The Vendors and Purchasers Act
The Agreement of Purchase and Sale is the fundamental document which governs the relationship between the vendor and the buyer of a real estate property. A well drafted The Agreement of Purchase and Sale is expected to contemplate any significant aspects of a real estate transaction and lay out the mechanisms to resolve any issues that may arise. The Agreement of Purchase and Sale should set out the rights and obligations of each contracting party in the process. Any right denied or omitted may be refused by the other party, acting reasonably and in good faith.
However, the legislator laid out some ground rules, mechanisms, rights and obligations which affect every transaction of purchase and sale. An important legislative effect is found in the Vendors and Purchasers Act. The Vendors and Purchasers Act lists several provisions (rights, obligations, and mechanisms) which are statutorily incorporated into every Agreement of Purchase and Sale. The effect of the Vendors and Purchasers Act may be overridden pursuant to the stipulations of section 4. That section indicates that if parties should specifically agree otherwise or indicate that The Vendors and Purchasers Act does not apply with respect to a certain specific matter, then it could be excluded from affecting the contract. It also means that should a conflict arise between the contents of The Vendors and Purchasers Act and the Agreement of Purchase and Sale, the latter shall prevail.
Section 3(1) of The Vendors and Purchasers Act is a very useful tool when encountering difficulties in a real estate transaction. Title related requisitions are submitted by the purchaser’s lawyer to the attention of the seller’s lawyer. Those may relate to cardinal matters affecting the root of title, such as Canada Revenue Agency liens or technical matters such as expired notices or easements that should simply be removed from title due to a technical reason. Off title matters which may affect title eventually are also treated by submitting the proper requisition. However, disputes and difficulties may arise when the seller is not forthcoming with respect to clearing title.
If any of the parties believes that a valid requisition should have been addressed but is refused, he or she may utilize the dispute resolution mechanism found in the Vendors and Purchasers Act, under section 3(1). Section 3(1) of the Vendors and Purchasers Act allows a party to file an application with the Ontario Superior Court for a ruling in respect of any requisitions or objection or any other claim for compensation arising out of or connected with the Agreement of Purchase and Sale. Note that the ruling cannot be filed at the negotiation stage. In that respect, it is different from other ruling application common in the real estate field such as an HST ruling application. Ambiguity in the negation stage should be resolved by direct negotiation and research rather than a court application.
Lawyers should utilize this tool when required as it better protects the client than other alternatives such as closing under protest followed by a claim.
Section 4 of the Vendors and Purchasers Act mandates the inclusion of several provisions into every Agreement of Purchase and Sale of land, as follows:
“Terms of agreement of sale and purchase
- Every contract for the sale and purchase of land shall, unless otherwise stipulated, be deemed to provide that,
(a) the vendor is not bound to produce any abstract of title, deed, copies of deeds or other evidence of title except such as are in the vendor’s possession or control;
(b) the purchaser shall search the title at the purchaser’s own expense and shall make any objections thereto in writing within thirty days from the making of the contract;
(c) the vendor has thirty days in which to remove any objection made to the title, but if the vendor is unable or unwilling to remove any objection that the purchaser is not willing to waive, the vendor may cancel the contract and return any deposit made but is not otherwise liable to the purchaser;
(d) taxes, local improvement rates, insurance premiums, rents and interest, shall be adjusted as at the date of closing;
(e) the conveyance shall be prepared by the vendor and the mortgage, if any, by the purchaser and the purchaser shall bear the expense of registration of the deed and the vendor shall bear the expense of the registration of the mortgage, if any;
(f) the purchaser is entitled to possession or the receipt of rents and profits upon the closing of the transaction. R.S.O. 1990, c. V.2, s. 4.”
Focus on Section 4(a)
The vendors is required to provide all title documents that are in his possession. Therefore, any title documents or evidence of holding title that is not in his possession is not required to be produced on or before closing. Although this section mandates acting in good faith when selling land, it does not relieve the buyer from searching title and following the premise of “buyer beware”. The buyer’s lawyer is entrusted with the task of searching title, identifying any issues, cardinal or marginal, informing the client of those in writing and confirming that the buyer is getting what it bargained for. Title registration is a deemed public notice. Any instrument registered on title is deemed notified to the public and particularly to the buyer’s lawyer searching title. Section 11 of the Ontario Real Estate Association standard contract form displaces section 4(a) by way of overriding text. There it is stipulated that:
- TITLE: Buyer agrees to accept title to the Property subject to all rights and easements registered against title for the supply and installation of telephone services, electricity, gas, sewers, water, television cable facilities and other related services; provided that title to the Property is otherwise good and free from all encumbrances except: (a) as herein expressly provided; (b) any registered restrictions, conditions or covenants that run with the land provided such have been complied with; (c) the provisions of the Condominium Act and its Regulations and the terms, conditions and provisions of the Declaration, Description and By-laws, Occupancy Standards By-laws, including the Common Element Rules and other Rules and Regulations; and (d) any existing municipal agreements, zoning by-laws and/or regulations and utilities or service contracts.
Section 11 of the Ontario Real Estate Association standard contract lists certain title qualifications that the buyer agrees to assume. The consent is focused on public utility easements, right of ways, easements in favour of the public represented by the City, restrictive covenants which run with the land and have been observed (note that restrictive covenants can be in favour of a private person and can take a business form, e.g. a restriction preventing the operation of a certain business in that condominium unit to protect the same business activity carried on in an adjacent unit), and any condominium documents such as the condominium declaration, condominium by-laws and condominium rules (condominium rules could be registered or unregistered). The limitations in a condominium context could be wide and diverse, for example, those may pertain to a complete prohibition from having any pets of any kind, or from carrying on certain business activities in a condominium commercial unit.
Focus on Section 4(a)
Section 4(b) of the Vendors and Purchasers Act:
(b) the purchaser shall search the title at the purchaser’s own expense and shall make any objections thereto in writing within thirty days from the making of the contract;
This section places the onus of searching title in a land transaction on the purchaser and provides a timeframe for submitting any valid objections or requisitions. This section was also addressed and displaced by section 10 of the Ontario Real Estate Association standard contract, as follows:
- 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. If within that time any valid objection to title or to any outstanding work order or deficiency notice, or to the fact the said present use may not lawfully be continued, is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee, (with all related costs at the expense of the Seller), and which Buyer will not waive, this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction and Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages. Save as to any valid objection so made by such day and except for any objection going to the root of the title, Buyer shall be conclusively deemed to have accepted Seller’s title to the Property. 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.
Section 10 of the Ontario Real Estate Association standard contract lists matters which currently effect title or which may effect title in the future. Work orders issued by the City for the rectification of any issue found with the property could be introduced onto title by the City if the matter/infringement lingers. Title requisition date is established for efficiency, however title requisitions with respect of matters which may effect the root of the title may be raised up to the point of closing.
Focus on Section 4(d)
Section 4(d) of the Vendors and Purchasers Act:
(d) taxes, local improvement rates, insurance premiums, rents and interest, shall be adjusted as at the date of closing;
This Section has been displaced by section 21 of the Ontario Real Estate Association standard contract, as follows:
- ADJUSTMENTS: Common Expenses; realty taxes, including local improvement rates; mortgage interest; rentals; unmetered public or private utilities and fuel where billed to the Unit and not the Condominium Corporation; are to be apportioned and allowed to the day of completion, the day of completion itself to be apportioned to the Buyer. There shall be no adjustment for the Seller’s share of any assets or liabilities of the Condominium Corporation including any reserve or contingency fund to which Seller may have contributed prior to the date of completion.
Section 21 deals with any taxes and utilities payable up to the date of closing by the seller. The interesting part of the section deals with payments made to the condominium corporation up to the point of closing. Where it is clear to the parties that they are to adjust for common fees up to the date of closing, it is not always clear to the seller and the buyer how to deal with a special assessment that has been apportioned by the choice of the seller into numerous installments. Indeed a special assessment levied on the seller remains his responsibility and is not transferred to the buyer by way of adjustment. However, a special assessment that had been divided into installments by the choice of the seller could be paid in part before closing and in part after closing. In that case, the seller is required to adjust for the future installments by reducing the purchase price in the amount of the future installment. It becomes an abatement to the purchase price.
Focus on Section 4(e)
(e) the conveyance shall be prepared by the vendor and the mortgage, if any, by the purchaser and the purchaser shall bear the expense of registration of the deed and the vendor shall bear the expense of the registration of the mortgage, if any;
This mechanism presented in this section has been displaced by in the Ontario Real Estate Association standard contract. There the effect of electronic registration was taken into account. The seller’s lawyer will prepare and message the conveyance transfer (the deed) whereas the buyer’s solicitor will complete it or correct it (if needed) and attend to its registration. The buyer’s solicitor will also be responsible for the preparation and registration of the charge (mortgage) and be liable for its proper registration to the lender, confirming that their interests are well protected.
Focus on Section 4(f)
(f) the purchaser is entitled to possession or the receipt of rents and profits upon the closing of the transaction. R.S.O. 1990, c. V.2, s. 4.”
This mechanism presented in this section has been preserved by in the Ontario Real Estate Association standard contract. The seller will have to adjust (credit the buyer) the amount of prepaid rent, key security deposit, or any other form of payment collected under the lease. The credit shall be calculated commencing on the closing date.