Today, we will go over the Ontario Real Estate Association (OREA) Agreement of Purchase and Sale for resale properties and discuss each clause proposed by OREA and what rights and obligations the agreement imposes on both the buyer and the seller. There are many pre-set paragraphs and clauses, so be ready to spend at least 15-20 minutes of your day reading this post. Let’s dive in!
Most real estate buyers in Ontario choose to employ the services of a real estate agent to help them through the purchasing process. Of course, there is no requirement to use one. However, if you do, expect them to prepare the purchaser’s offer by using the OREA Agreement. What does that agreement look like and how does it work?
It is important to note that OREA provides many different Real Estate sample agreements used by industry professionals. There are different agreements for the purchases and sales of freehold properties, condominiums, assignments, and many more. Today, I will be using the OREA Form 100, or the sample agreement used for the purchases and sales of freehold homes.
In a real estate transaction, the agreement is normally prepared by the purchaser and presented to the seller as the offer to purchase. The Freehold APS consists of 6 main pages, the first page outlines the basic details of the agreement followed by the numbered paragraphs, the execution page, and Schedule A.
The agreement starts with the date of the agreement, the names of the buyer(s) and seller(s) and the address of the property being purchased/sold. The address consists of both municipal and legal designations of the property. Following the address, the agreement outlines the purchase price and deposit to be provided by the buyer as well as the timing of when the deposit is supposed to be provided. Lastly, this section confirms which Schedules form part of the agreement in addition to Schedule A.
Let’s talk about the deposit provided by the purchaser in more detail. When real estate agents or brokers are involved, it is customary for the deposit to be held in trust by the listing brokerage (office representing the seller). This amount will be used to pay out the commission of the agents and any surplus will be returned to the seller upon closing. Should there be a shortfall, the seller’s lawyer is obligated to provide this amount to the listing brokerage upon closing. The amount of the deposit will be adjusted or (deducted) from the final amount to be paid by the purchaser on closing. Should the transaction not go through the deposit can either be returned to the purchaser or lost and surrendered to the seller. An example of a situation where the deposit can be returned to the purchaser in full is the mutual release of the agreement when both parties agree that the agreement does not need to be performed and it becomes a nullity. In a situation where the agreement is not completed due to a breach of the purchaser, the seller will seek for the deposit to be released to the seller as “damages”.
There is a total of 29 model clauses in Freehold APS. They cover the steps of a standard real estate transaction as well as create the rights and obligations of both parties. I will dissect each clause below.
As I mentioned below, the agreement is normally presented as an offer to purchase by the buyer to the seller. This clause provides the seller with exact timing of the validity of the offer. The seller has 3 options of how to proceed with the offer provided to them. They can accept, decline, or counteroffer. Each counteroffer will have its own validity period by which the other party has to respond to the counteroffer. Should there be no action taken by the end of irrevocability period, the offer will become null and void and the deposit will be returned to the purchaser in full without deductions.
This clause confirms the exact date on which the agreement must be completed. This is your closing date. Both parties must exchange the closing documents and funds by 6PM on the closing date. The seller must provide the purchaser with vacant possession of the property by that time, once all the other conditions of the agreement are satisfied, unless otherwise agreed between the parties. Please note that the registration of the title transfer in the Registry Offices can only take place until 5PM on any given business day. Therefore, in an event of the closing taking place between 5PM and 6PM on the closing date, the agreement could be completed pending registration which will take place the next business day. The purchaser will be entitled to take possession of the property as per the agreement and the seller will be entitled to the proceeds of sale being released to them by their lawyer. It is important to note that it is also possible to agree to hold keys and funds in trust with the lawyers, pending registration the next day. These agreements are made between the respective lawyers following the instructions of their clients.
During the course of the completion of the agreement, many notices will be given to each party, be that the amended agreement clauses or notices regarding the conditions in the agreement. When employing the services of real estate agents, the agents and their respective brokerages become the authorized agents of the parties. This clause allows to include additional contact information (email and fax) of the parties for the delivery of notices.
Chattels are personal property of the seller which, by default, is always excluded from the agreement unless expressly included. Although there is no clear-cut definition of chattels, the general rule is that any property which can be removed from the property without damage (having to detach it from the property) will be a chattel. Kitchen appliances or yard maintenance machinery. The buyer must outline all chattels that the buyer wants to be included in the purchase in this clause. The seller also confirms that both the chattels and fixtures are free from any liens and encumbrances and will be transferred to the buyer outright.
Unlike the chattels, fixtures are items affixed to the property, and by default are included in the purchase. Again, there is no clear definition of what falls in the chattels category, and this area of law is a disputed one. Nevertheless, you can follow the general rule that if you must remove at least one screw to detach the item from the property, it will most likely constitute a fixture. Because all fixtures are included in the agreement unless explicitly excluded, the seller must take great care to outline all items that they wish to take with them after the sale is completed. Some common examples of what may constitute a fixture are lighting fixtures, window coverings, and kitchen cabinetry.
This is a very important section as it deals with all those items not included in the sale as they are not owned by the seller. Often those items include, but not limited to, hot water tanks, furnaces, AC systems, and solar panels. If the equipment is listed in this section, the buyer must assume the rental contract on or before closing. In addition, the seller must confirm that the assignment documentation will or will not be available to the buyer on closing.
In a standard resale transaction (resale of a used residential complex), HST is normally not applicable. This must be confirmed by the seller on or before closing (by way of a declaration signed by the seller at their lawyer’s office). HST may be applicable if the property had been significantly renovated or remodelled (90% of interior gutted and rebuilt), and if the property had been used in a course of a business by the seller (i.e. short-term rentals).
This clause provides a deadline by which the buyer’s lawyer must complete a title search and review any instruments registered on title, if there any executions against the seller to make sure that their client is getting “good and marketable title”. Read more about title searching in this blog.
The seller is only required to confirm the current use of the property in accordance to local zoning and land planning by-laws. Any future use by the buyer which may be inconsistent with the current use will be the buyer’s issue which they will have to deal with themselves.
Whereas paragraph 8 deals with the deadline for the searching of title, this paragraph deals with a brief definition of good and marketable title. Although, there is no explicit definition, this paragraph confirms which instruments must be accepted by the buyer. Those instruments are:
In short, this paragraph allows for instruments which allow for owner’s use and enjoyment of the property by way of supply of municipal and utility services to the property.
This paragraph provides instructions as to how the closing process is to take place between the lawyers. The registration of the title transfer is to take place electronically (as opposed to paper registration previously used in Ontario) and the required documents and funds are to be held in trust pending registration of the title transfer. There are, of course situations where the keys and funds can be released by the lawyers upon mutual agreement of the parties. These situations mostly happen when the funds are provided to the seller’s lawyer between 5PM and 6PM on the completion day, because the Land Registry Offices close at 5PM even with the use of electronic registration.
According to this paragraph, the seller is only required to provide the buyer with the documents relating to the property which are in their possession. The buyer, in turn, cannot ask the seller to produce any documents not in the seller’s possession (i.e. a new survey completed specifically for the buyer). This relates to various property certificates, surveys, and rental contracts.
In addition, when the seller has mortgaged the property to an “institutional lender” (as opposed to a private one), it takes the bank a while to process the payment through its numerous departments and register a discharge (release of their interest) with the Land Registry Office. Due to this common occurrence, this paragraph creates an obligation for the purchasing lawyer to accept the seller’s lawyer’s undertaking (personal promise) along with the current mortgage statement and the seller’s direction (written instructions) to their lawyer to pay their lender the required amount in lieu of the registered discharge on the closing date. The same cannot be done with private mortgages.
The real estate market fluctuation often prone the buyer to close on a property with minimal conditions to win their bid. This paragraph explicitly confirms that the buyer had had an opportunity for an inspection of the property and chose not to have a professional inspection done. Should the buyer want to have a professional inspection of the property completed, this should be noted in a schedule to the agreement.
Based on the heading of this paragraph, it is not hard to figure out what it deals with. Until the sale is completed, the property remains a responsibility of the seller, who is required to maintain adequate insurance policy until the property is transferred to the buyer. Should any damage occur at the property, the buyer has a few options:
There are scenarios where the buyer may be assuming the seller’s mortgage or the seller themselves becomes the purchaser’s lender (by way of Vendor Take Back Mortgage). In this situation, the tables turn, and the buyer is now the one who is required to provide an insurance policy confirmation to the seller.
Planning Act is a topic that I find the most difficult to explain to my clients. The rules imposed by the Act are extremely complicated and require a lot of time and effort to understand fully.
This section provides that the agreement only creates a valid interest in land if the seller has complied with the subdivision control provisions of the Planning Act. Planning Act violations could nullify the transaction years after its completion which could have devastating consequences on mortgages and further interests registered on title.
The parties’ respective lawyers are responsible for the preparation of the documents which their clients need to execute with the exception of the transfer document. The transfer in its electronic form must be prepared by the seller’s lawyer (at the seller’s expense) and sent to the buyer’s lawyer for review and completion of the Land Transfer Tax portion.
Everyone often talks about the consequences of buying real estate as a non-resident, however, what happens if you sell real estate as a non-resident? If the seller is a non-resident, they will be required to pay Canadian non-resident withholding tax. The buyer will be required to hold back from 25-50% of the sale proceeds depending on the situation until a Certificate of Compliance is received from CRA.
Your lawyer is the person responsible for the preparation of the final accounting for your purchase or sale, albeit, this accounting is very basic. First the amount due to the seller subject to adjustments is determined and recorded on the statement of adjustments. In accordance with paragraph 18, these adjustments include:
Secondly, your lawyer will prepare a trust ledger. For a buyer, the trust ledger confirms the total amount due from them to the lawyer after taking into the account the mortgage the buyer is approved for, the amount due to seller, land transfer tax, and legal fees and disbursements. For a seller, the trust ledger would confirm the amount received from the buyer, mortgage paid by the lawyer, legal fees, and the total remaining amount due to the seller.
Read more about the closing process in the blog post next week and the closing costs and considerations here.
Each property in Ontario is assessed on an annual basis to confirm the value of the property used in property tax calculations. Depending on the market landscape and potential upgrades done to the property, its value and therefore taxes may go up significantly following the closing. This paragraph confirms that in an event of an increased property assessment, the purchaser will not pursue a claim against the seller due to increased property taxes due from the new owner.
As with most contracts, time is of the essence in the OREA agreement. This means that the deadlines provided by the agreement are not taken lightly and they must be complied with accordingly. Should there be a change in timing, it must be mutually agreed upon by the parties in writing. If a deadline is not complied with and no written amendment has been done, the party who was supposed to comply with a deadline is in breach and there is a chance that the agreement may be at its end with the consequences to follow.
In order to complete the agreement, both parties have certain obligations to perform on closing date. These obligations include delivering certain documents and funds to the opposite party.
The paragraph also confirms the method of delivering the funds – money must come from the lawyer’s trust account in the form of a bank draft, certified cheque, or a wire transfer.
Family Law Act creates certain property rights for spouses who are not on title of their family home. These rights provide that the family home, also knowns as matrimonial home, cannot be disposed of or encumbered without the consent of the spouse not on title.
The agreement provides that no such rights exist unless the consenting spouse signs the Spousal Consent portion located on the Execution Page of the agreement.
Urea Formaldehyde Foam Insulation or UFFI has been banned in Canada since 1980 and most newer houses in Ontario do not contain UFFI at the property. This paragraph is a warranty by the seller that while they have owned and occupied the property no UFFI was used.
As previously mentioned, real estate agents cannot provide legal advice to their clients. That is also true with accounting and environment advice. The parties are required to retain licensed professionals to obtain legal, accounting, and environmental advice.
This paragraph gives the seller the right to obtain the buyer’s credit check in order to make sure that the buyer is able to complete the agreement as agreed between the parties.
OREA standard agreements are extremely useful for any real estate transaction. However, they also provide the parties with the flexibility as it allows the parties to opt out of any pre-set provisions by including their own provisions in schedules to the agreement.
Furthermore, the paragraph confirms that any changes or amendments to the agreement must be in writing and any oral agreements between the parties are replaced by this one written agreement.
This paragraph allows for the agreement to be signed by way of electronic signatures.
OREA agreements are mainly used in Ontario, where there are 2 time zones. Any reference to the time shall refer to the time zone of the location of the property. This time shall be used for closing.
The agreement binds the heirs, successors or assigns of a party to the agreement who passes away before the agreement is completed. This is the section of the agreement where the parties sign to indicate their intention to be bound by the terms of the agreement. In addition, if the property sold is a matrimonial home and the spouse occupying the property is not on title to it (and therefore is not one of the sellers), they would sign this section as a consenting spouse.
Any non-standard terms would be added to the schedules of the agreement. This includes any conditions the parties choose to add to the APS. The offer can be conditional on anything the parties agree to, however, more often than not, it is conditional on the following 3 items:
In conclusion, the Ontario Real Estate Association (OREA) Agreement of Purchase and Sale, particularly the OREA Form 100 for freehold properties, emerges as a critical and detailed framework governing real estate transactions in the province. Our exploration of its clauses, ranging from transaction details to deposit considerations, model clauses, and specific provisions on various aspects, reveals its comprehensive nature. This document meticulously outlines the rights, responsibilities, and obligations of both buyers and sellers, emphasizing the importance of professional advice and adherence to legal standards. As a dynamic and adaptable tool, the OREA agreement stands as an essential guide for real estate professionals, ensuring a structured and informed approach to the complexities of real estate transactions in Ontario.
