WHAT DOES THE AGREEMENT OF
PURCHASE AND SALE MEAN?

Did you ever wonder what all the fine print meant on the pre-printed form when buying or selling a house? This article covers each clause of the Ontario Real Estate Association form.

Firstly, the full legal names of the purchaser(s) and vendor(s) are set out. This is followed by the description of the property which should be obtained from the current deed or the survey. The purchase price is set out in words and in numbers.

The deposit is set out. The agreement can provide for interest on the deposit to be paid to the vendor or the purchaser. If there is no such provision, neither party gets the interest.

The next area sets out clauses peculiar to the agreement and should be reviewed very carefully. It should be kept in mind that if this section contradicts the pre-printed clauses, this section prevails. This is especially important in a purchase under power of sale and with respect to whether a survey will be provided to the purchaser.

1 & 2. It is often difficult to determine what is included and what is excluded from the contract. Where there is any doubt, any item to be excluded should be set out (water heaters, water softeners, rented appliances where the purchaser is not assuming the rental contract) and any item to be included should be spelled out (chandeliers, broadloom, mailbox, T.V. antenna, birdbath, storm windows, curtain rods, drapery tracks, mirrors, pool equipment and supplies). Whether something is a chattel or a fixture depends upon the degree it is attached to the property and on the purpose of attachment (i.e., for personal convenience or for the benefit of the property).

3. Where an item is rented it should be excluded in paragraph 2 or spelled out here if the purchaser is assuming the rental contract. The terms of any rental contract should be spelled out and a copy of the contract attached as a schedule. A warranty should be provided that there are no arrears in rental payments.

4. The purchaser must keep the offer open to this date. Where the vendor makes a counteroffer, "purchaser" should be changed to read "vendor".

5. The date of closing cannot be a Saturday, Sunday or statutory holiday. The property is to be vacant upon closing unless tenancies are set out. It is wise to attach a schedule stating the duration of any tenancies, rents, security deposits, date of last rent increase, and appliances/amenities included in the lease.

6. Once the contract is finalized the listing agent has the authority to give and receive notices on behalf of the vendor.

7. GST may or may not be included in the purchase price. The vendor will sign a declaration that no GST is payable if that is the case.

8. The purchaser's solicitor conducts many searches. The searches are to be performed by the date set out. The present zoning of the property is to be set out. The vendor states that insurance on the property is available.

9. If the purchaser intends to use the property for a different purpose than it is currently used for, the vendor is not promising that this is legal. For example, amendments may have to be made to the Official Plan or zoning bylaws, or an application may have to be made to the Committee of Adjustments. This all takes time and costs money.

10. The purchaser must take title subject to the following

(a) any registered restrictions or covenants...provided that such are complied with (for example, a restriction that the owner cannot alter the drainage or the grading to the property);

(b) any registered agreements with a municipality or a supplier of utility service including...telephone or cable television...provided such have been complied with...(for example, a subdivision agreement with the town or city);

(c) minor easements for the supply of utility service to the property or to adjacent properties (for example, a hydro easement over the rear 10 feet or side 4 feet of the property).

(d) any easement for drainage, sewers, public utility lines, telephone lines etc. that does not materially affect the present use of the property.

If the purchaser wants to ensure that a swimming pool can be installed, it is important that the agreement be amended to provide for this or that searches be performed before the offer is made to ensure that this is possible.

If a title problem, work order, or zoning problem is found within the allowable search period, the vendor has thirty days to remove the problem unless the vendor is unable or unwilling to do so. In reality, if a mortgage is found after the search date, the vendor will have to discharge it.

11. The vendor must give the purchaser all documents in the vendor's possession including, statutory declarations, affidavits, and a building location survey. The vendor has no obligation to provide any survey unless one is in the vendor's possession.

12. Once one party accepts the other party's offer, it is a binding contract. The purchaser may have recourse if the purchaser was prevented from making a proper inspection, or if the vendor actively concealed a defect or misrepresented the state of the property. Also, there may be implied conditions, for example, that the property is fit for human habitation. Aside from these exceptions, any defect that exists at the time the offer is made is the purchaser's problem; any damage occurring after the time of acceptance is vendor's problem. It must be kept in mind that reasonable wear and tear will occur.

13. The vendor is liable for any damage that occurs to the property after the date the contract is entered into. If substantial damage occurs to the property, the purchaser can either refuse to complete the transaction or can take the insurance proceeds and complete the deal. The purchaser is not to assume the vendor's insurance. The purchaser must prove there is sufficient insurance to cover any mortgages taken back or being assumed.

14. Where a vendor owns land adjoining the land being sold, the vendor must obtain a severance unless the land being sold is the whole of a lot on a registered plan of subdivision. Again, this takes time and costs money.

15. The vendor prepares the deed. The purchaser prepares the land transfer tax affidavit and any mortgages. The vendor pays for the registration of any vendor take back mortgage.

16. The vendor must provide a declaration that the vendor is a resident of Canada. Where the vendor is not a resident of Canada, the vendor must provide the purchaser with a certificate of exemption under the Income Tax Act. Otherwise, the purchaser must withhold 33 1/3% of the vendor's capital gain on the property or 50% of the purchase price as the case may be.

17. There are several items that will be adjusted prior to closing: prepaid rent; last month's deposit; 6% interest on deposit; the principal and interest of a mortgage being assumed; taxes and local improvements; full oil or propane tank; ONHWP (HUDAC) on a brand new house; common expenses on a condominium. The day of closing is paid for by the purchaser.

18. Any dates or times set out in the agreement must be adhered to and each party should proceed promptly unless an extension is agreed to in writing.

19. The vendor's solicitor may meet with the purchaser's solicitor instead of the vendor meeting with the purchaser. Any funds must be paid by bank draft or certified cheque from a chartered bank, trust company, credit union, Province of Ontario savings office or caisse populaire.

20. The vendor is stating that if this is the vendor's matrimonial home, that the vendor's spouse has signed the agreement of purchase and sale or has released any rights in the matrimonial home in a separation agreement.

21. The vendor has not installed Urea Formaldehyde Foam Insulation and to the best of the vendor's knowledge, no one else ever has.

22. Under the Consumer Reporting Act, the vendor must notify the purchaser if a credit report or personal information report is to be obtained. This applies where the vendor is taking back a mortgage or where the purchaser must qualify to assume the mortgage.

23. Both real estate sales representatives act for the Vendor unless otherwise stated in the agreement in writing.

24. Nothing has been stated or agreed upon that has not been set out in the contract.

25. Should the vendor or purchaser die or assign the agreement to someone else, the successors and assigns of the vendor and purchaser are bound by the agreement.

There is no mandatory requirement for a witness but it is evidence of the identity of the signer.

The vendor is accepting the purchaser's offer and directing the vendor's solicitor to pay any real estate commission due to the listing broker.

If this is the vendor's matrimonial home and the vendor's spouse is not an owner of the property, the vendor's spouse signs here to release rights to possession under the Family Law Act. The two dollars is required to have the spouse bound to the contract.

The declaration of representation stipulates whether the co-operating broker represents the interests of the vendor or purchaser.

The acknowledgement of receipt is filled out so the agent has proof of delivery and so that each solicitor has a record of the address and phone number of the vendor and purchaser.

The commission trust agreement protects the selling broker if the listing broker declares bankruptcy.

The comments contained in this article provide a brief overview only and should not be regarded or relied upon as legal advice or opinion. Debra J. Sweetman would be pleased to provide more information or specific advice on matters of interest to readers.

Debra J. Sweetman B.A.Sc., LL.B.
Barrister, Solicitor, Notary
340 Byron St. S., Whitby ON L1N 4P8 · (905) 666-8166 · Fax (905) 666-8163