| The Agreement of Purchase and Sale
In most cases, an Agreement of Purchase and Sale is not seen
by a lawyer until after it is signed. Problems arise from time
to time with these agreements. This agreement forms the basis
of your legal rights and obligations and must be taken seriously.
You should review it with your lawyer before signing if possible.
Often, Agreements of Purchase and Sale contain
conditional clauses. These clauses list certain items to which
the agreement is subject. For instance, most Agreements of Purchase
and Sale are conditional on the purchaser being able to arrange
a mortgage or assume an existing mortgage. A certain period
of time is specified in which you are to arrange this financing.
Failure to notify the vendor of your inability to obtain financing
approval within the time allowed could result in a lawsuit against
you if you fail to complete the purchase. Other common conditions
include those with respect to satisfactory water tests or home
inspections. Special attention must be paid to these clauses
and the deadlines imposed by them.
The Title Search
Your lawyer will arrange
for the title to the property to be searched. This search involves
reviewing the history of the property for a period of time,
usually forty to sixty years. This is done to ensure that there
is a proper chain of title ending with ownership of the property
by the person from whom you are buying. As a result of that
search, your lawyer will be able to advise you whether you will
have a good title to the property upon completion of the transaction.
Objections to Title
During the course of
the search, certain problems with the vendor's title may become
apparent. These problems are known as objections to title. They
may include prior improper conveyances or outstanding mortgages
or judgments registered against the property. Your lawyer will
indicate on your behalf that unless the defects are corrected,
you will not proceed with the transaction.
In certain cases, the
property will be subject to restrictive covenants, building
restrictions, easements or rights-of-way. Building restrictions
and restrictive covenants restrict the owner of the property
from doing certain things with the property, and may include
requirements as to the type of materials used in construction
and the number and nature of structures on the lot.
Municipal Taxes and Liens
Municipal authorities
in Nova Scotia have a lien against properties for outstanding
taxes or betterment charges. Betterment charges represent a
shared cost for certain improvements made to the locality by
the municipality, such as the installation of sidewalks and
the paving of streets. If there are unpaid taxes or betterment
charges, the municipality has the right to force the sale of
the property to recover the debt. In the course of representing
you, your lawyer will order a tax certificate from the appropriate
municipality. That certificate will reveal whether there are
any balances outstanding with respect to taxes or betterments.
On closing, the current
year's taxes will be apportioned between the purchaser and vendor.
For example, if the vendor has paid the full year's taxes, you
will reimburse him for the taxes applicable to the period following
closing. Also, betterments completed before closing are usually
paid for by the vendor. Your lawyer should prepare these adjustments
for you and review them with you prior to closing.
Location Certificate
Your lawyer has no way
of ensuring that the house is actually located on the land being
purchased. For this reason it is in your best interest to obtain
a Location Certificate from a qualified land surveyor.
Your surveyor will offer
you two options: he or she will either prepare a location certificate
or conduct a full survey.
A location certificate
(also known as a plot plan) does not establish where the boundary
lines of your property are; it merely certifies that the building
on that property is within the boundaries of the lot. In order
to establish where the boundaries are between your property
and those surrounding it, you must obtain a full survey. There,
the surveyor identifies the location of each boundary line and
places survey markers in the ground to mark the location of
those lines.
Survey information with
respect to the property is frequently supplied by the vendor
for information purposes. Often purchasers will, as a cost saving
measure, rely upon this survey information. However, it must
be stressed that should you choose to rely on a location or
survey certificate which was not prepared for you and a mistake
in that certificate is later discovered, you may have no legal
recourse against the surveyor for negligence. If, on the other
hand, you have a surveyor prepare a new certificate for you
and his or her work is negligently done, you will have direct
legal recourse against that surveyor for your loss. You should
advise your lawyer as soon as possible if you wish to retain
the services of a surveyor.
Mortgage Funding
In most cases, purchasers
either assume an existing mortgage or arrange new mortgage financing
to assist in the purchase of the property. It is your responsibility
to arrange mortgage financing with the financial institution
of your choice or to contact the existing mortgage company with
respect to the assumption of an existing mortgage. Once your
application for financing has been approved, the mortgage company
will request the name of your solicitor and will forward all
necessary documentation to him or her.
Mortgage funds will
be advanced to your lawyer's firm in trust and will be disbursed
by the firm on closing. As the Agreement of Purchase and Sale
normally limits the time available to you to arrange financing,
you should contact your mortgage company as soon as possible.
You should also contact your lawyer to advise when the mortgage
financing has been arranged or approved.
Fire Insurance
In due course, you should
arrange for fire insurance to be effective as of the date of
closing. In most cases, mortgage companies insist that the property
be insured for an amount at least equal to the face amount of
the mortgage; you should, however, insure your property for
its full insurable value. The policy itself must show the mortgage
company as having an interest in the property, with loss payable
to the mortgage company up to the amount loaned. Before any
funds will be released to your lawyer by the mortgage company,
your insurance agent must provide written confirmation of the
policy.
You must advise your
insurance agent if the property is to remain vacant for a period
of time after you purchase it. Also, you must advise your insurance
agent if the property is to be used for rental purposes only.
Manner of Taking Title
You must decide the
manner in which you wish to take title to your property. If
you and your spouse are purchasing a property, there are three
alternatives open to you: you may take title as joint tenants,
as tenant-in-common, or in the name of either one of you individually.
Most couples purchase
property as "joint tenants." When one of the two persons
in whose names the property is registered dies, title to the
land automatically passes to the survivor. This feature is known
as the right of survivorship. As a result of this right, the
property does not pass through the estate of the deceased party,
and probate fees are not payable in connection with it.
If you decide to purchase
as "tenants-in-common" and one of you dies while you
both still own the property, his or her one-half interest in
the property passes in accordance with the terms of the deceased's
Will or, if there is no Will, to the deceased's heirs-at-law.
Probate fees on the value of the land will be payable in this
event.
If you take the property
as either joint tenants or as tenants-in-common, each owner
is as much entitled to possession of any part of the land as
the other, and neither can point to any particular segment of
the land as being his or her own.
As a third alternative,
you might decide to take title under the name of one individual
only. This method may be selected for a number of reasons. It
may be done for income tax purposes or to protect the property
from the possible debts of the other owner. For example, many
business people have their properties in the names of their
spouses so that any debts of the businesses will not attach
to the houses in case of business failure.
If you should decide
to place the property in the name of one individual only, your
lawyer might point out to you that if the individual with title
dies without a Will, the property may be frozen in the estate
for a lengthy period of time. Also, problems might arise on
marriage breakdown. If you are considering taking title in one
name only, please speak to your lawyer to further discuss the
implications.
Deed Transfer Tax
Most of the municipalities
in Nova Scotia impose a Deed Transfer Tax. In the majority of
transactions, Halifax Regional Municipality charges one and
one half percent (1.50%) of the total purchase price of the
property. Until this tax has been paid to the appropriate municipal
authority, the Registry of Deeds will not accept the Deed for
registration. Accordingly, your lawyer will require funds from
you to pay this tax and will pay them on your behalf prior to
registration of the Deed.
Harmonized Sales Tax
The Federal and Provincial
Government imposes a 15% tax on the sale of new construction
and commercial properties. You should ask your lawyer about
this tax to determine if it will apply to your transaction.
The Closing
Some years ago, the
majority of property closings took place in a rather formal
atmosphere. The purchasers and their solicitor sat at one side
of a conference table and the vendors and their solicitor sat
at the other side. The adjustments your lawyer prepared, together
with the Deed, keys, and the cheque were transferred.
Almost all residential
property transactions now take place at informal closings. The
transaction is agreed to by telephone, and the documents and
money are transferred by courier.
However, your lawyer
will usually require a meeting with you before the closing.
Prior to that meeting, most lawyers will attempt to review the
adjustments and advise you of the amount of money which is required
to close the transaction. This amount will include the Deed
Transfer Tax together with legal fees and disbursements. The
funds must be supplied by way of cash, certified cheque or bank
draft made payable to your lawyer in trust. It will be necessary
for you to ensure that your lawyer has received these funds
in this manner prior to closing.
On the day of closing
your lawyer will forward the necessary funds to the vendor's
lawyer who will, in turn, provide the executed Deed, and keys
to the property. Once your lawyer has received these, he or
she will pay the Deed Transfer Tax on your behalf, register
the Deed and the mortgage in the Registry of Deeds for the appropriate
county, and arrange for you to receive the keys.
Approximately three
to four weeks after the closing you should receive from your
lawyer the registered Deed and supporting documents, including
your lawyer's certificate of title.
This article is meant
to give a general overview. For advice, a lawyer should be consulted.
PREPARED BY: Christene
H. Hirschfeld
PREFERRED
AREAS OF PRACTICE: Real Estate, Corporate and Commercial.
COPYRIGHT
JUNE 1998
For
further information please contact Christene
H. Hirschfeld |
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