When you purchase a residential real estate property as a resale property (aka from another seller, not directly from the builder), what is a run-down of legal concerns that you should be aware?
S. 50 of the Planning Act
You should be informed whether the property is sold in accordance with S.50 of the Planning Act. If the transaction contravenes the Act, then it’s considered that you have not obtained an interest in land, although you have purchased it. It essentially voids the transaction, in accordance with s. 50 (21) of the Planning Act.
In the basic sense, S.50 of the Planning Act prohibits one from breaking up land into smaller pieces, and then selling only one piece, without first getting approval from the land development planning department or getting government consent (s.50(3)(f), Planning Act). If one want to sell one’s land and the real estate property on top of it, one must sell one’s entire lot or block of land as per the Registered Plan.
Nevertheless, discovering that the transaction contravenes the Act does not immediately makes the transaction void. All standard OREA agreement of purchase and sale contains a clause (para. 15) that allow the seller to fix this problem. If the seller is able to fix the problem, then the transaction may continue. Otherwise, the transaction fails and cannot continue.
A final caveat is that there are several exceptions to the prohibitions stated in S.50 of the Planning Act, and that is beyond the scope of this article. Please consult a legal professional for further information.
Matrimonial Home and Consenting Spouse
You should be informed whether the property being sold is a “matrimonial home” and whether the “consenting spouse” have agreed to selling this property. In accordance with Part II of the Family Law Act, the married spouse who is not on title to the property still have certain possessory rights regarding the property. Thus, the seller should obtain the consent from his/her non-titled spouse before selling the property.
If the spouse refuses to agree or if no spousal consent was obtained, then the property can still be sold. However, the property would still be subject to the non-titled spouse’s prior possessory rights. So it’s possible that the spouse may come back one day and demand to live in the property that the purchaser have already bought.
If the property is not a matrimonial home, then this must be stated by the seller on the Transfer, and stated again on any Charge/Mortgage registrations.
Outstanding taxes on property should be paid out by the seller. In accordance with s. 349(3) of the Municipal Act, 2001, realty taxes exist in priority to every debt and claim that is registered on property. This is true, even if the city made a mistake or did not register a tax arrears certificate. Thus, it is very important that realty taxes are up to date.
Prior Charges/Mortgages and Security Interests
You should be informed of any existing charges and security interests on the property. A charge is usually a mortgage, but can also be a loan that is secured against the property. A security interest is usually registered by a company that provides household appliance such as a furnace or a refrigerator. If the charges and security interests are not discharged after you bought the property, then you may need to carry those debts.
Of course, you can also voluntarily carry those debts. For instance, if you want to continue to rent the furnace, then you can just let that security interest to remain on title. Nevertheless, you should be informed whether there’s any outstanding payments for the security interest. All security interest holders should be brought up to date (aka have no outstanding payments) before the transfer of property.
As well, you may wish to keep the mortgage on title, if the property is transferred through a Will or as a gift.
Usually, the seller would use the purchase proceeds to pay out the existing charges and security interests. Thus, frequently the seller’s lawyer’s undertaking (promise) to discharge is used in place of an actual registered discharge. You should be diligent in following up with your lawyer after closing and ensure that all discharges are obtained.
You should be informed whether there is any executions against the seller. According to S. 9(1) of the Execution Act, the local Sheriff may take the seller’s land and sell the land in order to pay for the money that the seller owes to the execution creditor.
Therefore, it’s important for the seller to pay back the execution creditor and remove the writs against him/her. Again, most sellers would use the proceeds of the sell to pay back the creditors. Hence, it’s important that the seller’s solicitor undertake (promise) to pay the execution creditors and select the appropriate writ statements on the Transfer.
Easements and Restrictive Covenants
Easements are registered instruments that allow other parties to come onto the property. Common easements are ones registered by the city and the builder to perform routine repairs and maintenance on the property. Sometimes service providers, such as Rogers or Bell, register easements so they can come to your property and maintain their cable lines. Your lawyer should explain the easements to you, and remove any easements that have expired.
Restrictive covenants are registered instruments that tell property owners what they are not supposed to do with their property. For instance, sometimes owners are prohibited from building fences around their property. In other cases, owners are prohibited from undertaking renovations that would interfere with curbs and sidewalks, or affect the operations of sewers and hydro works. Again, your lawyer should explain the restrictive covenants to you, and remove any expired covenants.
Phew, that’s all the legal concerns you need to worry about, right? Unfortunately, in some cases, no! The property you purchased could have violated municipal zoning by-laws. The neighbour’s fences could be encroaching onto your property. The seller could have been impersonated by a fraudster. What do you do – do you hire professionals in every field to prevent all those possible risks?
Not typically. Usually lawyers would recommend their clients to get Title Insurance, which would cover many concerns that were unknown to you and your lawyer at closing. I prefer to use Stewart Title, because they are known to have a relatively easier claim process, should you discover a defect covered under their policy.
This article described a list of legal concerns that typically exist in resale purchases. However, it’s important to note that each resale purchase is different, and there could be additional legal concerns dependent on the specific characteristics of the transaction. It is helpful to recruit a knowledgeable real estate lawyer to help you achieve a diligent and stress-free real estate closing.
This article is only meant to give general legal information. For legal advice on your specific mortgage situation, please consult a legal professional.