Calling all Ontario homebuyers! In the excitement of purchasing your first home, relocating, or downsizing, it can be easy to lose track of critical legal details. While you focus on price, location, and style, keep an eye on these five common legal mistakes made during resale home transactions, and use our tips to avoid them. If you are considering purchasing a home in Ottawa, Perth or anywhere else in Ontario, please feel free to contact Shannon Hogan or a member of the Real Estate team at Mann Lawyers LLP.
Mistake #1: Skipping Legal Review of the Agreement of Purchase and Sale
The Agreement of Purchase and Sale (APS) for a transaction sets out the terms, conditions, timelines, and legal obligations for the buyer and the seller. Most of the time, an APS is written in a standard form which allows buyers to sign it or waive its conditions before instructing their lawyer to review it. However, every transaction is unique, and with so much on the line, it is wise to instruct a lawyer to review the APS before signing it, or before the transaction becomes firm (i.e., unconditional).
Tip: avoid unexpected obligations or disputes by instructing your real estate lawyer to review your APS before you sign it, or before you waive conditions.
After speaking with you about your understanding of and goals for the transaction, your real estate lawyer will review the APS in context to ensure that:
- You understand all of your rights and obligations with respect to the transaction.
- Inclusions, exclusions, and rental items are correctly documented.
- The closing date, title search deadline, condition deadlines, and other dates are clear and reasonable.
- The seller makes appropriate representations and warranties about title to the property, the physical state of the property, and possession of the property on closing.
- Other potential risks are addressed in clear, binding language, such as the completion of repairs, your receipt of a survey or records of permit issuances and closures, or the particulars of special assessments for condominium purchases.
Mistake #2: Waiving Conditions Too Soon, or Omitting Conditions from an Offer
Many buyers add conditions to their APS, giving them a few days or weeks to make inquiries into certain matters before firmly committing to the transaction. Common conditions include:
- Financing: reserving the opportunity to have a mortgage lender approve a specific transaction – a specific property for a specific purchase price, and on specific terms – rather than relying solely on a general pre-approval to purchase a hypothetical property
- Home inspection: reserving the opportunity to obtain and review a professional opinion on the physical state of the property, to understand upcoming maintenance and repair costs and uncover particulars of the property not readily apparent during a non-technical property viewing
- Status certificate review: reserving the opportunity to receive a lawyer’s opinion on a condominium corporation’s legal set-up, governance, financial status, rules, etc.
Waiving these conditions too early, or omitting them from an offer entirely (often to make an offer more attractive), can leave buyers without recourse for problems that arise if they could have been discovered during a conditional period.
Tip: Carefully consider your risk tolerance and knowledge of the property in deciding whether to make an unconditional offer, or in deciding whether to waive conditions from your offer. Ask yourself: have you gathered all relevant information about the property? If you have discovered an issue, have you negotiated a solution with the seller to your satisfaction, knowing that this is likely your last opportunity to do so? If you are considering omitting a condition, would you be comfortable buying the property without knowledge of a problem, knowing that the problem could become clear in the future, even before closing?
Mistake #3: Underestimating Closing Costs
Many buyers budget only for the purchase price. However, closing costs in Ontario can add thousands of dollars to your expenses. Closing costs include:
- Land transfer tax (provincial and sometimes municipal)
- Legal fees and disbursements, including the cost of purchasing title-related documents from Ontario’s Land Registry Office, the cost of title insurance for you and your mortgage lender, etc.
- Adjustments for costs paid by the seller that apply beyond the closing date (e.g., property taxes, condominium fees, and sometimes utilities)
Tip: Before offering to purchase a property, speak with your real estate agent, real estate lawyer, and mortgage broker or bank contact about the closing costs that you are likely to incur. While a reasonable estimate of closing costs is about 1.5% of the purchase price, this is not always the case, so ask for specifics. What is your lender’s appraisal fee? What is your home inspector’s fee? What will the land transfer tax be, based on your purchase price?
For a more detailed discussion of potential closing costs, consult this blog post.
Mistake #4: Not Understanding Financial- and Construction-related Risks for New-Build Homes
New-build home purchases come with legal and financial obligations and risks that resale home purchases might not. Unfortunately, many purchasers of new-build homes do not instruct a real estate lawyer to review the APS during the conditional period.
Tip: avoid unexpected changes and obligations by instructing your real estate lawyer to review your new build APS before you sign it, or before you waive conditions.
Your real estate lawyer will review the APS with you to ensure that you understand:
- The potential delays in your closing date that could arise due to changes in construction plans or other factors, and the recourse available to you if delays arise.
- How the builder could change construction plans, including unilaterally. These changes could include floorplans, construction materials, finishes, etc.
- The financial implications of the APS, including what will happen if the value of the home changes between the date of your APS and your closing date, what construction-related costs the builder can pass along to you in addition to your purchase price, what rebates of HST you might be entitled to and what will happen if you do not qualify for the rebates, etc.
- What agreements, easements, restrictive covenants, or other documents could be registered on title to the property.
For a more detailed discussion of APS reviews for new build homes, please consult this blog post.
Mistake #5: Not Understanding Financial and Lifestyle-related Risks for Condominiums
When someone purchases a condominium property, they own a private dwelling called a “unit,” they share ownership of certain common elements of the condominium corporation, and they must contribute to the costs associated with maintaining, repairing, and using these common elements. Given this structure of ownership, it is important to be satisfied with the documents governing the corporation, and with the current financial status of the corporation, as outlined in the corporation’s status certificate. However, some condominium buyers do not instruct a real estate lawyer to review the status certificate during the conditional period.
Tip: avoid unexpected condominium fee increases or special assessments, and ensure you are comfortable with the condominium’s governance structure and rules by instructing your real estate lawyer to review the status certificate before you waive the related condition in your APS.
Your real estate lawyer will review the APS with you to ensure you understand:
- The current financial status of the corporation, including the potential for special assessments and/or condominium fee increases in the near future.
- How the condominium corporation’s board of directors is elected, and what decisions the board and owners each make about undertaking projects, spending and borrowing money, rulemaking, etc.
- What insurance coverage the condominium corporation has, and what coverage you need to arrange for yourself.
- Where your unit ends and the common elements begin, and what changes you can make to your unit and/or to the common elements.
For a more detailed discussion of status certificate reviews, you can consult this blog post.
Buying a home is a significant milestone, and mistakes can be costly. Working with a real estate lawyer from the early stages of a transaction helps to protect your interests, minimize your risks, and smooth your closing.
This blog post was written by Shannon Hogan, a member of the Real Estate team, and Suzan Kadri, Summer Student. Shannon can be reached at 613-369-0369 or at [email protected].
