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
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
