Realty Realities

by Dave Smith, Partner 

New home buyers beware – the price on the front page of your Offer is often not the full purchase price – and the builder/seller has no legal obligation to make full disclosure of extra charges to you. 

I was recently reminded of this issue when reviewing a client’s pre-construction purchase contract for a fee simple town home abutting a common element condominium plan for the roads and amenities in the neighbourhood.  The 81 page purchase agreement was typical for a pre-construction project.  There was a floor plan without measurements of any guaranteed size, with options for the builder to revise the plans, alter elevations or reverse the footprint.  Furthermore there was an obligation to pay a number of undisclosed but unlimited charges.  As is usually the case, the contract was custom prepared by the builder.  Also included were the condominium organization documents.  I have found these documents are usually intimidating and incomprehensible to clients, and they do not bother to read them. 

Buried in the purchase contract and in the condominium organization documents were a number of additional costs to the buyer.  These included Tarion Warranty registration fees; utility meters and connection charges, Transfer preparation fees, just to name a few.  Additionally there were ongoing charges to be incurred in the future by the homeowners under the condominium documents. 

The lessons:  ask about undisclosed charges in the sales office before signing anything, and read the organizational or disclosure statement for the condominium. 

Finally, always have an experienced real estate lawyer review the purchase agreement and condominium documents within the prescribed cancellation or conditional period (usually 10 days). 

Be careful out there!

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', rather CECCs are comprised solely of a specific 'common element', which may include roads, parking facilities, a clubhouse, a marina, etc. These common elements 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.

For assistance with CECCs or other Condominium issues, contact your lawyer.

By Andrew Ain, Partner 

There are many situations where an individual may wish to change their name, marriage being the most common of these. After marriage, many new spouses presume that their nuptials are the only requirement needed to allow them to legally adopt the other spouse's surname. While many may proceed unhindered by only assuming their new married surname, the law actually requires individuals to take action in order to legally adopt it.

If you were married prior to April 1^st, 1987, you may legally assume your spouse's surname and stop reading here. If you were married after April 1^st, 1987, or if you are in a common-law relationship and wish to legally adopt your spouse’s surname, there are steps you must take in order to legally do so.

First, you must be legally married or living common-law with your spouse . Second, you must decide whether you’d like to replace your birtyh name with your spouse’s surname or combine your birth name and married surname using a hyphen. Finally, you must comply with Ontario’s Change of Name Act. The nature of the Act is draconian in that it effectively strips you of all vestiges of your prior identity, but compliance with the Act is necessary in order to legally change your surname.

 Compliance with the Act requires that you:

• Complete and file an Election to Change Surname form. If you are common-law, you will also need to complete and file a Joint Declaration of Conjugal Relationship form. (To obtain these forms, call the Office of the Registrar General at 1-800-461-2156);
• If you file your Election to Change Surname form within 90 days of marriage, or within 90 days of filing a Joint Declaration of Conjugal Relationship form, there is no fee. After the 90 day period there is a $25 fee;
• If legally married, provide a copy of your Marriage Certificate, issued by the proper authority of the jurisdiction where the marriage was solemnized;
• Provide all birth certificates and/or change of name certificates in your possession.

Following compliance with the Act, the Government of Ontario will register your change of name, note it on the birth registration and issue both a change of name certificate and a new birth certificate. If you were born outside of Ontario, the government will only register the change of name and issue a change of name certificate.

In practice, not many newlyweds or common-law couples will take these legal steps and non-compliance won’t cause them much more than minor angst.  In some circumstances, however, you may need to have your lawyer complete a Change of Name Application to clear up a title problem or draft an Affidavit confirming you are the same person as named in your birth certificate.

by John Cockburn, Partner

Question

We sold our home and agreed to a $10,000.00 deposit held by our Realtor.  The conditions were waived a month ago, firming up the sale so we went ahead and purchased another home on a firm and binding agreement. 

Our lawyer just received a letter from our purchaser’s lawyer telling us that the purchasers have changed their mind and bought another house and were asking for the return of their deposit! 

We naturally assumed that we would get the deposit in the event of a default and have other rights against the purchasers…….but our lawyer has been unable…….so far to get a cent for us and her bills are mounting…..what is up? 

Answer 

Unfortunately a real estate deposit in a trust account of a realtor is of little practical value to a vendor.  It is not the realtors fault but the Act governing relators prevents them from releasing the deposit unless either the defaulting purchaser consents in writing or a court order has been obtained ordering the release. 

A defaulting purchaser will seldom “consent” and obtaining a court order will take many months and will cost you thousands of dollars!!! 

Solution

Be certain as a vendor that the deposit is made payable to your solicitor in trust as solicitors are not bound by the realtors legislation!

by Kathryn Whitehead, Associate

In this day and age where a home is likely the largest investment an individual will make, it is always recommended that a home inspection be completed prior to purchase.  Although the law does not require a home inspection in order to complete a purchase, it is likely safe to say that almost all real estate lawyers would suggest one be completed prior to purchase - it just makes sense!  Please, do your homework, reduce your exposure, and ensure you are purchasing your dream home problem free.

WHAT IS IT

 A home inspection is a process whereby a qualified home inspector comes to the premises and does a visual inspection of the property in question to determine the quality of the workmanship as well as the habitability of the property.  The home inspector will generally inspect the house from the roof to the basement and all things in-between.  Some of the main things included in the home inspection will be reviews of the plumbing, electrical, water heater, and heating & cooling systems.  Possibly the most important thing an inspection will reveal is whether the home was constructed according to local building codes and that it is in good standing, so to speak.  In addition to your general home inspection, some home inspectors & inspection companies will offer added services such as water, radon or mold testing for an additional price.

WHO TO GET / HOW TO CHOOSE THE PROPER INSPECTOR

 It is always a good idea to get someone who is qualified and experienced to perform the home inspection.  Some people think that they can save money by getting a friend or family member (who might even be in the construction industry) to complete these inspections, but this is highly discouraged.  The inspector should be neutral, as well as impartial, when it comes to the party requesting the inspection.  This way, the inspector will give a completely unbiased opinion as to the actual state of the property and should not have any tendency to ‘sugar-coat’ or ‘down-play’ any defects discovered.  Further, a qualified home inspector will carry liability insurance so if a claim is made in negligence, there will be a pool of funds to help satisfy any judgment.

WHY IT SHOULD BE DONE ON ALL HOMES (new & old)

Even if the prospective home is only a few years of age, it is still wise to get a home inspection.  If one chooses not to get an inspection on the basis that a home is not very old, the purchaser may end up acquiring something that they didn’t bargain for.  Have you ever heard the saying “Caveat Emptor”?  In the legal world this means “buyer beware”.  It basically is the notion that the purchaser should do all it can within its power in order to ensure that what they are purchasing is exactly what they have intended to pay for, nothing more and nothing less.  If the purchaser fails to do their due diligence and a problem arises after the sale of the home, it is possible the purchaser will be out of pocket for the problem themselves.  In the event that a home inspection had been completed prior to purchase, it is likely that the defect would have been noticed and could have been addressed in the agreement of purchase and sale.

EXAMPLE

 A newly-wed couple purchased a four (4) year old home and decided to forgo a home inspection.  Needless to say, this turned out to be disastrous for them in the long run.  Although a home inspection was suggested,  the couple declined to have an inspector due to the age of the home.  Unfortunately, they took possession to their new home only to find it flooded!   Ultimately, there was a problem with the brickwork & foundation which allowed water to seep through into the house.  This not only caused the couple tens of thousands of dollars in water damage,  but the Vendor’s denied any claim for compensation.  The opposing lawyer claimed caveat emptor applied and that the Vendors were not responsible for the water damage.  Not only did this lead to the clients being out of pocket to fix the problems, but it also meant added legal costs in trying to recover damages from the sellers.

CONCLUSION

 I hope I have made it clear how important a home inspection really is.  Regardless of the age of the home, or the visual state it is in, an inspection should always be completed prior to purchase.  It may cost a few hundred dollars, but it is a small investment that will help protect one of your largest investments and may potentially save you time, money, aggravation and legal costs!

“I am the king of this castle”;  “I am the lord of this land”;  I can do what I want – it’s my land”! 

How many times have you heard these words, or similar ones, from landowners?  They often get quite indignant that someone else should have any control over what they do with, or on, their land. 

And yet, just think about what a chaotic mess we would be in if a landowner was allowed to open a small, toxic chemical plant next to a hospital or nursing home.  Our society is founded on the Rule of Law and that means that we submit to the right of government, be it federal, provincial or municipal (which, after all, are creations of the Crown which ultimately owns the whole country, in theory at least) to impose controls and restrictions on what we can do with our bundle of rights that we call “land ownership”. 

And so we have laws, such as zoning bylaws and environmental controls, that limit what we can do with, or on, our land.  A large body of law has accrued over the decades to deal with land uses and even to decide which municipality should have jurisdiction over what land. 

Our law in Ontario, flowing as it does from English law, is a delicious combination of principles declared over the decades by decisions of Courts of law – we call those decisions “the Common Law” – and of rules created by legislation passed by government. 

We’ll talk some more about how some of these things evolved. 

by Graydon Ebert, Associate

The Government of Canada has recently introduced new rules for all mortgages insured by the Canadian Mortgage Housing Corporation (“CMHC”). The law requires that mortgage insurance must be obtained from CMHC where the homebuyer has made a down payment of less than 20%. The government made 4 important changes to the rules.

1)  The maximum amortization period has been reduced from 30 years to 25. The effect of this change is that monthly mortgage payments will be slightly higher as they will be amortized over less years, but the interest paid over the mortgage will be significantly reduced.

2)   The maximum loan amount that a borrower can get when refinancing has been reduced from 85% of the value of the home to 80%.

3)  The government has introduced limits on the gross debt and total debt ratios that lenders use to assess a borrower’s ability to pay when approving the borrower for a mortgage.

4)  Mortgage insurance is only available for homes with a purchase price of less than $1 million. For homes over $1 million, the borrower must make a down payment of at least 20%.

Now perhaps you are in the market, looking for a new home. Maybe you have already been pre-approved for a mortgage. Maybe you have signed an agreement of purchase and sale and have made a mortgage insurance application. Maybe you have bought a condo but it hasn’t been built yet. Maybe you are looking to refinance or renew your mortgage. If you are in any of these situations, you probably want to know if these new rules will apply to you.

The first thing to remember is that if you make a down payment of 20% or more, these rules do not apply to your mortgage.

The new rules take effect July 9, 2012. They will not apply where a mortgage application has been made before July 9,2012 to satisfy a binding agreement of purchase and sale, financing or refinancing agreement. If your agreement of purchase and sale is dated earlier than July 9, 2012 and a mortgage insurance application  has been made before that date, the new rules will not apply, even if there are outstanding conditions in your agreement that have not yet been fulfilled.

Any new mortgage insurance application received between June 21, 2012 and July 9, 2012 that does not conform to the new rules must be funded by December 31, 2012. This is relevant to those who are considering purchasing a condo in the near future that has not been built. If the purchaser has bought a condo that hasn’t been built and made a mortgage insurance application between June 21, 2012 and July 9, 2012, the new rules will apply if the mortgage is not funded by December 31, 2012. So you have to be careful. If you are thinking about purchasing a condo in the next couple weeks that you won’t be paying for until it is built, the new rules will apply unless you receive the mortgage funds before December 31, 2012. You need to make sure you know when the condo construction will be completed to know whether the new rules will apply.

If you have been pre-approved for a mortgage, but will not sign an agreement of purchase and sale and make a mortgage application before July 9, the new rules will apply to your mortgage.

If you are planning on renewing your mortgage or switching your mortgage to a different lender, you won’t be affected by these changes as long as no new funds are added to the mortgage.

If you are planning on being active in the real estate market or refinancing your mortgage in the next couple of weeks, or have already begun the process, make sure you know if the new rules apply to your situation, and if so how the new rules will affect your plans going forward.

by Joanne McPhail, Partner

by Dave Smith, Partner

Nathalie Tinti has told you about the issues surrounding ownership of the shoreline in front of your cottage (Don’t let an Original Shore Road Allowance (OSRA) Take You by Surprise!). In addition to shore ownership, a major issue that we often see in cottage properties is how you can access  your dream escape on the lake.  If you are fortunate enough, and have probably paid a premium, to obtain a maintained municipal road providing access, you likely do not have a concern. You will want to inquire and ensure that the road is not seasonal only because that would mean that it is probably not plowed or maintained during the Winter.

However, if your access seems to be by a “private” road, a number of possible rights and obligations may apply.

There may be a registered right-of-way or easement to connect a municipal road to your property.  That is a good thing!  The  documents that give the easement or right-of-way will need to be reviewed carefully to determine exactly the rights that you have for travel, and to make sure  that such rights are assignable.  Often there is  an agreement between neighbours who enjoy the benefit of the access route, to share in the cost of its upkeep.  But there often is not, and a more informal relationship exists.  Don’t be surprised when you find out that certain users do not share in the annual maintenance costs. These are usually the people that use the lane the most!  They say that they never wanted the intrusive traffic laden laneway in the first place, and prefer to get to their isolated cabin in the woods by water.

The lesson:  question the neighbours to find out who’s in charge and what are the rules.  Many cottage properties do not have a registered easement or right-of-way at all.  Some try to rely upon the Road Access Act which was first enacted in 1978 to prevent the arbitrary obstruction of an established access route.  The Act has been partially successful but not entirely.  The Act does not create any rights.  The person enjoying the access has no right to improve or alter it.  And the owner of the property over which the access is found has no obligation to maintain it.  So the muddy ruts may have to remain.  You may not be able to expand the route to accommodate your boat and trailer.  But the owner cannot block or obstruct your access.

There is substantial law that deals with prescriptive easements, easements by necessity, equitable easements, express or implied grants, easements by proprietary estoppel, etc. It’s a mess and it’s ugly.

Caution – carefully canvass your legal rights on access.  Be careful out there.

by Nathalie Tinti, Associate 

Knowing that your neighbour down the way was charged for not applying for his permit last year when he built his dock, you realize that you need a permit to rebuild.  And since you are rebuilding anyway, you might as well make your dock into that gorgeous “U” shape 7,000 feet of dock space that you have always wanted!  Off you go to your local Municipal office, full of energy, drawings in hand and a smile that would make your grumpy aunt Fanny May break into song.  Within minutes of being in the Municipal office, you hear  4 words that you have never heard before that are about to throw you for loop… “Original Shore Road Allowance” or OSRAs as we in the real estate business like to call them.

Along with those 4 words comes an explanation as to what it is and why you don’t own it.  And then usually comes a call to your lawyer, because it simply cannot be true that you do not own to the water’s edge of your very expensive cottage property.  Guess what, unless you or a predecessor owner have purchased it, you do not own to the water’s edge of your waterfront property.

In and around Georgian Bay, Parry Sound and Muskoka, 66 foot (or 1 chain as they like to say in the golden olden days) shore road allowances are the rule rather than the exception.  The reason for these original shore road allowances is not thoroughly documented, however, it appears that the reason for them probably dates back to times of logging operations.  These OSRAs provided the lumberman with the right to trespass on private lands to haul logs.

The good news is, most of the time, these OSRAs can be purchased from the Municipality.  Thanks to snowmobilers and ATV operators finding out about the OSRAs and using them as trails, much to abutting property owners chagrin, pressure from tax payers forced municipalities and the Government to sell these ORSAs to abutting property owners in order to secure their privacy.  The real purpose of the OSRAs has long since passed, and municipalities now have the option of retaining them or selling them. 

The process by which this happens will be the topic of my next blog.