An Agreement of Purchase and Sale is the primary document governing property transfers between a buyer and seller. In Ontario, the Ontario Real Estate Association (“OREA”) form is the standard, which serves as a comprehensive template, ensuring consistency and clarity in contractual agreements between buyers and sellers and between real estate professionals and their clients. This blog will discuss issues common to residential property buyers and sellers in drafting an Agreement of Purchase and Sale using an OREA form.
The buyer must consider the following factors before purchasing a property, whether they are planning to purchase the property on their own or with other parties.
Although the transaction may only include an individual seller to a buyer, the title to the property can be taken by multiple parties. The buyer can do so with a written “title direction,” which authorizes the seller to prepare the transfer in two names. This can be achieved if the direction is signed by the buyer and the other party or by assignment, where the buyer formally assigns and sells the agreement to a legal entity that is not an original party (as is typical when flipping a property). However, this must be cautiously permitted as it may result in a fraudulent transaction.
Unique issues can arise when multiple parties are purchasing a property. The buyers would need to register as “joint tenants” or as “tenants in common,” the difference being in the manner of ownership. When buyers register as “joint tenants,” they legally share equal property ownership. In the event of one owner’s death, the property automatically passes to the surviving joint tenant(s). In contrast, when registering as “tenants in common,” each owner holds a distinct share of the property. In this scenario, these individual shares can be of equal or unequal proportions. In the unfortunate event of an owner’s death, their share does not automatically transfer to the surviving owner(s).
The issues arising from either ownership type can be mitigated by a co-ownership agreement, ideally before closing. In addition to the agreement of purchase and sale, this agreement can govern the relationship between each owner to avoid disputes.
A buyer may offer to purchase a property in trust or on behalf of a corporation. In such a case, the buyer would likely want the option to assign the agreement to the corporation before closing. Although this is possible, the buyer should be wary of their continued liability. If, for some reason, the trust or new corporation defaults on the agreement during closing, the buyer could be liable for any resulting damages. Therefore, if the buyer intends to purchase a property on behalf of another entity, the liability obligations in the OREA form should be consulted or negotiated heavily.
A property seller also has unique considerations, depending on the circumstances of the transaction.
Correctly and diligently including all the property sellers in the agreement is crucial to effecting the transaction. If the property is owned by more than one individual or entity, all registered owners must be party to the agreement of purchase and sale. Suppose a registered owner is not identified as a seller and does not sign the agreement. In that case, the buyer may not have any rights or remedies against them, leaving the identified seller as the only party liable if the transaction goes poorly. Sellers should ensure that all registered owners are listed, and if not, an amendment to the agreement is proposed before closing to add such parties.
There are special considerations when a property is sold as part of a deceased’s estate. Specifically, the estate trustees must ensure that they are correctly appointed. Only then can they affect a property transfer on behalf of an estate, and only if all trustees sign the agreement. If trustees still need to be appointed, the transaction can be made conditional upon such appointment.
There are instances where the property is sold by a party other than the registered owner, such as the sheriff, to satisfy a debt or by power of sale. It may be the case that the registered owner may prevent that property sale by making payments to the sheriff or mortgagee, in which case the buyer may be precluded from enforcing the sale. Therefore, in these situations, the rights and responsibilities of the seller should be carefully examined or modified in the agreement.
Matrimonial homes have a special status in Ontario. As stated in the Family Law Act, selling a matrimonial home requires the spouse‘s consent. To adhere to this legal requirement when selling a property, the unregistered spouse must sign the agreement despite any lack of a formal title. Failing to secure their signature may result in an inability to compel their consent during the final transfer, potentially impeding the seller’s ability to complete the transaction.
Contact Mississauga Real Estate Lawyers at Bader Law for Commercial and Residential Real Estate Advice
Bader Law represents individual and corporate buyers in real estate transactions in Mississauga and throughout the Greater Toronto Area. Our experienced real estate lawyers take strategic action to help clients navigate the uncertainties involved in various real estate transactions. From reviewing an Agreement of Purchase and Sale to resolving title insurance matters, our team is ready to help. At Bader Law we ensure your real estate matters are tended to in a timely and professional manner. To schedule a consultation with one of our team members, contact us online or call our office at 289-652-9092.