Real Estate Lawyer Discusses Agreements of Purchase and Sale
Read time: 5-6 minutes
An Agreement of Purchase and Sale (“ APS ”) is a legally binding contract that is used in real estate transactions. While many people are familiar with what this document is, many people do not take the time to fully read and understand all of the clauses and conditions before they sign.
The Standard Clauses in an APS
The majority of real estate transactions utilize the standard form Ontario Real Estate Association (“OREA”) APS. A custom APS can be drafted, however for most residential transactions the OREA is sufficient.
Here are some of the standard clauses in an OREA APS:
The Closing Date
This is the final date on which the transaction is to be completed. The buyer and seller exchange closing documentation and closing funds through their lawyers and the transfer is registered on title. The seller is also required to provide keys and vacant possession of the property to the buyer.
The Requisition Date
The “requisition date” is the last day the buyer has to conduct title and other searches, at their own expense, and prepare a requisition letter to send to the seller. These searches are meant to identify any potential deficiencies with title, such as a construction liens, mortgages, or easements. The buyer can then require the seller to remove such deficiencies prior to closing.
Irrevocability
When a buyer makes an offer, it includes an irrevocability period after which the offer becomes null and void. This means that the buyer cannot withdraw their offer during this period and if the seller fails to accept the offer within the period the buyer’s offer is automatically withdrawn. Once the seller receives an offer, they can then accept the offer within the irrevocability period, reject the offer, or sign back a counteroffer with a new irrevocability period.
Time is of the Essence
This provision is of particular importance when a party defaults on or is late in fulfilling their contractual obligations in the APS. This provision allows the buyer and seller to walk away from the agreement if the other party defaults on their obligations. For example, if the buyer is late in satisfying or waiving a condition or delivering closing funds, the seller could choose to walk away from the agreement.
Chattels Included/Fixtures Excluded
It is important to detail which chattels and fixtures are included in the purchase. Typically, all fixtures attached to the property by way of screws, nails, plumbing or wiring are included. This can include window coverings, shelving, light fixtures, appliances, etc. However, in order to avoid any surprises after closing it is best to specifically detail which chattels and fixtures are included and excluded. The seller may want to exclude certain fixtures with sentimental value to them.
Adjustments
Adjustments are made to the purchase price to apportion certain charges such as property taxes, utilities or fuel costs, between the seller and buyer. The closing date is usually apportioned to the buyer.
Time and Date
Any reference to a time and date in the APS is referencing the date and time where the property is located. This is an important consideration when either the buyer or seller is located in another province or country, especially considering the potential consequences that can result from the time is of the essence clause discussed above.
Commonly Used Conditions
It is common to add certain conditions to the standard form APS in a Schedule “A” to the agreement. A condition simply means that a certain specified event must occur, otherwise the agreement is void. Once the condition has been fulfilled, the party sends a Notice of Fulfillment document to the other side. A party can also choose to waive a condition if they are unable to fulfil the condition within the specified timeline but still want to continue with the transaction. Once all conditions are fulfilled or waived, the deal is considered “firm”. If the condition period lapses and it has not been fulfilled or waived, the agreement is no longer in place.
Financing
A financing condition makes the offer subject to the buyers being able to obtain financing. Commonly, this gives the buyers 5-7 days to secure financing, but it can be for any number of days the buyers specify. This condition is important because a lot of buyers rely on a mortgage in order to purchase the property. Even if the buyers have been pre-approved for a mortgage, it is advisable to include this condition because the appraisal value of the house could impact the amount of mortgage funds the lender is willing to advance.
Sale of Existing Home
It is common, especially in a hot sellers’ market that is highly competitive for buyers, for individuals to purchase a home before they sell the home they currently live in. This condition allows the buyer to have a specified number of days to sell their existing home, failing which they can back out of the agreement. This is important because without the funds from the sale of their existing home, the buyer may not have other funds to close the deal.
Inspection
Buyers have the option to include a condition that the offer is subject to them obtaining a satisfactory home inspection report. If the home inspector identifies a costly repair, such as a water leak, faulty electrical wiring or mold, the buyer has the option to walkaway from the agreement if they don’t want to incur the cost to fix it. Sometimes the seller will agree to incur the cost to fix the deficiency in order to prevent the buyer from terminating the transaction.
Legal Review
An offer can be made subject to review and approval by the buyer’s lawyer. This gives the buyer an “out” if their lawyer has significant concerns about the APS.
That Certain Work Must be Performed
The APS can specify that the seller must perform certain work by a certain date, such as repairing a leak, servicing a furnace or treating windows. The seller would then have to provide the buyer with proof that the work was completed such as the invoice or certificate from the contractor who completed the work.
Conclusion
Just like any binding agreement, it is best to seek legal advice to ensure that you fully understand your rights and obligations prior to signing an APS. Failure to follow through with your obligations in the APS can lead to litigation and can have serious financial repercussions.
Please contact Michael Paiva at 519.729.5038 or at 416.800.1733 for more information, or if you require assistance with a real estate transaction.
