Real estate agents are entrusted with helping to find a perfect home or selling a home for top dollar in all types of market conditions. They are also responsible for putting together an MLS listing as well as the Agreement of Purchase and Sale. Being a knowledgeable agent who knows the complexities of a real estate deal could alleviate the stress associated with a purchase and/or sale transaction. However, even the most knowledgeable real estate agents may need assistance navigating complicated regulations and challenges of real estate law. In this article, we discuss some of the issues that we encountered and make suggestions as to how to avoid pitfalls. Our goal is to work closely with real estate agents and provide support where necessary to protect our clients’ rights and ensure as smooth closing as possible.
The Importance of Identifying Rental Equipment in a Sale Transaction
One of the more frequent issues that we see when closing a real estate transaction is an omitted rental item in the agreement of purchase and sale. When selling a property, it is vendors responsibility to disclose to their real estate agent if they have any rental items on the property. If your vendor client is not sure, ask them to take a trip to their basement and look at all the equipment in the utility room. Often, each piece of equipment has a service sticker. Once they jot down the required information, ask the vendor to call the companies on the equipment sticker, and enquire if the equipment is rented and if yes, what is the monthly cost.
Your due diligence process should also include your vendor client calling their real estate lawyer to conduct a title search to their property. Often, equipment rental companies register a notice of security interest against your property, and title search would reveal the list of equipment and provider, if one is registered.
As a realtor, if your client is not sure about what items are rented you can complete your due diligence by inspecting their utility room and getting consent from your client to search their title, yourself. Once you find out what the items are ensure that they are included in the agreement of purchase and sale(“APS”) as either rental items or fixtures to be included in the agreement.
Just as important, if there are any rental contacts registered against the title of the property, add a paragraph in the Schedule A of the agreement of purchase and sale “that the purchase agrees to accept title subject to the rental items registered as instruments YXZ.” In recent years there is some debate whether the buyer should accept title subject to rental contracts as registered rental contracts create clouds on title, even though the buyer agreed to take over a lease of the rental item. Therefore, to be avoid confusion and additional costs on the closing date ensure that your vendor clients rental items are noted in the rental section of the agreement and have a paragraph in schedule A of the APS with a purchaser agreeing to take title subject to rental contracts. It is important to keep an open dialogue with the vendor client to ensure that each party is on the same page about their responsibilities to avoid missed issues.
Obtaining Spousal Consent in Property Transactions
Another issue that could interfere with closing of a real estate transaction is a lack of spousal consent. When selling a property, your vendor client may claim to be single when in fact they are not. Either their spouse is away, or they are going through separation proceedings, circumstance that could lead you to belief that spousal consent was needed.
Ask a real estate lawyer to conduct a title search and enquire if the property is held in one name or two? Was there a recent title transfer? Is there a mortgage on the property? Did a spouse consent to the mortgage? If yes, ask your vendor client questions, where is the spouse that consented to the mortgage? Once title is searched, these questions can be answered. You can also ask your vendor client to clarify any information that you feel is required part of your due diligence process. If your vendor client provides a separation agreement or a divorce certificate you have done your due diligence and can sell the property knowing that your vendor client had full rights to sell it.
An investment property registered in one name may not require spousal consent to sell, however, if all is well in the marital or common law union obtaining consent to sell the property should not raise any objections. If objections are made, make enquiries to protect yourself and limit your exposure to damages.
If your enquiries led you to believe that your vendor client is single, but the sale takes place without consent of their spouse, the transaction may not close if non-consenting spouse resurfaces. However, you may limit your liability and damages by conducting your due diligence.
Chattels, Fixtures, and the Role of Home Staging
Real estate agents often engage a home stager to ensure that the property they are selling looks appealing to the buyers. Photographs taken after staging the property can create confusion as to what fixtures/chattels would be included in purchase price and would form part of the agreement of purchase and sale.
When drafting MLS listing and subsequently the Agreement of Purchase and Sale, discuss with your vendor client if there are any fixtures/chattels that they want to keep. Furthermore, clarify if a certain fixture, sometime window coverings or light sconces, were part of staging process and therefore will be excluded from the APS when drafting an MLS listing.
Understanding the Key Protocol in Property Closing
The agreement often calls for all the keys owned by the vendor to be left on the property for the use of the purchaser. We receive many phone calls after closing regarding missing keys. While this is not a huge issue for a free hold property owner such as a house, as the purchase is able to change the locks at a reasonable cost. The higher cost is associated with missing keys and electronic fob to the condominium units. Condominium board does not allow the new purchaser to simply “change the locks” but rather insist that the new purchaser order new keys and new fobs from the management office. While the cost of this inconvenience is not immense, the purchaser is left with unpleasant association with the transaction.
As a realtor, you could include in the agreement of purchase and sale a paragraph requiring the vendor to agree to hold back amount equal to key replacement should a full set of keys not be left on the property on closing. The holdback will be released to the vendor as soon as all the keys are delivered to the purchaser. This will demonstrate to the purchaser that their realtor anticipates potential issues and finds a solution to them, always keeping purchaser best interests in mind.
Accurate Property Square Footage: Avoiding Legal Pitfalls
It is common for a real estate agent, when listing a property for sale, to indicate the size of the property specifically its’ square footage. In most cases, the owner of the property would have this information if the property was initially purchased from a builder or perhaps an appraisal report was done in the past that noted a size of the property. The size of the property is also noted in the MPAC reports however, the size noted in MPAC report are often inaccurate.
In a recent Ontario Court of Appeal case, a real estate agent stated that the property was a certain size without measuring the property himself and conducting any due diligence to confirm the same. The realtor stated on several occasions that the property is about 2,100 square feet. The buyer, based on this representation and those in the MLS listing about the size of the property made an offer and it was accepted. Prior to closing the bank’s appraiser confirmed that the size of the property was 1,400 square feet. The buyer applied for relief in the court stating that had he known that the property was 1400 square feet he would not have purchased it.
Many cases before this one stated that representations made in an MLS listing that did not form part of the agreement of purchase and sale and cannot be relied upon. However, in this case, Ontario Court of Appeal stated that the should the size of the property published in a listing and not stated in the agreement of purchase and sale be different from the actual size of the property, the buyer may have recourse against the vendor and their agent for misrepresentation.
The judge ruled that rescission of the agreement of purchase and sale for non-fraudulent misrepresentation as to the square footage was appropriate remedy as it was material. The material misrepresentation made the agreement voidable not void. Meaning that the buyer could walk away from the contract if he chooses to with his deposit returned fully. Furthermore, “entire agreement clause” or general exclusion clause in the agreement of purchase and sale did to override a specific representation. If agreement of purchase and sale does not have a specific size of the property noted in it, but MLS listing does, and has the wrong size noted, the buyer could have an option to back out of the deal.
While purchasers’ inspection of the property can determine their expectations, in this case, the judge found that inspection of the property did not. Both real estate agent, the seller and MLS give representations about the size of the property and those representations were relied upon by the buyer. The buyers inspection did not override his expectation that this was incorrect size of the property. The judge did take into account that buyers age, inexperience with square footage, and being a first-time home buyer when considering the reasonableness of his belief.
One could speculate that a more sophisticated buyer may not have this remedy but the fact that listing agents and vendors will be held liable for making misrepresentations that induce the buyer into agreement have been made clear. Therefore, when preparing a listing be mindful of the size, conduct your due diligence and should the information not be available with respect to the size of the property do not volunteer it as a fact.
The role of a real estate agent is a complicated one where the realtor needs to balance their professional and fiduciary obligations to their clients with ever changing landscape of a real estate market. It is important to remember that you can rely on a community of professionals such as real estate lawyer who are more than willing to guide you through a difficult situation or answer even the simplest questions.
In the rapidly evolving world of real estate, agents often navigate complex situations and regulations. While equipped with vast knowledge and experience, there are instances where the expertise of a legal professional can be invaluable. If you are a real estate agent or client facing uncertainties in your transactions, remember you are not alone. MBLAW, a trusted team of real estate lawyers in Toronto, is here to support and guide you through every step. Ensure a smooth transaction and safeguard your interests by reaching out today for expert advice and assistance.