premises by the tenant during the lease. A landlord might also attempt to hold the tenant liable for environmental contamination regardless of whether the contamination was caused by the tenant or another source during or before the tenant’s occupancy of the premises. The tenant should negotiate provisions in the lease that would protect them from being held liable for environmental contamination that was not caused by them. End-of-Term Restoration Tenants need to pay special attention to requirements at the end of the lease term, where the landlord might impose an obligation on the tenant to return the premises to its original, pre-occupation condition. The removal of leasehold improvements can be an onerous and highly expensive process. A tenant’s goal, in turn, might be to limit their obligation only to removing its own trade fixtures and chattels, and not any leasehold improvements (especially if not installed by the tenant, but rather a previous tenant). Aside from the lease itself, a helpful tip to tenants would be to take photos and videos of the premises as soon as the tenant takes possession. This media would provide a clear point of comparison for the condition of the premises at the end of the lease term. Redevelopment There are times when landlords may wish to decide to make significant improvements and changes to their property that could directly impact their tenants and cause them to terminate their lease. Examples of these improvements can include major renovations, reconfigurations, and building residential units above a mall. Landlords usually include redevelopment clauses in their leases to give them the flexibility to make these decisions at their discretion. Tenants, however, prefer to remove or limit redevelopment clauses because of the potential disadvantages to their business’ success and stability. There are various ways that tenants can negotiate a redevelopment clause. Ideally, a tenant should ask that the redevelopment clause be removed altogether, even if the odds of the landlord accepting that demand are slim. A tenant might also restrict the landlord from enacting such a clause until a specific date is reached or subject the landlord to a mandatory notice period that is long enough for the tenant to find new suitable premises before the lease is terminated. Furthermore, the tenant should require that all its costs and expenses incurred in the moving process be paid by the landlord. Relocation Like redevelopment clauses, a tenant should attempt to remove relocation clauses altogether because relocating to a new premises could disrupt the goodwill that the tenant established at its current premises. Nevertheless, relocation could be used as a solution in favour of the tenant when a landlord requests to redevelop. That is, a tenant could negotiate to implement an obligation on the landlord to relocate the tenant to similar premises in the development, rather than terminate the lease when redevelopment occurs (if the redevelopment clause provides the landlord with the option to terminate the lease). If the landlord has more properties in close proximity to the current property that is to be redeveloped, the tenant could require the landlord to relocate them to one of the nearby properties, thereby limiting the disruption to its business. A tenant can also ask the landlord to pay for any expenses related to the improvements. Where the landlord insists on the option to relocate the tenant, the relocation clause in the lease should be carefully drafted to ensure minimal interference with the tenant’s business. Extending the Lease Term Tenants are often interested in ensuring that they have the option to renew or extend their lease beyond the original term. This would allow for the continuation of the tenant’s business operations at the premises. It is important that this option to renew/extend that is granted to the tenant speaks to the manner in which notice of the tenant’s intention to exercise this renewal option must be provided (e.g., written notice to be provided no earlier than twelve months and no later than six months before the end of the current term), and the terms of the lease during the renewal period (e.g., all terms remain the same, except for base rent, which would be negotiated by the parties and based upon the then market rent). Where the rental rate for the renewal period is to be negotiated by the parties, there must always be an arbitration clause included that provides for an arbitration procedure in the event the parties cannot agree on such market rent. Transfer Provisions Sometimes a tenant needs a way out of a lease for a variety of reasons, or the tenant sells its business to a third party purchaser. For these reasons, it is critical the lease contains a transfer provision that deals with transferring the lease to another person, including by way of assignment or by subletting the premises. Leases typically limit a tenant’s ability to transfer the lease to another person without the landlord’s prior written consent. The landlord may also impose conditions that must be met by both the tenant and prospective transferee prior to the landlord granting its consent to the transfer. Some of these conditions can be onerous, unnecessary or unduly intrusive. The landlord may require further deposits, detailed financial records of the prospective transferee, and impose a consent fee along with a requirement that the tenant pay the landlord’s legal fees with respect to such transfer. Some leases even provide the landlord the option of terminating the lease upon receiving a request for a transfer of the lease. A tenant would be prudent to negotiate these transfer provisions in the lease to ensure they are reasonable and that they include certain transfers where obtaining the landlord’s consent is not required. Events of Default Leases will list the types of events that will constitute a default by the tenant, such as failure to pay rent or comply with a non-financial obligation. The rights and remedies of landlords upon such tenant defaults need to be reviewed and considered carefully by tenants. Most leases will allow the landlord to terminate the lease, accelerate rent, lock out the tenant, seize the tenant’s property, and continue to hold the tenant liable for all rent obligations for the remainder of the term of the lease. The tenant should ensure that these default provisions are coupled with an obligation on the landlord to provide adequate prior notice in writing to the tenant with respect to any default committed. Such notice of default should also allow for a reasonable cure period, so the tenant can work to remedy the default within such cure period and thereby avoid the landlord exercising its aforementioned rights and remedies. Personal Indemnifiers If the tenant is a corporation, most landlords will require one or more personal indemnifiers to be bound on the lease. These indemnifiers provide additional security to the landlord in the event that the corporate tenant defaults in its obligations under the lease, as the landlord can pursue the personal indemnifiers as well as the corporate tenant for recovery. Of course, whenever possible, the tenant should try to resist providing such form of personal indemnity or guarantee. If unavoidable, the tenant should consider limiting the indemnification period to a period of time (e.g., the first two years of the term). Special Rights Examples of special rights include parking use and/or assignment, roof-top rights to install equipment, signage, and exclusive use restrictions to limit competition from other similar businesses. Where a tenant expects to have a special right included in their lease, they must ensure the special right is written into the lease with sufficient detail and clarity. Prospective commercial tenants should seek legal advice to avoid unreasonable costs and risk while they have the chance in the process of negotiating the offer to lease and the formal lease. If you or someone you know is a prospective tenant looking to negotiate a commercial lease, contact Stephen Sforza at stephen@durhamlawyer.ca or call 289-220-3239. “This article is intended only 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.” This blog was co-authored by Law Student, Sanaz Sakhapour. By Fauzan SiddiquiBlog, Real EstateJune 21, 2023June 21, 2023
HST on Vacant Land in Ontario The rules surrounding vacant land in Ontario can be tricky. There are many factors to consider when purchasing and selling a vacant plot of land, especially those that determine the applicability of HST to the property in question. The applicability of HST to vacant land can either be taxable or exempt under the Excise Tax Act. This Act sets out the situations where HST is applicable to sales of vacant land and the requirements for land to be exempt from HST. It will help to determine if the land was entirely a personal asset of the vendor or if it was related to a business of the vendor. The following situations will determine whether the sale of your vacant land could be subject to HST or not: The sale of your vacant land can be subjected to HST if: The vacant land was used primarily in carrying on a business where the vendor had a reasonable expectation of profit. The sale of the land need not be the source of the profit for the business, the land simply needs to have been primarily used by the business. The sale of the vacant land was made in the course of a business of the vendor. Factors that are considered include the frequency with which the vendor engages in these types of sales and the amount of time and effort expended in activities related to the sale of the property. The property was created by the vendor by subdividing a parcel into more than two parts, excluding any parts conveyed to an authority having the right to expropriate, and the vendor is selling to an unrelated party. The sale of your vacant land can be exempt from HST if: The land was used for personal use by the vendor. The land was an adventure or concern in the nature of trade by the vendor. This is when a vendor had a primary or secondary intention to resell the property at a profit, when they purchased, but the vendor does not regularly engage in these activities as a business and did not expend significant time and effort on activities related to selling the property or preparing it for sale. The vendor subdivided a parcel into no more than two parts or, where the vendor has subdivided a parcel into more than two parts, to a transaction where the vendor is selling a part to a relative for personal use. What to look out for: If you are purchasing vacant land, be cautious if the vendor notes that HST will be “in addition to” the purchase price in the agreement of purchase and sale. This is often a red flag that the vendor believes HST will be applicable to the transaction and they are attempting to transfer the responsibility to the purchaser. It is also prudent to inquire whether the land has been severed and, if so, how many parts have been severed by the vendor. If the vendor has severed multiple lots, it is another indication that HST is likely to be a factor. Finally, consider whether the vendor appears to be carrying on a business from the land or whether they frequently flip parcels. In the event any of these risk factors are identified, it will be important to protect yourself through a well-worded agreement of purchase and sale. HST Reporting on a Sale Transaction: The burden of collection and remittance of the HST on vacant land is the responsibility of the vendor unless the purchaser is an HST registrant, If the purchaser is a registrant, the purchaser will have to self-assess the tax and remit the HST owing to the CRA on their HST return. However, it is up to the vendor to ensure that the purchaser is a registrant and that the purchaser’s HST number is valid before allowing the purchaser to self-assess and remit HST. If the purchaser provides an invalid HST number, the vendor may be held liable for the HST remittance under section 221(1) of the Excise Tax Act, as was the case in Maloff &Henriksen v. The Queen, 2004 TCC 537. If you have any further questions on the tax eligibility of your vacant land, or you would like to speak with someone about your purchase or sale of your vacant land, please contact Woitzik Polsinelli’s lawyer Colin Lyon at colin@durhamlawyer.ca or you can call him at 905-668-4486 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.” This blog was co-authored by Angela Victoria Papeo* [i] Back to Basics: Understanding HST and LTT in Residential Real Estate Transactions, Law Society of Ontario, January 22, 2020. By Fauzan SiddiquiBlog, Real Estate, TaxMarch 22, 2022June 10, 2023
Material Misrepresentation of Property: MLS Listings and Agreements of Purchase and Sale Whether a buyer can terminate an Agreement of Purchase and Sale due to a difference in property dimensions in the MLS listing and its actual size depends on how material the misrepresentation is. This is demonstrated in two recent cases Lamba v. Mitchell, 2021 ONSC 1612 (CanLII) and Issa v. Wilson, 2020 ONCA 756. Lamba v. Mitchell, 2021 The recent Superior Court decision addressed the question of whether a buyer can terminate a transaction and receive their deposit back if the square footage of the property differs from that of the MLS listening. Lamba v. Mitchell, 2021 ONSC 1612 (CanLII) concluded that the buyers did in fact breach the Agreement of Purchase and Sale by refusing to close despite the discrepancy between the MLS listing and the actual square footage of the subject property. In July 2020, Mitchell and Bowring listed their Mississauga home for sale on the Multiple Listing Service (MLS). As described in the listing, the home was approximately 2,500-3,000 square feet. They were provided with all realtor’s photos of the home along with marketing materials, pre-listing home inspections and a floor plan which provided accurate dimensions for each room. The brochure that was also provided to prospective buyers visiting the home, stated: “buyer to verify measurements”. The Purchasers, took interest in the home and signed an agreement to purchase the subject property for 1.2 million with no conditions and had given a deposit of $20,000. Following Lamba’s signing of the Agreement, they had learned that the floor plan contained a discrepancy not shown in the MLS listing, a difference of at least 345 square feet. Both parties appeared in Court in January 2021, the issue at hand was to decide whether the buyers could terminate the contract based on the incorrect area of the home on the MLS listing. The buyers had asked the court to rescind the Agreement, the sellers had requested forfeiture of the $20,000 deposit. Based on the law in Ontario, an Agreement may be rescinded if there is a “material misrepresentation” of the property. A reasonable person would have to consider the misrepresentation to be a defining factor in the decision to enter into the agreement. It was found that the MLS listing although erred, was not a material misrepresentation that could have impacted the decision of the buyers as they were provided with all materials to ascertain this information on their own. Further Considerations The case of Issa v. Wilson, 2020 ONCA 756 demonstrates a scenario where the purchaser of a property was permitted to withdraw his purchase agreement and reclaim a deposit of $50,000 due to the misrepresentation of the square footage of the property. In this matter, the discrepancy was that of about 1,000 square feet. It appears based on the relevant case law, that the determining test is the intention behind the purchase and how substantial the misrepresentation is. The intention behind the purchase was to have a home big enough for five people, when the appraisal had shown home size as significantly smaller than what was advertised the purchaser rescinded the agreement. If the intention of the buyer was not affected, the remedy of rescission may not have been available, such as the case of the Lamba’s. The misrepresentation is required to be material to the agreement and has a direct enticement for the purchaser in entering into the agreement of purchase and sale of the property. Material Misrepresentation and Caveat Emptor Caveat Emptor is the general principle that states “buyer beware”. With the exception of defects that are not disclosed by the seller, if a purchaser enters into an Agreement of Purchase and sale with the dependence on a material misrepresentation the purchaser can seek the remedy of rescinding the agreement of purchase and sale. If you have any further questions on material misrepresentation, or you would like to speak with someone about the legal description of your property, please contact Woitzik Polsinelli’s lawyer Paria Rad at paria@durhamlawyer.ca or you can call her at 905-668-4486 ext. 230 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.” This blog was co-authored by Angela Victoria Papeo* By Fauzan SiddiquiBlog, Real EstateJanuary 14, 2022June 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
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