The following is a list of issues that law firms might deal with when preparing documents and closing a real estate transaction.
While the content of this post should be considered reliable and informative, this should not be considered legal advice and we recommend that you contact our firm directly should you have any questions.
1. USING THE PROPER PURCHASE CONTRACT:
• If you are selling a newly built home, or a substantially renovated home, it is important to use the proper Purchase Agreement.
• The buyer should be paying the GST on the purchase of a brand new home, or a substantially renovate home.
• If you use the resale contract, the builder will be responsible for paying GST, as the resale contract stipulates that GST is included in the purchase price.
• Take Away 1: This can add up to a lot of money! For example, if the sale price is $375,000, the GST would be $18,750.
2. BUILDING PERMIT ISSUES:
• Law firms, including Douglas Robertson LLP, do not deal with building permit issues.
• If you are listing a property, and the clients have built any structure on the property, you need to ensure that the proper permits were issued for the structures.
• If the clients did not get the proper permits prior to building the structures, they do need to apply to the city for them, prior to the closing date. There is no guarantee that the City will approve the permits, and if they are not the structures need to be altered or removed to comply.
• Take Away 1: if the client is aware that they did not get the proper permits, they are required to advise the purchaser of this, otherwise the seller would be in breach of the representations and warranties clause of the Purchase Agreement.
3. REAL PROPERTY REPORT:
• The seller must have an up-to-date Real Property Report (RPR) with a Certificate of Compliance from the municipality prior to the closing date, and provide the buyer’s lawyer with reasonable time to review the document.
• If you are listing a property, it is important to double check with your client that they are in possession of a current RPR, and if they are not that they order it well in advance.
• If the RPR is not ready prior to the closing date, one of the following can happen:
o Buyer won’t take possession until the RPR is provided (a lot of Calgary law firms are now recommending this to their clients)
o The buyer will take possession but only pay interest on their mortgage until such time as the RPR is provided
o Buyer’s lawyer will require a holdback (typically starting at $10,000)
• None of the above three options are beneficial for the vendor because it means they continue to pay their mortgage, and incur interest until it fully closes, and a very high holdback amount could have adverse effects on the payout of a mortgage.
Take Away 1: Start the RPR process early to give ample time to have it completed prior to the closing date.
4. ENCROACHMENTS AND RELAXATIONS:
• An encroachment is any portion of a building, fence, driveway, retaining wall, or other structure that encroaches onto City property.
o If a structure encroaches onto City property more than the allowable amount, an encroachment agreement with the City is needed.
o An encroachment agreement is needed to make the Real Property Report compliant with City standards.
• You can also have a private encroachment where a portion of a building, fence, driveway, retaining wall, or other structure encroaches onto the neighbour’s property.
o In this case you would need an encroachment agreement with the neighbour, which can be difficult and highly time consuming.
o Relaxation Permits are granted by the City of Calgary and relax the rule which you have offended. Granting a relaxation permit would allow the structure to remain on the property, and would grant compliance on the Real Property Report.
o This can apply to a deck which is built too close to a property line, or other structures on the property. If your client has an issue with their Real Property Report that needs a relaxation permit, this needs to be addressed right away, as relaxation permits usually take 8-9 weeks.
o Relaxation permits are not automatically granted, and if the City declines the application, the client may need to remove a structure, and this is why holdbacks can be high. If the purchasers are now required to pay for the demolition or changes to their new property, they will use the related holdback funds to do so.
• Take Away 1: Start the encroachment agreement or relaxation permit process early to give ample time to have it completed prior to the closing date.
• Take Away 2: As soon as the deal is referred to the lawyer, notify them of the encroachment issues, or relaxation issues so that they can begin the process well before the deadline.
• Holdbacks are a process created solely by lawyers to facilitate real estate closings when there is something outstanding. A holdback is a courtesy to the other side, and is not a guarantee.
• Particularly for buyers: unless you’ve written that you have a holdback allowance into the contract, there is no way you can enforce it against the seller.
o Any concern you might have regarding the property, you need to put a provision into the contract for an appropriate holdback amount prior to signing.
o You should also make sure that the provision is clear in terms of how you would get the money, what triggers the holdback to be released, and when it is to be released.
o On a sale, it is important to note that if documents like a Real Property Report are outstanding, a holdback is not always an option.
o If documents are outstanding, we can’t force the other side to accept a holdback, and contracts are really written in favour of the buyer in this respect.
o A lot of Calgary firms are recommending to clients that they don’t close if Real Property Reports are still outstanding, and will not accept a holdback instead.
o Best thing to do to avoid this is to have everything ready and updated well in time for the closing date.
• Take Away 1: On the buyer side, make sure you include any holdback clauses into the Purchase Agreement!
• Take Away 2: On the sale side, make sure you have all closing documents available to the other side prior to the closing date to avoid holdbacks.
6. PROPER IDENTIFICATION:
• When listing a home for a client, it is important to note that they do need proper identification in order to sign transfer documents with a lawyer.
• While this doesn’t come up for firms quite often, we have had clients who have had no piece of proper government issued ID, and this resulted in a significant delay in closing the sale.
o This can have a significant impact on the client, as they must continue to make mortgage payments, condominium payments, and tax payments until the deal can close.
• Other forms of possession, like tenancy-at-will should not be used to rectify delayed closings due to lack of identification. We need to ensure that the person signing the documents is the legal owner of the home, and has the right to transfer the property to someone else.
• Take Away 1: Double check with your client that they have proper identification to sell their home! At a minimum, they must have one piece of valid, government issued identification. Lawyers cannot accept expired pieces of ID.
• Take Away 2: If you are listing a home, and the client has notified you that they do not satisfy the identification requirement, ensure that there is ample time until the closing date so the client can get replacement identification.