Sale FAQ

Real Property Report (RPR)

A Real Property Report or RPR, as the name implies, is a complete report on the real estate or real property.  This report is prepared by an Alberta Land Surveyor.  It shows the dimensions and directions of all property boundaries, the location and description of all buildings on the property, the location of all boundary fences, and other items such as utility right-of-ways, and encroachments from neighboring properties.  Under the standard Alberta Residential Real Estate Purchase Contract, the seller is obligated to provide a current RPR complete with evidence of compliance at their expense.

What is the definition of “current”.  The key factor is whether there have been any changes to the property.  The report can be as old as 1996 so long as there have been no changes to any of the buildings or other improvements on the property.  If anything has been added or altered, a new RPR is required.  If something has been removed, most times an existing report can be utilized.

It is necessary to order a new report when any structures including boundary fences are not shown on the RPR.  

It is possible to avoid ordering a new RPR when ground cover items only have been added as they do not require a building permit.  This includes concrete patios or decks that are less than 0.60 metres (24”) off the ground.

If there is any doubt as to whether a new RPR is required, please contact our office.

One of your obligations under the standard AREA Real Estate Purchase Contract is to provide the buyer with a Real Property Report (RPR) with evidence of municipal compliance.  There are two things you should consider before agreeing to provide an RPR to the buyer:

  • Have you built any structures or made any other improvements since purchasing the property?
  • Did you obtain development permits for these improvements?

Any new structures will require a new RPR.  As noted above, ground level improvements do not require a new RPR.  As part of the process, you will be required to obtain municipal compliance for any new structures improvements.  The municipality will not endorse your RPR with a compliance certificate if:

  • The zoning bylaw requires you to obtain a permit for an improvement and you have not applied for such permit; or,
  • The improvements were not constructed in accordance with your development permit application; or,
  • The structures on the site do not comply with the municipal zoning bylaw.

To avoid difficulties with municipal compliance, obtain any outstanding permits prior to listing the property for sale.  Alternatively, consider removing structures without permits that are movable or do not materially affect the value of the property before completing an RPR.  We have seen real estate deals complicated, delayed and significantly increase costs over minor items such as a lean-to against the side of a garage.  Remember that once a contract is signed, you cannot alter the property and you are now obligated to obtain permits for that valueless lean-to or other structure.

Your obligation under the Real Estate Purchase Contract (REPC) is to provide a current RPR evidencing all improvements on the property.  It must show all improvements including: the dwelling, any garage, decks, gazebo, hot tub, car port, fence, and retaining wall.  Even a minor improvement to your property such as constructing a fence along the property line will require an updated RPR.

Checking into the status of development permits on your property for sale will go a long way toward avoiding complications in the sale of your home and ensuring a smooth transaction.

Title Insurance

We highly recommend the use of title insurance in all real estate transactions.  For a one-time fee, it provides coverage for the entire length of your ownership of the property.  Policies can even be purchased by existing homeowners that provide coverage back to the time of purchase.

As the name implies, title insurance covers many of the risks associated with maintaining secure title to your property.  For a one-time fee, some of the insured risks on residential properties include:

  • Violations of municipal zoning bylaws
  • Encroachments onto an adjoining property (other than fences and boundary walls)
  • Setback violations
  • Unknown or undisclosed realty tax arrears
  • Existing work orders
  • Lack of legal access to the property
  • Someone else owns an interest in your title
  • Existing liens against the title
  • Condominium assessments that were unknown at the time of purchase
  • Hidden deficiencies such as underground storage tanks
  • Unregistered utility easements
  • Unmarketability of the property due to matters that would have been revealed by an up-to-date Real Property Report (RPR)
  • Fraud, forgery, and false impersonation to the extent they affect the validity of title

In our view, the fraud protection for the lifetime of your ownership justifies the premium you pay for the policy.  All the other coverage is an added bonus.

For more information on Title Insurance go to:

  • Stewart Title Insurance at www.stewart.ca
  • Chicago Title Insurance at www.ctic.ca

Real Property Report (RPR) vs. Title Insurance

So which is better, an RPR or Title Insurance?

Title Insurance allows a closing to take place in a timely fashion without investigating the status of  the property, the buildings and the permits.  It also permits closing without registration at Land Titles as any issues that arise during the registration process will be covered by the Title Insurance policy.  When there is a rush to get a deal closed, Title Insurance can provide an effective solution.

When time permits, which is typically the case, an RPR offers clarity over a certain defined list of issues.  For example, you will know whether your fence or garage eaves encroaches onto the neighboring property or one of their structures encroaches onto your property.  You will also know whether permits have been obtained for all exterior structures such as decks, carports, hot tubs, garages, and the house itself.

Where encroachments exist or permits have not been obtained, a purchaser can then make sure the seller looks after these issues as part of the closing process.

Title insurance insures against these same issues, however, it does not fix them.  If a purchaser discovers that there are no building permits for a structure long after closing, it may be difficult or impossible to pursue the seller to rectify this deficiency.  The purchaser will then be left with the burden of curing this deficiency at their expense before they sell the property.

Title insurance offers the ability to close on a real estate deal and satisfy all the requirements of the mortgage lender without the cost and potential time delays of obtaining an RPR.  If deficiencies are discovered after the closing date, the title insurance typically covers the cost of rectifying unknown deficiencies that are subsequently discovered.

Title insurance also allows closing where there are known deficiencies the parties simply wish to defer, rather than bring to the attention of the municipality.  For example, we recently dealt with a house where a small decorative fence encroached onto city property.  The cost of obtaining an Encroachment Agreement from the city exceeded $30,000.  Both parties agreed they would rather not pay the $30,000 fee.  Instead, they closed with title insurance even though the insurance excluded this known defect.  This still allowed the buyer enjoyment of the fence without payment of the $30,000 fee.  The buyer agreed to accept the risk that sometime in the future the city may require payment of the fee or removal of the fence.

Title insurance also covers many risks that are not touched by an RPR.  For example, existing work orders for interior renovations are covered by title insurance.  Interior renovations are not touched by RPRs.  As another example, title insurance paid to move an underground septic tank when it was discovered it was buried partly under the neighbour’s property. This would not have shown on an RPR. Obviously, fraud coverage for the lifetime of the ownership is not covered by an RPR either.

Permits

It is the seller’s responsibility to ensure permits are in place for all improvements and additions.  Maybe you bought your property a long time ago when the issue of permits was not strictly enforced or maybe you bought using title insurance and avoided the entire issue of permits. Now, the buyer is insisting that you obtain permits.

The most effective solution is to determine whether any permits are missing before you even list the property for sale.  For example, if you have a covered deck and no permits were obtained for the roof, it is often more cost effective to remove the cover than it is to apply for the permit only to find that a report from a professional engineer is required, attesting to the load-bearing capabilities of your covered deck before a permit will be issued.  Read the next section on “Changes to the Property – Modifications” to see what you can do to remove improvements after an REPC is signed (basically nothing).

Changes to the Property – Modifications

Make sure the property you are selling is in compliance with permits in place before listing for sale and certainly before signing an REPC.  The contract says you are selling the property “as is”.  This means you cannot make any changes to the property after the contract is signed without the permission and consent of the buyer.  For example, we had one seller who had a small decorative fence at the front of their property that encroached onto the city land.  The buyer refused permission to have this fence removed and it cost the seller several thousand dollars to obtain an Encroachment Agreement.  The seller could have removed the fence in less than an hour if it had been done before listing the property for sale or signing the contract.

Property Tax Adjustments

Whenever real estate changes hands, one of our tasks is to make sure each party pays their appropriate share of the property taxes.  We refer to this as the property tax adjustment.  Here’s how it works.

In the City of Edmonton and most other municipalities in Alberta, property taxes are due and payable on June 30 each year.  There are rare exceptions where property taxes are due on August 31 or September 30.  No matter the due date, when the property taxes are paid, they cover the calendar year.  Paying property taxes in full on June 30 covers the taxes owing for the previous 6 months and the ensuing 6 months.  The June 30 payment covers January 1 to December 31 of that particular year.

When the property is sold, if the taxes have been paid in full, then the buyer will owe the seller money for their proportionate share of the taxes.  If the taxes have not been paid then the buyer will receive a credit for the seller’s share of property taxes.  These calculations are done to the exact date of closing.  By convention in Alberta, the seller is responsible for the entire closing day even though the exchange of keys typically takes place at 12:00 noon.

Many people now pay their taxes by automatic monthly withdrawals from their bank account.  These are payments that go directly to a municipality.  This is different than paying your property taxes monthly as part of your mortgage payment to the lender.  Paying the property taxes as part of your mortgage payment will be discussed separately.

When taxes are paid monthly, we calculate the exact amount of taxes owed by the seller up to the closing date.  We then look at what they have actually paid and then credit the appropriate party with the difference. This can range from under $10 to about $200, depending on the timing of the closing date and the actual payments the seller has made.

Once the sale is complete, the seller’s monthly payments will stop.  Unless other arrangements are made, if we are the lawyer for the seller, our office sends the request to stop the seller’s monthly payments.  It is then up to the buyer to make their own arrangements for monthly payments.  We cannot initiate monthly payments for the buyer as the municipality requires direct authorization from the new property owner.  This can only be done after the title is in the name of the new owners.

If the new owner does not make immediate arrangements for their own monthly payment to the municipality, they will receive a bill for the full amount owing to December 31.  If the closing date is prior to June 30, they will have up to June 30 to pay this outstanding amount without penalty.  If the closing date is after June 30, they must pay this remaining amount in full within 30 days to avoid penalties.

When we are the lawyer for the buyer, we recognize the long list of issues buyers must look after when buying a property.  We ask buyers to bring in sufficient funds to cover the remaining property taxes for any purchase that closes after June 30.  This means we will pay the taxes on your behalf to ensure they are paid in full to December 31.  You can then look at enrolling in the monthly property tax payment plan anytime between the closing date and December 31 so that the monthly payments will start in January of the following year.  This is one example of the many services included in our flat fee.

Many mortgage lenders, especially in the case of first time buyers, will insist that property taxes be included in the monthly payments under the mortgage.  This can lead to additional payments at the outset and confusion. In an effort to eliminate the confusion, here’s how it works.  If the lender is collecting and holding payments for property taxes, they must pay the taxes on June 30 in the next year.  To have sufficient money on hand to pay the taxes, they must start collecting monthly payments in July of the previous year.  In other words, all the property tax payments you make from July to December of this year will be used to pay next year’s property taxes.  In the meantime, it is your responsibility as the buyer to pay this year’s property taxes.  We will ask you to bring in as part of the cash-to-close enough money to cover the property taxes from the closing date to December 31 of this year.  You will still include property tax payments as part of your mortgage payments as soon as the mortgage is funded as these payments to the lender go towards next year’s taxes. And you will be responsible for any shortfall in the tax account should there not be sufficient funds in the account when taxes are due.

Here are some examples of property tax adjustments.

Seller Has Not Paid Any Taxes – Closing Date April 1

 

Total Taxes

$2,400.00

Seller’s Share - $2,400 x 90/365

$591.78


In this case, the seller will receive $591.78 less than the full sale price and the buyer’s cash-to-close will be reduced by $591.78.  When the taxes come due on June 30, the buyer will now pay the entire property tax bill owing to the municipality as they have received a credit from the seller for the seller’s share of taxes.

Seller Has Paid Taxes In Full – Closing Date August 1

 

Total Taxes

$2,400.00

Seller’s Share - $2,400 x 213/365

$1,400.55

Buyer’s Share

$999.45


The seller has paid the taxes in full.  The buyer will be asked to include their share of the property taxes (in this case $999.45) as part of the cash-to-close, and the seller will receive this extra money.  The buyer has now paid the taxes in full up to December 31 and must make their own arrangements starting January 1 of the next year.

Seller Pays $200 Monthly – Closing Date April 1

 

Total Taxes

$2,400.00

Seller’s Share - $2,400 x 90/365

$591.78

Seller Has Paid (3mos x $200)

$600.00

Overpayment

$8.22


In this case, the seller is paying property taxes monthly and has overpaid by $8.22.  The buyer will pay the extra $8.22 to the seller as part of the closing.  The buyer will then be responsible for property taxes starting April 2 and must either make arrangements to enroll in the monthly payment plan or pay the remaining amount of $1,800 in full on or before June 30.

Seller Pays $200 Monthly Up To July – Closing Date August 1

 

Total Taxes

$2,400.00

Seller’s Share - $2,400 x 213/365

$1,400.55

Seller Has Paid (7mos x $200)

$1,400.00

Underpayment

$0.55


The seller has paid $1,400 of their total share of $1,400.55.  The buyer will receive a credit of $0.55 which will reduce the required cash-to-close.  As part of the request to the buyer for shortfall money, we will ask the buyer to provide an additional $1,000.  If we are the buyer’s lawyer, we will the pay the property taxes in full at the time of completion.  The buyer must now make arrangements to enroll in the monthly payment program starting in January of the following year or pay the taxes in full in June of the following year.

When Do I Get My Sale Proceeds?

Under the standard REPC, the buyer takes possession of the property on the completion date.  Typically, we receive the sale proceeds just before noon on the completion date. The first thing we do is pay out any encumbrances on your title (such as your mortgage) to ensure that interest stops.  We then pay any commissions owing to your realtor.  Finally, we pay any other expenses such as a final amount owing for Title Insurance.  We are then able to prepare our reporting letter to you which includes a full accounting of how the sale proceeds were disbursed and your net sale proceeds.  The net sale proceeds are typically available on the business day after we receive the sale money.  If you have special requirements such as having funds deposited directly into your bank account or paying interim financing you received to support the purchase of a property, please advise us well in advance of the completion day to ensure we are able to accommodate you. We encourage you to pick up the reporting letter and solicitor’s trust cheque directly from our office. Net sale proceeds can be sent directly to your bank by courier however there is an additional fee for this service.

Timing

Here is a typical timeline for a sale.

Day 1.  You and your realtor successfully conclude a deal for the sale of your property and you phone our office to enquire about our services.
Day 2.  You tell your realtor you are using Galbraith Law to assist with the sale of your property.
Day 3.  The realtor instructs their broker to send real estate instructions to our office.
Day 4.  We receive real estate instructions and a file is opened.
Day 5.  We conduct searches at Land Titles and order a copy of property tax statement.  In the City of Edmonton, this arrives the same day.  In some outlying areas, this must be done by mail and can take up to one week.
Day 6 and 7.  The weekend.
Day 8.  We order a mortgage payout statement and if you are selling a condominium we order the Estoppel Certificate.  Depending on the lender and condominium manager, it can take one week or more to receive these documents.
Day 9.  We meet with you to sign documents.
Day 10 or later.  We send the Transfer of Land to the lawyer for the buyer.  We cannot send this document until we receive payout statements so that we know we will have enough money to pay off all encumbrances registered against title when the deal closes.

Completion Day.  Typically, we receive the cash-to-close between 11am and 12noon.  
We ensure the correct amount has been received.  Our first priority is to then payout the debts so that interest stops.

Day After Completion.  Once we are sure all debts and realtor’s commissions are paid, we complete your statement showing monies received and disbursed, pay ourselves and the net sale proceeds are released to you.

There can be delays along the way and the efficient closing of your sale can depend on the cooperation of several parties.  If there is more than one debt to be paid out of the sale proceeds, we must receive statements on each payout.  In the case of a condominium, we must receive an Estoppel Certificate from the condominium manager.  In the case of houses in newer residential areas, there is often a community fee secured against the title and we must obtain confirmation of this amount before the closing.

Condominium Fees

All condominium fees must be paid up to and including the Completion Day.  It is the seller’s responsibility to pay all condominium fees when they are due.  As your lawyer, we will then recover the buyer’s share of the monthly fees as part of the closing.  For example, if your sale closes on the 5th day of the month, you must pay the monthly fee in full, even though your portion is quite small.  You are not entitled to only pay a portion of the monthly fee at the beginning of the month.  You pay the entire amount and we recover the buyer’s share.

Sometimes, the condominium board of directors will determine they require special extra payments to pay for needed repairs and upgrades.  These are called special assessments.  As the seller, it is your responsibility to disclose to the buyer everything you know about any upcoming special assessments.  Payment of these assessments can then be negotiated between the parties.  When the special assessment has been put in place prior to the Completion Day - even where money is not payable until after the Completion Day - the buyer will press to have the seller pay this amount.  The seller may take the position that the assessment is to pay for future improvements that only the buyer will enjoy and the buyer should pay the special assessment.  It is important to disclose the special assessment well in advance of closing so that an agreement can be put in place between the buyer and the seller regarding payment of the special assessment.

Utilities

As a seller, you will be responsible for payment of all utilities on your property up to and including the possession date.  You will also be responsible for contacting your utility providers to advise them of a change in ownership.  We recommend that, particularly during the winter season, you exercise caution in cancelling your utilities.  Sometimes, a buyer, for a variety of reasons, will not complete their purchase on the scheduled possession date.  In such circumstances, your property may be at risk for damage as a result of bursting pipes and other weather related ailments.  Keep your utilities in place until you know that the funds required to complete your sale have in fact been paid.

Appliances

The standard REPC states that all appliances included with the sale are in normal working order. This is a significant exception to the usual term that the buyer is acquiring the property ‘as is’. This means that if an appliance stops working prior to the completion day or is not working on the day the buyer views the property, you are responsible for restoring it to normal working order.  If you are including appliances as part of the sale which you know are not in normal working order, you must disclose the condition of the appliances to the buyer in writing and have them sign off on this deficiency or specifically state the appliances are being sold on an “as is” basis.  Otherwise, a buyer has recourse against you for misrepresenting the condition of the appliances.

Bare Land Condominiums

The standard Alberta Residential Real Estate Purchase Contract exempts the production of a Real Property Report (RPR) for condominiums unless it is a bare land condominium.  What is the difference between a regular condominium and a bare land condominium, and, how does this difference lead to the requirement for an RPR for certain condominiums (bare land condos)?

There are two type of condominiums defined in the Condominium Property Act.  In the style most people are familiar with, the size and dimensions of individual units are defined by walls, floors and ceilings.  All apartment-style condominiums use this method to determine the size of the unit.  The other type of unit is defined by the size of the lot that the building sits on.  For example, in a project with a series of single family houses or duplexes, if the size of the particular unit is defined by the dimensions of the building only, this is a conventional condominium.  If the size of the unit includes the yard surrounding the building, this is a bare land condominium.  When looking at the plan for a bare land condominium, the drawing will only show individual lots or bare land and will not show any buildings.

When buying a bare land condominium, it is important to determine whether the building that sits on the lot is in fact properly located.  No one wants to purchase a bare land condominium lot thinking they are buying a living unit and then discover the living unit is in fact partly built on the neighbor’s land.  Hence, the requirement for an RPR on bare land condominiums.

Homeowner Associations

In many newer subdivisions, a homeowner’s association registers an encumbrance against the title to every lot in the neighborhood.  These encumbrances protect a homeowners association ability to charge an annual fee. This fee is generally used for the maintenance or development of certain improvements on common areas in the community.  Some homeowners associations are active and diligent in issuing invoices and collecting payment from homeowners.  Others may have active operations, but may be less diligent about following up and collecting outstanding payments.

If you have a homeowners association encumbrance on your title, you will be responsible for all homeowners association payments up to the completion date.  We will contact the homeowners association to determine whether there is an amount outstanding on your account.  We are required to ensure that any amounts owing are paid up to the completion date.  If the homeowners association has been less than diligent in collecting dues, there could be a sizeable payment owing.  If you have a homeowners association encumbrance on your title, enquire with the homeowners association to ensure your payments are up to date, particularly if you have not received invoices recently or at all.

If you have paid the association fees for the year, please provide us with evidence of that payment.  We can then recover from the buyer their pro rata share of the annual fee.

Payouts

Under the standard REPC, you must deliver a title free and clear of all financial encumbrances.  Accordingly, after receiving the sale proceeds from the buyer, we will payout any mortgages on title as well as any other loans which are secured by an encumbrance on title (unless of course there is an agreement to the contrary in the REPC).

Financial encumbrances include items such as a line of credit secured by a mortgage, a Promissory Note charging land, a financial Caveat, a Builder’s Lien, a Lien for condominium fees, a Writ filed a judgment creditor, a Lien for unpaid support and maintenance, or an unpaid property tax Caveat.

Our responsibility is to contact the creditor directly.  We must verify the amount owing and the method required to payout.  On closing, we will often update the amount owing and then provide payment to the creditor.  Our job is not finished until the creditor provides us with a discharge of their encumbrances and we have registered them at Land Titles.  Under our standard billing practice, we charge a fee for each encumbrance that we must discharge from Title.

To ensure efficient payout of the encumbrances, please provide us with your account number or mortgage reference number.  In some cases, lenders register very similar names on title, but require payout requests to be sent to different offices.  Your specific mortgage account information will assist us in ensuring timely payout of the debt and reduce the possibility of a delayed payment or application of the payment to the incorrect account.

Your lender will typically provide a payout statement current to the completion date.  Depending on the terms of your loan, the payout statement may contain pre-payment penalties which can be significant.  We recommend contacting your lender before listing the property for sale to determine what, if any, pre-payment penalty will be applied to your mortgage payout statement.  To obtain a discharge of your mortgage, we are obligated to deliver the amount stated on the payout statement.  We do not negotiate the payout amount on your behalf.  If you take issue with the amount of money set out on your payout statement, you will have to address this issue with your lender directly.

Commissions

Commissions payable to the realtor for all their services are typically calculated on a percentage basis, although other arrangements are possible.

Typically, when a deposit is paid by a potential buyer, that money is held in the trust account of the realtor’s brokerage.  Every brokerage must have a trust account that is subject to strict monitoring and regulation for the protection of all concerned.  Any deposit is held in that trust account until the deal has closed.  Once the seller’s lawyer receives the cash-to-close, they notify the realtor.  It is only when the realtor receives this notification from the lawyer that the deposit can then be released to pay their real estate commissions.  If the deposit is not enough to cover the commission in full, then we, as lawyers for the seller, will send the remainder of the commission to the brokerage out of the sale proceeds.

In those cases where the deposit exceeds the commission, the brokerage will send the excess funds to the lawyer sometime prior to closing.  They will still hold the remainder of the deposit in their trust account and will only release it in payment of their commissions, upon notification from the seller’s lawyer that the cash-to-close has been received.

Dower

If you are the only owner of your property, you will have to comply with the Dower Act when you sell your property.  You must do one of the following:

  • Swear an Affidavit to say you are not married. 
  • Swear an Affidavit that you or your spouse (if you are married) have never lived on the property at any time since your marriage.
  • If you cannot swear an Affidavit attesting to one of the above, that means you are married and you or your spouse have lived on the property either alone or together since the date of your marriage.  You must obtain your spouse’s consent as part of the sale documents.

The Dower Act provides the spouse of a married person with a life estate in the homestead.  Effectively, this means that a married person cannot sell their homestead unless the other spouse consents to the sale of the property.

If either you or your spouse, or you and your spouse have lived on the property at anytime during the course of your marriage, the Land Titles Office will require your spouse’s consent before the property can be sold.  It is important to remember these dower rights when attempting to sell your property, particularly in circumstances in which you may still be legally married to your spouse but have separated.

Realtors

  • Realtors perform a valuable role in the purchase and sale of real estate.   Realtors have expertise in marketing properties.  They also perform many other valuable functions.  Their primary functions can be divided into three categories. 
  • Realtors provide expertise, feedback and information to both buyers and sellers regarding the property itself.  The seller’s realtor will provide valuable advice on what can be done to enhance the property to make it attractive to buyers.  The realtor for the buyer can either directly, or with the assistance of experts such as building inspectors, identify for potential buyers the strengths and potential weaknesses of a prospective property.
  • Realtors have been trained in and have considerable experience in the process of negotiating an acceptable deal for both sides.  Reaching a consensus regarding price is just one aspect of the negotiating process.  Negotiating a number of other details such as completion dates or a process for any necessary repairs can ensure a smooth closing.
  • Realtors provide valuable assistance in navigating the entire real estate transaction.  For example, they will ensure the seller orders an RPR well in advance of closing and provide valuable advice on issues such as insurance and utilities.

As lawyers, we do not provide the services of realtors.  For that reason, we strongly encourage the use of realtors and will refer potential clients to a realtor for their advice and assistance before agreeing to act on a real estate matter.  In certain circumstances, such as a transfer between family members or business partners, we will act where no realtor is involved.

Cashbacks

In some situations, particularly following an inspection of a property, a seller will be asked by a buyer to agree to a cash-back which will provide the buyer with funds necessary to complete repairs identified during that home inspection.  Be careful before agreeing to such an arrangement as the following is a typical scenario.  

  • The buyer’s lender will view such cash-back arrangement as a reduction in the purchase price.
  • As a result, the buyer’s lender could reduce the amount of mortgage money available to the buyer.  
  • The buyer may actually have to produce more money on the completion date.

All of this will complicate or delay the closing of the sale.

If you are considering compensating the buyer for repairs identified during a home inspection, or for any other reason, here are some suggestions to more effectively deal with the situation.  

Simply reduce the purchase price.  By doing so, the buyer will fully understand their mortgage options well in advance of the completion date, and will minimize the potential for delays in completing your sale.  

If the buyer insists on a cash-back arrangement, we suggest the contract contain provisions which require that the cash-back amount be held in a lawyer’s trust account with such funds being released only upon receipt of invoices evidencing that the repairs for which the cash was held back have been completed.  Additionally, all payments from the lawyer’s trust account should be made directly to the contractor performing the work to mitigate any lender concerns that a buyer is obtaining a cash kickback to which they should not be entitled.

Rather than a cash-back, have the amount in question paid directly to a renovation company, supplier or contractor.

Holdbacks

During the course of a real estate negotiation, you may hear someone suggest using a holdback to resolve an issue between the parties.  One example is where a deficiency is noted during a home inspection.  The buyer may ask the seller to make the appropriate repairs.  However, to ensure the seller is sufficiently motivated to make such repairs, the buyer may propose holding back a portion of the sale proceeds until the repair is completed.  In general, we recommend avoiding such holdback arrangements.  Although they are intended to resolve a situation, they may in fact complicate the real estate transaction.  The complication arises out of the following. 

  • As a seller, you will want to make any repairs at the lowest cost and with the least amount of effort as possible.
  • Once repairs are made, there may be a dispute between the buyer and seller with respect to whether or not the repairs were made to the standard contemplated by the parties at the time the contract was signed.
  • If the parties cannot agree on whether or not a repair has or has not been made, they will expend additional time, energy, and money arguing over what may have been a relatively minor issue to begin with.
  • The wording of holdback clauses is tricky.  Extra wording is required to cover all the different outcomes such as a failure to complete the repairs before the completion date and the consequences of this.

If a deficiency is noted which requires repair, it is far simpler to negotiate a reduction in the purchase price or provide payment to a third party and make the buyer responsible for the repairs.  Please note, this can lead to complications for the buyer such as a reduction in their mortgage eligibility.  We urge all buyers to read the Buyer’s Section of our website for details on this issue.  This avoids disputes with respect to whether or not a repair has been adequately completed and gives a buyer full control over the manner in which a repair is completed.

Bridge Financing or Interim Financing

Bridge/interim financing is a short term loan granted by your lender which uses your net sale proceeds from the sale of your home as security for the loan.   It bridges the gap between the sale of your existing property and the purchase of your new property to ensure that you are not handcuffed by a buyer’s delay in closing the sale of your existing property.  Bridge/interim financing also allows you to get an advance on your net sale proceeds if you are selling your property after you have purchased the new property. Essentially, it provides you with certainty that you will have sufficient funds to apply towards the down payment on your purchase, notwithstanding the date your sale is actually completed.

We suggest you make arrangements for bridge or interim financing in the following situations:

  • If you are applying the net sale proceeds towards the down payment on another property you are purchasing;
  • If you are purchasing the property before the sale is completed;
  • If  you are purchasing the property on the same day or shortly after the sale of your property

We suggest setting up bridge/interim financing even if you do not anticipate using it.  Sometimes there are unexpected delays in the completion of the sale of your property.  For example, if the buyer of your property does not obtain their financing in time to complete the sale on the completion date, you will not have funds available to apply to the purchase of your property.  Despite the best efforts of all involved, there are a multitude of circumstances leading to a delay in the buyer of your property funding their mortgage.  If you need the funds in short order, you may be left in a situation in which you are not able to complete the purchase of your property.  Or, at the very least, you will be delayed in doing so.  

Disclosure

What obligation does a seller have to actually disclose any defects or issues a buyer might consider relevant? After all, what one person may consider relevant, may be a non-issue for another person.  Generally speaking, start with the proposition that a purchaser buys a property “as is, where is”, or as many people will tell you, it is “buyer beware”.  However, there are specific exceptions to this general principle.  These exceptions fall into three categories.

Common law.  These are exceptions that have been developed by case law and are continually evolving as cases come before the Courts.  In residential real estate, the common law states that a seller must disclose latent or hidden defects they know or ought to know exist.  This is defined as defects that a buyer could not discover through ordinary inspection.  For example, if the sewer line is broken and water backs up into the basement every spring, this must be disclosed.  Also, if the basement foundation is cracked and subject to water seepage and this is hidden behind drywall, there must be disclosure.  Inspectors do not have the liberty of removing all the drywall to discover this defect.  Issues that have been fixed do not require disclosure.  However, they must be well and truly fixed.  For example, a recent Ontario case found liability for a seller where they did not disclose major water intrusion difficulties in the basement and said they had fixed the problem so there was no need for disclosure.  Their so-called fix was to install a longer downspout on the eavestrough to take roof water further from the house.

Contracts.  The standard Alberta Residential Real Estate Purchase Contract obligates sellers to provide certain disclosures.  The warranty section of the contract states that the seller warrants the property is in compliance, among other things. If the seller knows that the property is not in compliance since development permits have not been taken out for structures that have been added, there is an obligation to disclose. Also, the standard contract states that all appliances will be in normal working order as of the closing date.  A seller cannot rely on the fact that the appliance was broken when potential buyers viewed the property.  There is an obligation to disclose the status of and fix all appliances.

Statute law.  There may be specific statutes that require specific disclosure.  In the area of residential real estate, the Fair Trading Act applies and lays out a number of unfair practices such as misrepresenting the status of the property.  This is a complex area with hundreds of cases evolving over the years.

The statements above are intended as a general summary only and will be helpful to point you in the direction that will be of assistance.  If you have any further questions in this area, please contact us directly.

Non-Resident Withholding Tax and Clearance

Anyone selling real estate in Canada who is not a Canadian resident for income tax purposes, or does not file Canadian income tax returns is obligated to report and pay income tax on any required capital gains tax resulting from the sale of the property.

Since the person liable for the tax is non-resident, Canada Revenue Agency may not be able to collect the tax owing.  Accordingly, the Income Tax Act states that the responsibility for the payment of tax lies with the purchaser.  If a purchaser of real estate in Canada does not ensure that the seller is a Canadian resident for income tax purposes, that purchaser will be liable for payment of the tax that the non-resident seller should have paid.

The standard Alberta contract includes the necessary statements where the seller verifies they are Canadian residents.  Your realtor and lawyer can also assist in making sure the seller is a Canadian resident for income tax purposes.  This is just one more instance where the services of a professional realtor can be of tremendous assistance.

As a purchaser, you must either obtain from the seller the Certificate issued by Canada Revenue Agency showing that all required taxes are paid or you must send 25% of the entire purchase price to Canada Revenue Agency.  CRA will hold those funds until the non-resident seller has filed their tax return. CRA will then release any excess funds to the seller.

If you are a non-resident seller and would like to receive all your sale proceeds on the day of closing, you must file a tax return showing the purchase price, the sale price and any related expenses and then pay any required taxes.  All this can be done before the closing date with a Certificate issued in advance of the closing date.  Presenting this Certificate to the buyer’s lawyer will allow you to receive all the sale proceeds on the closing date.

Special Obligations When Selling a Condominium

The standard REPC requires you to provide the buyer with an Estoppel Certificate.  The Estoppel Certificate indicates, among other things, whether or not your condominium fees are paid up to date and is typically provided by the Condominium Corporation’s management company.  The management company will charge a fee for us to obtain an Estoppel Certificate on your behalf.  The standard fee assessed by the management company is not included in our all-inclusive fee.  If we do not give the management company sufficient time to provide us with an Estoppel Certificate, they sometimes assess a rush charge.  These situations normally arise when we are not retained until the 11th hour.  Any rush charges will be added to your bill.

Production of the Estoppel Certificate can often delay closing. To avoid rush charges, contact us as far in advance of your sale as possible so that we can order the necessary Estoppel Certificates without the need to pay rush fees.

Many sellers are concerned about the necessity for this document when they have already provided extensive condominium documents to the buyer.  Although the condominium documents provide a prospective buyer with valuable information regarding the Condominium Corporation and what it may be like to live in the condominium complex, they do not confirm that all condominium fees are paid up to the completion date.  All major lenders require an Estoppel Certificate prior to funding the mortgage.  Buyers are also concerned that all fees are paid.  Accordingly, you are required to provide the Estoppel Certificate to a buyer.

If you are selling a condominium and your condominium board has passed a resolution which issues a special levy or special assessment against the owners of individual condominium units, we recommend addressing how those special assessments will be dealt with directly in the REPC.  For example, will the special assessment be adjusted pro rata based on the period of time in which the buyer and seller have lived in the property, or will the buyer or seller individually be responsible for such assessments.  Sometimes special assessments are levied over a period of time, such as payment by installment over a number of years or months.  You should consider how you wish to deal with these special assessments prior to listing your property.

Estate Sale

Special considerations apply when selling a property owned by an estate.  Of primary importance is when the sale can take place.  The answer to this question has several layers.  Legally, a final sale and transfer of the property can only happen once a Grant (often referred to as a Grant of Probate or Grant of Administration) has been issued by the Courts.  Depending on the other assets in the estate, the number of beneficiaries and the complexities of the Will, it can take several months before a Grant is issued.  Please review our section on Estates for more details.

In the meantime, someone must take control of the property and ensure bills are paid, common utilities are maintained, and the property is secured.  This is typically done by the Personal Representative (previously known as the Executor or Executrix) of the estate.  Where there is no Will, there may be uncertainty as to the Personal Representative and you should contact our office.  Also, where there is a potential dispute amongst family members or beneficiaries, an emergency application can be done to ensure someone is appointed to look after the property.  However, this is an expensive process and all efforts to reach a consensus must be exhausted.

It is not necessary for the Grant to have actually been issued by the Court before taking possession of the property and getting it ready for sale.  Cleaning, maintaining and repairing the property to get it ready for sale are acceptable and sometimes necessary.

Where everyone is in agreement, the property can be listed for sale before a Grant is issued by the Courts.  Consent from all affected parties including all beneficiaries can allow the listing of the property before the Grant is issued.  We have dealt with estates where a property is listed and an offer is accepted before the Grant is obtained.  In those cases, special wording is used in the Real Estate Purchase Contract so the buyer recognizes the fact that a Grant has not been issued.

Obviously, title to the property cannot be transferred until a Grant is obtained.  

For any other questions regarding the sale of an estate property, please contact our office.