Understanding the Ontario Real Estate Association Standard Form Of Agreement Of Purchase And Sale
The majority of residential real estate transactions in Ontario are completed pursuant to the Ontario Real Estate Association (“OREA“) standard form of agreement of purchase and sale (the “Agreement“). The Agreement strives to balance the buyer and the seller’s rights and promotes consistency and certainty in residential real estate transactions. This article will provide a review of some of the key provisions found in the Agreement to allow the reader to understand the contract which underpins the majority of residential real estate transactions in Ontario. This article is not an exhaustive review of the Agreement’s contractual provisions. Should you require assistance in understanding your obligations in the purchase or sale of a residential real property, please do not hesitate to contact the Beganyi Professional Corporation, and we would be happy to assist you.
The first important section in the Agreement is identifying the parties to the Agreement – that is, the buyers and sellers’ names. The buyers and the sellers must be identified accurately as, in the event of default under the Agreement, the party wishing to enforce the Agreement will need to know whom to sue.
It is also important to ensure that all property owners are listed as sellers in the Agreement for the Agreement to be binding on all of them. If an owner is not listed as a seller in the Agreement, the buyer will obtain only the interest held by the sellers listed in the Agreement and will not obtain full ownership of the property.
If the seller is an individual and the property being sold is a matrimonial home, the seller’s spouse should sign the Agreement consenting to the transaction.
Description of the Property
The description of the property sets out what is being purchased. The property description comprises the municipal address and the legal description of the property. Errors in the property description will almost inevitably lead to a dispute between the buyer and the seller and will significantly undermine the Agreement’s validity. The legal property description should include a reference to all known rights and encumbrances affecting the use of the property, including: (a) easements to which the property is subject (except for utility easements, which specifically addressed by standard wording in the Agreement); (b) easements by which the property is benefited; (c) encroachments; (d) rights of way; and (e) any other benefits or deficiencies to the title.
Price of the Property
The buyer and seller negotiate the purchase price. For re-sale homes, the price is typically inclusive of HST. This is because re-sale homes generally are not subject to HST. However, new homes are subject to HST, and in such instances, the purchase price listed in the Agreement would likely be exclusive of HST.
The deposit is an incentive to guarantee the buyer’s performance in the Agreement. As a result, the property seller will want the deposit to be as high as possible. Conversely, the buyer will want to minimize the deposit amount as much as the buyer can. Where a transaction fails to close, the deposit is often the sought-after amount for damages claimed by the seller. If the buyer defaults, the seller has an implied right to retain the deposit unless otherwise set out in the Agreement. However, suppose the deposit is unusually large relative to the purchase price. In that case, the seller will not necessarily be entitled to retain the entire amount as, in such instances, the courts may characterize the unreturned deposit as a “penalty” rather than “liquidated damages”. Suppose the buyer argues that the seller is also in default. In that case, the deposit will likely remain tied up until the buyer and seller reach a settlement or a court determines which party should be entitled to the deposit.
The Agreement sets out three essential dates: (a) acceptance date; (b) requisition date; and (3) completion or the closing date.
In contract law, without acceptance, there is no contract. The Agreement sets the date and time by which the offer to purchase (made by the buyer or the seller to the other part must be accepted. If an acceptance does not occur before the date and time set out in the Agreement, the Agreement becomes null and void. In such an instance, one of the parties may still make a counter offer, in which case the acceptance date will be revised to allow the other party to accept the counter offer.
The requisition date is when the buyer must examine the title to the property and submit requisitions or objections regarding the buyer’s findings to the seller. The buyer should ensure that his lawyer has sufficient time between the acceptance and the requisition date to conduct the necessary searches of title and receive replies from any third parties. However, any requisitions which go to the root of title (ie. which, if not resolved, would result in the buyer not obtaining marketable title) and are not made by the requisition date, may be made until the closing date.
The closing date is when the property purchase must be completed. The Agreement states that the purchase must be completed by no later than 6 p.m. on the date of closing. Realistically, under Ontario’s electronic registration system, the purchase must be completed by no later than 5 p.m. to allow for the registration of title to occur.
Use of Property
The Agreement states that there is no condition, express or implied, representation or warranty of any kind that the future intended use of the property by the buyer is or will b lawful except as may be expressly stipulated. As such, if the buyer wants to change the use of the property from its current use, the buyer should undertake due diligence to ensure that such intended use will be permitted. The buyer may wish to make such change in use a condition under the Agreement,
Clause 12 of the Agreement states that the buyer will only ask for those documents establishing title that are in the possession or control of the seller. Further, if requested by the buyer, the seller agrees to deliver to the buyer any sketch or survey of the property within the seller’s control as soon as possible and before the requisition date.
In most transactions, any survey that the seller may be able to provide will likely be out of date. If possible, the buyer should require the seller to supply an up-to-date building location survey at his or her expense. It is unlikely that a seller will agree to a condition to provide an up-to-date survey. In most circumstances, the buyer can likely obtain title insurance to insure over any risks that an up-to-date survey would have revealed.
Right of Inspection
The Agreement provides that the buyer has had the opportunity to inspect the property prior to submitting an offer, and having been given the opportunity to make it a requirement in the agreement that there be a property inspection report obtained, the buyer will not be obtaining a property inspection report regarding the property. Whenever possible, the buyer should make the offer contained in the Agreement conditional on having the property inspected by a home inspection company or a structural engineer and on receipt of a satisfactory report from the same. Such a clause is regularly seen in offers made by buyers, though, in a sellers’ market, buyers will often remove such a condition to be competitive against other buyers in their bids.