The dreaded signing sessions seem to go on forever, don’t they?
“Sign here. Initial there. Date this. Approve that. Next page.”
For pages and pages of legalese and required documentation, this goes on, and you, the buyer/seller, glaze over partway through page 1. The tendency can be to just sign where you are told, initial everything, and let the “pros” do the rest.
Most of the time, everything works out just fine, and the process works smoothly. However, all those boring, dry clauses are written in to protect someone from a real danger, and it really is worth taking a little time to understand the purpose of your paperwork.
One of the least talked-about, but most important, clauses in your Agreement of Purchase and Sale has to do with Title. Actually, there are two clauses about Title: #8 TITLE SEARCH, and #10 TITLE. This is the very thing that guarantees you will own the property free and clear after all is said and done. (We will focus on clause #8 right now.)
We want to take this opportunity to dissect the clause regarding title searching and explain the real-world significance of all the words. It is a matter of due diligence.
“8. TITLE SEARCH: Buyer shall be allowed until 6:00 p.m. on the____day of_____, 20____, (Requisition Date) to examine the title to the Property at Buyer’s own expense and until the earlier of: (i) thirty days from the later of the Requisition Date or the date on which the conditions in this Agreement are fulfilled or otherwise waived or; (ii) five days prior to completion, to satisfy Buyer that there are no outstanding work orders or deficiency notices affecting the Property, and that its present use(__________)may be lawfully continued and that the principal building may be insured against risk of fire. Seller hereby consents to the municipality or other governmental agencies releasing to Buyer details of all outstanding work orders and deficiency notices affecting the property, and Seller agrees to execute and deliver such further authorizations in this regard as Buyer may reasonably require.”
It can make your head spin to try to figure out all the if’s and why’s and wherefore’s, so here is an example of how the dates might be selected for an Agreement that is dated May 15:
May 15, 20xx -> Date of Agreement of Purchase and Sale
Jun 30, 20xx -> Conditions removed/deal firm
Jul 15, 20xx -> Requisition date
Jul 30, 20xx -> 30 days after conditions removed
Aug 14, 20xx -> 30 days after Requisition date
Aug 25, 20xx -> 5 days before closing
Aug 30, 20xx -> Closing date
Clause 8 states that we must use the earlier of two dates: either the later of 30 days from the Requisition Date (in our example, July 15) or the date on which the conditions are removed (in our example, June 30); OR five days prior to completion (in our example, August 30).
In this case, 30 days from the Requisition date would be August 14, 20xx. Thirty days from removal of conditions would be July 30, 20xx. (We use August 14, the later of these two dates and compare with 5 days before completion)
Five days prior to completion would be August 25, 20xx.
The earlier of the two is, for our purposes, August 14, 20xx.
Essentially, this clause has now allowed the buyer’s lawyer until July 15, 20xx (the Requisition date) to search for and discover any encumbrances (i.e., claims, interests, rights) that would prevent the seller from transferring ownership to the buyer. If there has been any fraudulent activity, mortgages, or liens placed against the property, this is when they would show up. Remember, any financing that has been arranged and approved is going to be conditional on receiving “clear title,” so this is of the utmost importance. The minimum time allowed to remedy a situation like this is usually five days. A prudent realtor might ensure that there are at least 10 business days allowed for this purpose, just in case complications arise that require the intervention of a court.
In addition to the Requisition date, August 14th is specified to allow for confirmation that there are no government work orders or deficiency notices attached to the property. These off-title searches can include utility arrears, tax arrears, special assessments for neighbourhood works, Building/Fire Code violation notices, and other issues that incur costs.
If such notices and issues are not discovered before the date specified, they become the problem of the buyer on closing. (A seller who is aware of any such deficiencies is requested to turn over any paperwork that would reasonably be required by the buyer and his/her lawyer.)
Our Title Search clause continues, allowing the buyer and his/her lawyer to confirm that the present use of the property may continue. When buying a single family home that is currently being used by a single family, for use as the primary dwelling of one family, there is seldom an issue. Problems can arise, though, if a unique use of space has been created for any reason. For instance, if part of the appeal of the property includes a small business in the basement, the buyer must confirm that such use is legally allowed. If there is a hairdressing salon with sinks and chairs that the buyer intends to take over, these could turn out to be illegal, and the use of the property may not be continued. Appropriate clauses should be crafted by the buyer’s agent to ensure that there is an escape from a contract that does not fulfill the needs of the client.
There is also a provision that ensures the buyer will be able to obtain fire insurance on the property. There are some unusual circumstances that might create problems for homeowners when searching for insurance, including old electrical wiring, location, or other factors. Again, due diligence is in order.
When choosing a lawyer, please consider matters other than cost. If at all possible, get a referral from a satisfied client of the lawyer you’d like to use. Once you’ve selected your solicitor, make sure they receive all paperwork as early as possible to allow them to get working on your file and ensure that you will get clear title to your new place!
If you have any questions about the information above or Real Estate contracts in general, please fill out the form below and we we’ll contact you.