Realty Realities

By George Craig, Partner

Please see also: Barriston Moving Tips Part 1

As your moving day draws closer, revisit your checklist and ensure that you have completed all of your preliminary organizational tasks. At this point, you should have made arrangements with your insurance, moving, cleaning & utility companies – most of which can be dealt with over the phone or internet in the months/weeks preceding your move. All that remains to be done at this point concerns the physical move to your new home. Set aside some time to complete the following tasks:

• Arrangements with Movers: Touch base with your moving company. Ensure that you know what your responsibilities are and what, if any, assistance or information they require from you at this stage.

• Layout Your New Home: Draw a floor plan of your new home and indicate the location of where you would like your furniture placed. This will help the movers on moving day, and also give you a good idea of what furniture you need to purchase/discard. If you can get the furniture placement right the first time, it will save you having to move large items throughout your new home when the movers are long gone.

• Plants and Frozen Foods: Make specific arrangements for the moving of items which require special care including plants, frozen food, mirrors and glass. If you can make these arrangements ahead of time, you’ll have less to worry about on your moving day. Remember that the movers are there to help you – organize and delegate tasks accordingly.

• Clean up: The clean-up of basements, garages and tool sheds are often left until the end of the packing process, and may be overlooked completely. It’s a dirty job, but it needs to get done - set aside a block of time to sort and clean out your garage, basement and tool shed.  Check with your local Municipal Office about discarding hazardous waste, electrical items, tires, and other items that require special disposal. You may also want to look into ‘junk’ removal companies who may be able to dispose of these items for you. 

• Valuables: Gather all of your most valuable possessions, pack them securely, and set them aside. You should plan to move these items with you on moving day.

• Mirrors and Pictures: Mirrors and pictures that are breakable should be left on the walls or in their normal location until you are ready to actually move them. Your movers may be able to help with the removal and wrapping of mirrors and other framed items – ask the pros when it comes to fragile items.

By Graydon Ebert, Associate 

When multiple parties purchase a property one of the important considerations to be made is how the parties’ should take title to the property. There are two options: Joint Tenants or Tenants In Common.

For the parties to take title as joint tenants there must be what is termed the “four unities”: possession, interest, title and time. The unity of possession is present where the parties each have an equal right to possession of the property. The unity of interest is present where the parties’ interest in the property is identical in size and duration. The unity of title requires that the parties’ receive their title to the property from the same document and the unity of time requires that the parties acquire their title to the property at the same time. If the four unities are present, the parties have a concurrent interest in the property in which all of the joint tenants have a unified right of possession to the whole of the property with a right of survivorship.

What is a right of survivorship? Essentially, if one of the joint tenants dies, his or her interest in the property would pass to the remaining joint tenants and would not get distributed pursuant to the provisions of a will. For example, if Adam, Bob and Chris own a property together as joint tenants, upon the death of Adam, his interest in the property would be assumed by Bob and Chris and not to a beneficiary under Adam’s will. If Bob then dies, Chris would be the sole owner of the property.

Taking title as tenants in common is different. When parties take title as tenants in common, they take title to an undivided fractional share of the whole property and do not have a right to survivorship. Tenancy in common only requires a unity of possession. Tenants in common can leave their share of the property to someone in their Will or transfer their separate interest to a third party. Using our above example, if Adam, Bob and Chris own a property together, with each owing a 1/3 interest as tenants in common, when Adam passes away, he can leave his share by Will to his wife Debbie. Then Debbie, Bob and Chris are the owners of the property.

It is important to note, that there are instances where a joint tenancy can be converted into a tenancy in common. If the joint tenants die in a manner where it is unclear as to who survived who, they will have been deemed to have been tenants in common in equal proportion unless there is a very specific intention to the contrary.

Also, a joint tenancy will end if any of the four unities required for a joint tenancy are destroyed. This would result in a tenancy in common and an end to the right of survivorship. The most common instance would be where one tenant transfers his interest in the property to another party. In this case, there is no longer unity of title or time as the third party has acquired his interest at another time and by another document. In this instance, the new party holds a proportionate interest in the property as a tenant in common and the remaining joint tenants will hold the remaining interest in the property as joint tenants. Using the above joint tenants example, if Adam decided to sell his interest in the property to Ernie, Ernie would hold a 1/3 interest in the property as a tenant in common which he could further transfer or bequeath by Will. Bob and Chris would remain joint tenants in respect of the further 2/3 interest in the property and there would remain a right of survivorship, such that if Bob were to die, Chris would own the full 2/3 share of the property as tenant in common with Ernie.

The most common instance where more than one party holds title to a property is where title to the property is held by two spouses. In this instance, the spouses will usually take title as joint tenants as this allows the property to automatically be held solely by the surviving spouse upon the death of the first spouse without the property becoming property of the first spouse’s estate.

Every situation is different and a discussion with a lawyer as to how title should be taken to the property being purchased is worthwhile so that future planning considerations can be made. The Real Estate lawyers at Barriston LLP are available to help you figure out the best way for the parties to take title to the property.

By Nathalie Tinti, Associate

There is much discussion around exempt verses taxable supply of property.  I have been advised by many accountants: the rule is: everything is subject to HST unless there is a specific rule that says otherwise!

A common such exemption relating to real property is the sale of a previously occupied residential home.  A residential home or “complex” is a property used for long term occupancy (normally more than 60 consecutive days) by an individual as a place of residence.  There are, however, several “traps” that could exclude such residential property from exemption.  The following is a brief list of things for vendors and purchasers to watch out for:

1.   Is the Vendor a GST/HST registrant and have they claimed an input tax credit on the last acquisition or improvement of their property?

No matter how small, or even if claimed in error, if there has been an input tax credit claimed a subsequent sale of the property is not exempt.

2.   Is the land being sold comprised of more than half a hectare (1.23 acres)?

Generally, ½ hectare together with the home is exempt from HST.  If the property is larger than this, from a tax perspective there are 2 transfers:  One, the home with ½ hectare, which is exempt; and one for the remainder of the vacant land.  The HST owing is on the value of the land above the ½ hectare.  There is a further exemption if the excess land is necessary for the use and enjoyment of the property (the interpretation of which may be a good topic for my next blog!).

3.   Is there a business currently operating on the property (mixed use?)?

A property containing a residential complex and another component (i.e. a commercial unit) are deemed to be two separate supplies.  There is an exemption for the residential portion of the sale, however, the commercial property is taxable.  There is, however, a further exemption if the property is primarily (more than 50%) occupied by the owner of a relative (for example, a personal residence containing a small portion used as a home office or to operate business).

4.   Has the property been used for short term rental accommodations?

Properties used primarily to provide short term accommodation are taxable when sold.  An example of this is a cottage that is only used to provide short term rentals.  If the property owner also uses the cottage primarily for their own use, the exemption likely applies.

As a general rule, if you are a purchaser of a property, you want to ensure the Agreement of Purchase and sale stipulates the HST is “included in” the purpose price.  Conversely, if you are a vendor, the Agreement of Purchase and Sale should state the GST/HST is “in addition to” to the purchase price.

 Most importantly, although most real estate lawyers can give you a general guide to whether GST/HST is applicable to your sale or purchase, the best practice is to call your accountant, explain your specific situation and obtain his or her advice.

By Graydon Ebert, Associate

Either through an express term of your mortgage or under the statutory provisions set out in the Mortgages Act your mortgage lender has a right to sell your property under power of sale should there be a default in payment of money due under the mortgage after a specified time and after providing a certain amount of notice to required parties.

The purpose of this blog is not to discuss the procedure to properly put a property under power of sale, but rather to discuss a borrower’s right to redeem its mortgage should the property be put under a power of sale.

If the mortgage lender has commenced power of sale proceedings, section 22(1) of the Mortgages Act permits a borrower to bring the mortgage into good standing after default and acceleration of the mortgage debt before an action for enforcement of the mortgage has been commenced and before there has been a sale of the mortgaged property. This essentially means that until the mortgage lender has sold your property, you have the right to repay all money due under the mortgage and any expenses incurred by the mortgage lender and the mortgage lender will not be able to sell your property.

The question becomes: when has there been a sale of the property? There was a discussion in our office about what constitutes a sale, with some arguing that there has been a sale when the mortgage lender enters into an agreement of purchase and sale with a third party, and others arguing that the sale does not happen until the transaction with the third party has closed.

Given, the difference of opinion in the office, I set out to figure out when exactly a “sale” has taken place under the legislation. The early case law interpreted “sale” as the acceptance by the mortgage lender of a third party’s offer to purchase the property. This meant that as soon as the mortgage lender had a binding agreement with a third party to purchase the property, the borrower no longer had the ability to redeem their mortgage and put it in good standing.

Subsequent cases went in a different direction and held that if the agreement of purchase and sale with the third party and the mortgage lender specifically provided that the borrower had to redeem the mortgage up until closing, that the sale is conditional upon the borrower not exercising its right to redeem and therefore is not a “sale” under the legislation until the closing of the transaction.

Obviously, this would explain the different answers in our office. However, a case of the Ontario Court of Appeal, Logozzo v. Toronto-Dominion Bank, seems to have resolved the debate. In this case, the borrower had granted a mortgage to the mortgage lender which went into default and for which a notice of sale was served. The mortgage lender entered into an agreement with a third party to purchase the property which had a clause that the purchaser understood that the borrower had the right to redeem the property up to the time of waiver/expiry of all rights of termination or fulfillment of all conditions. Subsequent to the mortgage lender entering into the agreement to sell the property to a third party, the borrower accepted an offer to sell the property. The borrower requested that the court set aside the TD Agreement.

At trial, the judge held that while a binding agreement of purchase and sale is a “sale” under the legislation, if the agreement contemplated a right of redemption continuing after the date of the agreement then the borrower’s right to redeem was preserved until closing. The Court of Appeal overturned the trial judge and held that a borrower’s right to redeem cannot be extended past the date when the agreement of purchase and sale is entered into with the third party for two reasons. If the rationale behind the previous decision was that the sale was conditional, this was incorrect because the borrower had not yet paid or tendered the redemption funds, and as such the borrower could not rely on its right to redeem. If the rationale was based on the fact that the agreement provided for a right to redeem, it was incorrect because the borrower was not a party to that agreement and could not enforce it.

What does this all mean? If you own a property and you have been served a notice of sale by the mortgage lender, to exercise your right to put the mortgage back in good standing, you must do so before the mortgage lender has a binding agreement to purchase the property with a third party. If you plan on putting your mortgage in good standing, you must act fast or risk the chance that the mortgage lender will enter into an agreement with a third party and you will lose your opportunity.

If your mortgage lender has begun power of sale proceedings against your property, and you want to know your rights, do not hesitate to contact one of our real estate lawyers.

By Joanne McPhail, Partner

Clients of mine recently purchased a property, only to discover on closing that the air conditioner had been removed right before closing.  They now find themselves in the midst of a small claims court action for damages for the loss of the value of the unit – which was only one year old.  The clients had done a walk through prior to making an Offer on the property, and had viewed the air conditioning unit.  They recall remarking that it looked new.  They even went so far as to contact the installer (the company’s sticker was on the unit) to inquire on its age, and were advised that it had been installed that year.

When the Offer was drawn up and executed by the parties, the air conditioning unit was not listed as an exclusion.  Upon realizing, after closing, that it had been removed, we contacted the lawyer for the Vendor.  The Vendor’s position was that the MLS listing did not say air conditioning.  However, our clients’ position was that the unit was there when they walked through the property, and it was affixed to the property, and was not specifically excluded in the Offer, so would have been included in the purchase price.  The case will come down to the “degree of annexation” – was the A/C unit a fixture or mere personal property (a chattel)?  In this instance, pictures of the unit indicate that it was indeed very affixed, both to the building and integrated through the furnace.  We hope the judge sees it the same way.

These are unusual circumstances, however, if you are buying a property and have any doubt about whether something is included – set it out in the offer specifically, just to be safe.  Water softeners seem to cause the greatest amount of confusion in this area, especially since now, they can be plumbed in with plastic tubing and easily removed.  As always, the clearer an agreement can be about the intentions of the parties, the less likely litigation will ensue.

By Kathryn Whitehead, Associate

Every real estate client, whether they be a purchaser, seller or mortgagor, always seems mystified by how much money their real estate transaction is going to cost, and how their money is broken down and applied.  To help you make sense of it all, here is a breakdown and  a few tips about where your money is going. 

Firstly, a portion of the total cost will always be for legal fees.  In typical residential real estate transactions, the Real Estate Lawyer will provide a flat legal fee in order to complete the work requested.  This is the amount you are paying to the lawyer for their expertise.  It is important to note that most lawyers will reserve the right to increase their legal fees if unusual circumstances arise that require additional work outside of the normal transaction.  If your transaction falls of the tracks, make sure you discuss with your lawyer how much additional legal fees, if any, may be added to the original quote provided.

Secondly, a portion of the total cost will always be for disbursements.  Disbursements are costs or expenses that the lawyer or law firm pays in advance on your behalf.  The lawyer or law firm will then look to you for reimbursement on closing.  For example,  disbursements may consist of: title insurance, title searches, tax certificates, execution searches, government registrations, photocopies, faxes, long distance, etc.  It is important to note that every single real estate transaction is different and the total portion cost for disbursements will vary from file to file, but especially between purchases, sales, and mortgages.   Further, some lawyers may lump together their legal fee costs with disbursement costs when giving a quote to a potential new client so make sure you ask them to break down the fees so you understand where you money is being spent.

Thirdly, a portion of the total cost will always be for HST.  Unfortunately, HST is now payable on certain disbursements and all legal fees.  It is important to add this extra percentage when coming up with your total transactional costs.

Finally, if you are a purchaser, make sure you discuss with your lawyer how much Land Transfer Tax is payable on the purchase transaction. The amount is calculated based on the consideration, or purchase price of the property, and is easily calculated.

Hopefully, if I have been successful, the above breakdown and various tips will give you some more insight into your next real estate transaction, and keep you on track with your budget!     Always remember, if you don’t understand how your money is being spent make sure to ask!

By David Lucenti, Associate

Recently, a client was in to see me regarding the purchase of a new home.  He told me that he was intending to make an offer on a new home, but wanted me to review the Offer his agent prepared prior to signing.  I was surprised to hear this, because in most cases today, a lawyer does not see an Offer until it is signed and binding on each party.  I told my client that I would be happy to review the Offer and advised him that having a lawyer review the Offer prior to signing can help avoid difficulties later on and ensure that the client’s best interests are protected.

It is important to obtain as much information about the property as you can prior to reviewing the Offer, so that you can properly advise your client.  Some of questions a the purchaser’s lawyer might consider asking the client include:

• Is there a swimming pool?
• How is the property heated?
• Does the property have a septic system?  Is there a survey?

Once you have a good understanding of the property, you can begin your review of the Offer.  Typically, a lawyer will ensure that the property is properly described in the Offer.  The lawyer can confirm this by searching the subject property in Teraview.

In addition, a lawyer can include escape clauses that will allow you to terminate the Offer if you are unable to proceed with the purchase.  For instance, a client may want to terminate the Offer following an inspection of the subject property or if the client was not able to secure financing for the purchase or unable to sell their present home.  By including such escape clauses, the client can protect themself in the event the purchase cannot be completed.

The purchaser’s lawyer can also advise as to what warranties ought to be included in the Offer. For example, warranties regarding the swimming pool in the backyard or septic system are important to include in the Offer.   The purchaser’s lawyer may also recommend including a clause requiring the seller to provide an up-to-date survey for the property.

Lastly, the purchaser’s lawyer can advise early on as to some of the closing costs involved in buying that new home i.e. land transfer tax, registration fees, title insurance fees, search fees, real estate fees, utility adjustments and, of course, those pesky legal fees.  Often times, a new buyer forgets about such costs and is caught off guard by such fees and finds themselves scrambling on the day of closing to find the necessary funds to close the transaction.

So, for all those purchasers (and vendors) in the market for a new property, I recommend that you call your lawyer prior to signing on the dotted line.

by Andrew Ain, Partner

Common Element Condominium Corporations (or “CECC”’s) are becoming more prevalent in Ontario, particularly in new freehold town home projects and waterfront developments.

A CECC consists of only common elements. There are no “units” but rather, CECCs are comprised solely of a specific common element. The common elements may include roads, parking facilities, a clubhouse, a marina, etc. and are tied to a separate property called a ‘parcel of tied land’ (or “POTL”s). The POTL could be a townhome or detached home, and doesn’t have to be contiguous to the CECC property, as long as it’s within the same land registry division.

CECCs are attractive to developers because they circumvent the need to satisfy municipal road standards required in a traditional subdivision. Accordingly, developers can benefit from fitting more units into a particular land area, and reducing their road construction costs. At a practical level, developers often work with their solicitor to create and sell separate parcels of tied land to each purchaser (in most cases freehold townhomes), which are not part of the CECC. They then create a CECC which includes all the facilities, roads, services, etc., the costs for which will be paid by the purchasers of the POTLs.

The owners of the POTL are responsible for their share of the common expenses relating to the CECC, which is no different than the treatment of expenses in a traditional condominium corporation. Liens for unpaid common expenses are treated similarly and will rank in priority to any encumbrances registered against the POTL, including first mortgages. In addition to sharing the costs of maintaining the CECC’s facilities, however, owners of the POTLs also share the ownership, use and enjoyment of these facilities.

A CECC is permanently tied to its corresponding POTL so that a POTL cannot be sold separate and apart from its interest in a CECC and vice versa. The common interest relationship cannot be severed - the benefits and the burdens run with the land unless the condominium is terminated under the Condominium Act.

Because the POTL is not a unit in a condominium, the purchase of a POTL and an interest in a CECC is completed using a standard agreement of purchase and sale for freehold properties. As such, certain condominium rules will not apply. While the Ontario Real Estate Association agreement of purchase and sale will appear unchanged in many respects, the sale will include schedules (or in some cases, a separate agreement) addressing the purchase of the interest in the CECC.

By Honest Alf Dick – the Little Guy Lawyer

In Blog #4, I mentioned “zoning bylaws” and I’m sure that most of you are familiar with them – but, did you know that our law had controls of use of land long before the first municipal bylaw was passed?

Centuries ago in England, a man owned a successful pub together with a vacant lot next door.  He needed some money so he decided to sell the vacant lot but, understandably, he did not want a pub built there – a pub that could compete and ruin his existing business – and so he extracted from the buyer a promise (we call it “a covenant”) that the buyer would not build a pub on it (at this point it becomes a “restrictive covenant”).  That promise, if broken by the buyer, could be enforced in the Courts to prevent a pub being established there by the buyer.

However, the buyer sold the vacant land to Mr. Third Person and told Third Person about the covenant.  Now Mr. Third Person was not very nice because he wanted to build a pub on that land and he said the covenant was a personal agreement which the seller could enforce only against the buyer, not against Mr. Third Person, even though he knew about the promise.

The seller went to Court and – what do you know – the Court said that, because certain rules had been followed by the seller, the promise was said to “run with the land” and therefore would be binding on nasty old Mr. Third Person as the new owner.  So, no pub on that vacant land.

We still use restrictive covenants today in Ontario – sometimes properly, sometimes not – therefore if you are thinking of buying a parcel of land with a “restriction” on it, talk to your lawyer as to whether it is something that you want to have removed.

By Graydon Ebert, Associate

Recently I was meeting with a client to sign the documents for his purchase and mortgage of a new property. When going through his mortgage, he was puzzled as to why the mortgage was going to be registered for a higher amount that he was actually receiving. Understandably he was also confused why the bank was registering the interest rate on his mortgage at an exorbitant rate instead of the more modest rate that he negotiated with the bank. He was especially surprised when I told him that this practice was relatively common.

Are the banks trying to pull a fast one on unsuspecting home owners? While the banks often, and sometimes deservedly, get a bad rap for hidden fees, charges, etc., in this instance they are actually saving you money and time. How could that be?

More and more often, lenders are using mortgages in more creative ways. For example, they are using them to secure home equity lines of credit that are used not only to finance the acquisition of a property but also a line of credit secured by the equity in property. For example, a property may be worth $300,000. The owner may receive $250,000 in funds to close the deal and a line of credit for an additional $50,000. In this case, we will receive instructions from the lenders to register the mortgage for $300,000, even though the owner is only receiving $250,000 in funds and may never use the line of credit at all. Why? The lender wants the flexibility to enforce the mortgage to the maximum amount they will receive if the credit is extended to its fullest. The alternative is that the lender will register for the amount of funds received by the owner, and each time the owner receives advances from the line of credit, the lender will require that a new mortgage be registered for the new amount of credit outstanding. This is burdensome and costly, as the lender will require you to pay for the cost of the new mortgage and you will have to spend time at your lawyer’s office and the bank signing a new package of documents.

The same reason why lenders will often register at a higher amount than the funds received applies to why they will often register at a higher interest rate than what the parties have agreed upon. Especially where the mortgage secures a home equity line of credit with a variable rate, the lender will register at a significantly higher rate (often prime plus 10%) to give them the flexibility should interest rates rise, so a new mortgage won’t have to be registered if rates go up, saving the home owner the time and expense.

It is important to remember that just because the mortgage is registered for an amount higher than what the lender is advancing you and for a rate higher than they are charging, your actual repayment terms and the applicable interest rate is what is in your mortgage agreement. The lender cannot come after you for more than that. So while it looks like your bank may be trying to catch you off guard, in fact they are saving you a bit of time and money down the road. Now I bet you’re really surprised!