The Agreement of Purchase and Sale
For most people, purchasing a home is one of the biggest investments they will ever make; but often, they have little guidance until they have already signed the contract.
In most cases, the Agreement of Purchase and Sale is not seen by a lawyer until after it is signed. This agreement forms the basis of your legal rights and obligations and must be taken seriously. From time to time, problems arise with the agreements.
Most Agreements used by Realtors™ contain a “Subject to Lawyer Review” clause. It is important to speak to your lawyer within the specified time frame so he or she can review the Agreement with you. If there is no “Subject to Lawyer Review” clause, you should consider speaking to your lawyer prior to signing the Agreement of Purchase and Sale.
Most Agreements of Purchase and Sale also contain clauses that list conditions to which the agreement is subject. For instance, most Agreements are conditional on the purchaser being able to arrange financing. Other common conditions include those with respect to water tests and home inspections. A certain period of time is specified in which each condition must be met. Failure to notify the seller that the conditions were not met within the time allowed may result in your being sued if you fail to complete the purchase. Special attention must be paid to these clauses and the deadlines imposed by them.
Under Nova Scotia’s Land Registration Act (the “LRA”), the Province of Nova Scotia guarantees the ownership of properties. The LRA requires that, in most cases, properties be migrated before they are sold or mortgaged. If the property has not yet been migrated to that system, your lawyer will discuss the process with you. Normally, sellers are required to complete the migration at their expense.
Municipal Taxes and Liens
Municipalities have liens against properties for outstanding taxes and improvement charges. If there are unpaid taxes or improvement charges, the municipality may force the sale of the property to recover the debt.
On closing, the current year’s taxes will be apportioned between the purchaser and seller. Your lawyer will prepare these adjustments for you and review them with you prior to closing.
Your lawyer cannot ensure that a house is actually located on the land being purchased. For this reason, it is in your best interest to obtain a certificate from a qualified land surveyor or, alternatively, obtain a title insurance policy. Surveyors offer purchasers two options: they will either prepare a location certificate (also known as a plot plan) or conduct a full survey. A location certificate 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.
To establish where the boundaries between your property and those surrounding it are located, you must obtain a full survey. In doing this, the surveyor identifies the location of each boundary line and places survey markers in the ground to mark them.
Survey information with respect to the property is often supplied by the seller. As a cost saving measure, purchasers often rely upon this survey information; however, if you 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, a surveyor prepares a new certificate for you and the work is negligently done, you will have direct legal recourse against that surveyor for your loss. In addition, existing certificates will not depict changes which occurred since the date the certificate was prepared. You should advise your lawyer as soon as possible if you wish to retain the services of a surveyor.
Purchasers may obtain title insurance policies. Title insurance companies are federally licensed and regulated and, like all other insurances companies, must have on deposit substantial reserves to protect policy holders. Some of the benefits a title insurance policy offers include:
- Protection against survey problems, e.g. boundaries, encroachments and undisclosed rights of way;
- Protection against building by-law and zoning infractions;
- A duty to defend you against title-related law suits.
Your lawyer can provide you with more information about coverage and cost.
In most cases, purchasers either assume an existing mortgage or, more commonly, 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 lawyer and will forward all necessary documentation to that lawyer’s firm. 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.
You must arrange for fire insurance to be effective as of the date of closing. Most 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 coverage. 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.
Manner of Taking Title
You must decide the manner in which you wish to take title to your property. If you are purchasing property with another person, there are three alternatives open to you: you may take title as joint tenants, as tenants-in-common, or in the name of either one of you individually.
Most couples purchase property as joint tenants. When one of the two people dies, title to the property 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, that person’s 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.
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 business-related debts will not attach to the houses in case of business failure. Should you 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 the breakdown or deterioration of the relationship. If you are considering taking title in one name only, please speak with your lawyer to further discuss the implications.
Deed Transfer Tax
Most municipalities in Nova Scotia impose a Deed Transfer Tax. In most 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 Office will not accept the Deed for registration. As a result, your lawyer will require funds from you to pay the tax and will pay it on your behalf prior to registration of the Deed.
Harmonized Sales Tax
The Federal and Provincial Governments impose HST 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.
Many years ago, most property closings took place in a rather formal atmosphere. The purchasers and their lawyer sat at one side of a conference table and the sellers and their lawyer 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, fax and email, and the documents and money are transferred by courier or electronically; however, your lawyer will usually require a meeting with you before the closing. Prior to that meeting, most lawyers will try to review the adjustments and usually 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 law firm in trust. You must ensure that your lawyer has received these funds in this manner prior to closing.
On the day of closing the purchaser’s lawyer will forward the necessary funds to the seller’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 Office for the appropriate county, and arrange for you to receive the keys. Several weeks after the closing you should receive from your lawyer the registered Deed and supporting documents, including a copy of the Statement of Recorded and Registered Interests.
Purchasing a home is an exciting experience. While you will face many decisions, you should not be intimidated by any of them. Your lawyer is there to help you through the process.
This information has been provided for general reference only. For advice on an actual matter, you should consult a lawyer. To contact a member of our team call us at 902-469-9500 or 1-866-339-3400 or contact us online to make an appointment.