Introduction

Often, married spouses would want to make their Wills together. What are the key points they should keep in mind when doing so?

middle aged couple

Mirror vs. Mutual Wills

In a Mirror Will, an individual gives real estate, cash, or other assets to the surviving spouse, to be used in any way that the spouse pleases. This means that the surviving spouse may make a new Will upon the other spouse’s death.

 

In contrast, in a Mutual Will, the spouses agree that they will not change their own Will upon their partner’s death. This means that the surviving spouse may need to follow any restrictions that the deceased spouse placed on how the estate is to be used.

 

According to case law, in the event that there is no written agreement that the Wills between spouses are Mutual Wills, the Courts will likely treat them as Mirror Wills.

 

Family Law Act

Under the Family Law Act (FLA), the surviving spouse is entitled to choose between his/her entitlements under the Will or under the FLA. The surviving spouse cannot choose both the Will and the FLA entitlements, unless the Will explicitly allow for this double dip.

 

Under FLA, the surviving spouse is entitled to half of the difference in net family property between the two spouses. Basically, it’s intended to measure each spouse’s increase in net worth during marriage (for more details including how this is calculated, please consult your Family or Estates lawyer).

 

In addition, this legislation gives mandatory possessory rights to the surviving spouse regarding the matrimonial home.

 

In many cases, if there is a big difference between the spouse’s increase in net worth during marriage, then FLA entitlements may be more favourable for the surviving spouse. It’s good to keep this in mind when considering your Will.

 

Exclusion from Community of Property/Net Family Property

As mentioned above, upon the death of a spouse or the dissolution of marriage, each spouse is entitled to Net Family Property (NFP) (in Ontario), or Community of Property as it’s referred in other Canadian provinces (same concept, just different names).

 

So if you are worried that any gifts you give to your child may be taken by their spouse after divorce, worry not. According to S.4(2) 1. of FLA, any gifts or inheritance that is given to one spouse after marriage is excluded from the Net Family Property, meaning that the other spouse would not have rights towards it upon marriage breakdown. In most Wills, this point is reiterated again in a standard clause.

 

An important note is that any gifts to one spouse must clearly state that it’s meant for one spouse only and be excluded from NFP. Any gifts that is meant for the “family” or “family as a whole” would likely be interpreted as forming part of the NFP.

 

What happens if one spouse receives inheritance before marriage? Unfortunately, if you did not make a Will in contemplation of future marriage, then the inheritance before marriage is treated like any other pre-marriage asset. The value of the gift/inheritance itself at the date of marriage would be excluded from NFP. However, the rise in value of the gift throughout the marriage would be included in the NFP.

 

Jointly Owned Assets

Usually, if an asset is jointly owned by both spouses, then each spouse either takes title/ownership as Joint Tenants or Tenants in Common. The most striking difference is the Right of Survivorship.

 

If you both took title as Joint Tenants, then the surviving spouse would be entitled to 100% of the asset upon the passing away of the other spouse. For example, if you both own a house as Joint Tenants, then after one passes away, the entire house would be passed down to the surviving spouse, to do as he/she pleases.

 

In contrast, if asset is owned by Tenants in Common, then each spouse would only have a certain percentage to the asset. So if you both own 50% of a house as Tenants in Common, then upon one’s death, the surviving spouse would only be entitled to 50% ownership interests in the house. The other 50% would become part of the deceased spouse’s estate and pass down in accordance with his/her Will instructions.

 

If, prior to making the Will, you did not specify whether you and your spouse take title as Joint Tenants or Tenants in Common, then you may so state in your Will.

 

Conflict of Interest

As some may know from experience, there are many areas where spouses can develop disagreements when drafting their Wills together.

 

Spouses must keep in mind that when they recruit the same lawyer to draft their Wills, then:

  • The lawyer cannot keep any information confidential from any party. For instance, if Joe and Mary did their Wills with the same lawyer, and then later Joe tells the lawyer to change his Will without telling Mary, the lawyer cannot do so.
  • If there is a conflict or disagreement that the spouses cannot resolve, then the lawyer cannot continue to act for both of them. Let’s say Joe want to make Mutual Wills but Mary insist on Mirror Wills, then the lawyer must withdraw from acting for both of them.

 

Conflict of interest may become especially apparent, if one or both spouses have children from a previous marriage. If a disagreement cannot be resolved, then it may be more ideal for each spouse to have their own Wills & Estates lawyer.

 

Conclusion

As apparent from this article, drafting Joint Wills come with its host of legal considerations and concerns. It’s important to work with your representative and make informed, important decisions on the basis of sufficient legal knowledge.

 

This article is only meant to give general legal information. For legal advice on your specific Wills & Estates case, please consult a legal professional. 

 

Yi Dan (Sabrina) Ding 
Principal Lawyer 
Varity Law Pro. Corp. 
Tel: 416-477-5439 
Fax: 1888-620-4752 
Email: sabrina@varitylaw.ca
Address: 95 Mural St, Unit 600
Richmond Hill, ON, L4B 3G2
www.varitylaw.ca

Say you want to purchase a property but the first mortgage amount is insufficient. Or perhaps your less-than-ideal credits disqualify you from getting bank mortgages. Maybe you need some urgent money to help you get through a tough time. In those and other situations, some borrowers may consider getting a second or subsequent mortgage behind their first mortgage. What are some basic concepts you should know about when getting those loans?

 

mtg-application

 

What Constitutes Default

What constitutes “Default” is one of the most serious terms of a Mortgage Commitment. Simply put, it’s what you are supposed to do as borrowers, and also what you are not supposed to do. Commonly, you are supposed to make monthly payments to the lender, pay property tax, and maintain home insurance. You are not supposed to tear down or damage your mortgaged property. In addition to the standard charge terms, what may constitute default is also specific to each lender and the Mortgage Commitment that they require you to sign. In the event that you have defaulted in making mortgage payments, the lender may make the principal amount of mortgage immediately due in accordance with s. 7(1)1.ix of the Land Registration Reform Act. Also, as stated in s. 24 of the Mortgages Act, lender may start Power of Sale procedures, which involves taking away and selling your property to repay the loan after you missed three months of payments (aka. defaulted in payments). Nevertheless, usually you can stop this acceleration clause and the power of sale procedures if you pay back all arrears and expenses before the lender starts any claims or before the lender completes this sale of the mortgaged property.

 

So what’s different when you loan from a second or subsequent lender? One possible difference is that when you default under your first lender and your second lender finds out about this, then the second lender may choose to remedy the default for you. This may happen when you miss monthly payments to your first lender, then your second lender will use their funds to keep your first lender up to date, while informing you that you have now defaulted under the second lender.

 

Why would the second lender do this? Commonly, it’s because they want to control the Power of Sale process in case you no longer have the ability to pay back the mortgage and they must sell off your property in satisfaction of the loan. The second lender wants to be the one who sells the property, usually because first lenders will incur a high fee during the sale, so that there’d be less money left for the second lender when the property is sold.

 

How would the second lender know that you have defaulted under the first mortgage? Usually, the second lender will require you to sign an Authorization that allows them to obtain mortgage statements and information from the first lender periodically. Often, if you want that additional mortgage, you’d have no choice but to sign this document. Now, when this happens, it’s usually not good news for the borrowers, because the second lender’s mortgage interest is usually higher than the first lender’s. Hence, when the borrowers are in shock of discovering that they have now defaulted under the second lender, most second lenders will simply shrug and say it’s within their rights to keep the first lender up to date, and in most cases they are correct.

 

Term

Usually second and subsequent mortgages have a term that is shorter than the first mortgage. When reviewing the Mortgage Commitment, it’s important to understand how long the term is, and whether there is an option to renew at the end of the term.

 

It’s important to understand the difference between amortization and term. Amortization is how the lender calculate the amount of your monthly payments. Term is the actual time the lender gives you to pay back your loan. Typically, the amortization period is much longer than the term. Simply put, amortization is comparable to minimum payments that the lender is allowing you to pay each month. This means at the end of the term, you will usually need a large lump sum payment in order to pay off the mortgage. Borrowers should be prepared to dish out this lump sum payment at the end of the term, or else the Borrowers may need to renew the mortgage (if possible) or seek other refinancing options. Otherwise, even if the Borrowers have been making monthly payments, not making this lump sum payment would likely result in the Borrowers being found in default.

 

When second or subsequent lenders offer a renewal option, it’s important to review whether there are conditions attached to the renewal. Some common renewal conditions include a higher interest rate or a shorter term.

Closing Documents

In many cases, borrowers who are getting a second or subsequent mortgage are in a hurry to get this money in order to use the mortgage funds to refinance their property, to put money into their business, etc. However, borrowers should understand that the solicitor for the second & subsequent lenders must protect their client and complete due diligence. While the due diligence required differ from case to case, there are three common things that most solicitors will request.

 

First, the lender’s solicitor may require the borrower to put the second or subsequent lender as an additional loss payee on their Home Insurance. They require this because in the event that the property is destroyed, they’d use the insurance proceeds as security. It is important to check with your Home Insurance to see if this can be done. In most cases, you can simply call the insurance company and instruct them to add the new loss payee. However, some home insurances will put a cap on how many loss payees they can accommodate. From experience, we know some insurance companies will stop at three lenders as loss payees.

 

Second, the lender’s solicitor may require a mortgage statement showing the outstanding balance and showing whether you have defaulted with the first lender. Typically, the lender’s solicitor will request the statement themselves with your permission. This process may take from a few days to one week or two.

 

Third, sometimes there are security interests registered on your property. This typically happens if you purchased a furnace, air conditioning system, or a large appliance that you are paying off on a periodic basis. In those cases, some lenders may ask the security interest holders to postpone their interest behind the lenders’ interests. Again, this process may take some time, depending on the specific security interest holders.

 

Conclusion

Since getting second and subsequent mortgages are generally riskier than first mortgages, you will be more protected if you consult a lawyer before signing the Mortgage Commitment. Of course, recruiting a knowledgeable lawyer through the relatively different closing process will significantly reduce your stress during the mortgage transaction.

Yi Dan (Sabrina) Ding 
Principal Lawyer 
Varity Law Pro. Corp. 
Tel: 416-477-5439 
Fax: 1888-620-4752 
Email: sabrina@varitylaw.ca
Address: 95 Mural St, Unit 600
Richmond Hill, ON, L4B 3G2
www.varitylaw.ca

Many people are unaware of the major benefits of making a Will, or the difference between buying a standard Will template as opposed to working closely with a lawyer to draft a tailored Will.

 

This article summarizes several out of many advantages of recruiting a lawyer to construct your Will.

old person concerned

 

Unnecessary Delays and Expenses if You Don’t Have a Will

The appointment of an Estate Trustee is crucial in distributing your assets in a smooth and efficient way. When you make a Will, you would choose a person to be this Estate Trustee. This person is usually a trusted family member or a friend, and this person can also be a beneficiary to the Will.

 

With a Will, the Estate Trustee may apply for a certificate of appointment with ease. Without a Will, there could be major confusion regarding who should become the Estate Trustee, especially if more than one person is competing for this position. This will likely lead to unnecessary delays and complications. Before an Estate Trustee is appointed, many types of assets would just be sitting there, unable to be distributed.

 

This is especially emotional draining if family members don’t have enough money to make funeral arrangements, and they cannot get access to estate money. Again, this is because without a Will, it’d likely take more time for an Estate Trustee to be appointed and more time to figure out the intentions of the deceased regarding how to distribute the estate.

 

Furthermore, if you don’t have a Will and passes away with assets that still have debts, such as a house with an existing mortgage, then the lenders would typically require the debts to be paid out before the house can be passed on to your beneficiaries. Sometimes, your estate may not have enough liquidated assets to pay off the mortgage, and the bank may take away your house and sell it in exchange for the mortgage. However, if you have a Will, you can choose to have the house pass on to your beneficiaries with the existing debts attached. Then, your beneficiaries may negotiate with the mortgagors to amend the mortgage terms (as ownership has changed) and continue to make monthly mortgage payments.

 

Intestate

When you passes away without setting a Will (“intestate”), then Part II of the Succession Law Reform Act (SLRA) would govern how your assets would be passed down.

 

Under this section, your married spouse would often get the lion’s share of the assets. The spouse would receive the “preferential share” of the estate, which is currently set at $200,000.00 as per Ontario Regulation 54/95 (1). This means that even if you have children, this $200 k would still go to the spouse. Now, if your net asset is less than $200,000.00, then the entire net asset would go to the spouse.

After receiving the $200 k, the spouse is further entitled to the following:

  • If there’s only one surviving child, then the spouse and child would each get 50% of the leftover assets;
  • If there are two children or more, then the spouse would get 1/3 of the leftover assets, and the 2/3 would be equally distributed among the children.

 

So, if you do not want the assets to be divided this way, it is wise to create a Will specifying how the assets should be distributed.

 

Gift Over – per stripes or per capita

When drafting a Will, it’s important to anticipate certain situations and make decisions in case they arise. A common anticipation is the unfortunate situation where your child passes away before you do.

 

In this case, you can distribute your assets in one of two ways. You can divide the assets per capita. Let’s say you have three children and one unfortunately passes away before you do. Then your assets, which were meant to split 3 ways between your 3 children, will now be split 2 ways between the 2 surviving children.

 

Or, you can divide the assets per stripes. Using the same example, let’s say you have 3 children and the child Sam unfortunately passes away before you do. You are still going to divide the assets 3 ways, with Sam’s 1/3 share going to his children equally.

 

Without a Will, the assets you are leaving to your children will automatically be divided per stripes according to s. 47(1)(2) of SLRA.

 

Estate Administration Tax

In Ontario, the lucky people who inherit assets do not need to pay tax on it. However, there is still Estate Administration Tax (ETA) which would be paid by the money in the estate. Subject to certain exceptions, the Estate Trustee would pay this tax as below:

  • For the first $50,000.00 of the estate — $5.00 per $1000.00 of estate value
  • For all estate value in excess of $50,000.00 — $15 per $1000.00 of estate value

 

A Wills & Estates lawyer would be familiar with the exceptions to ETA. In situations where there are many exceptions, it’s best to draft two Wills – one with assets subject to ETA and one with assets not subject to ETA. This makes the assets nice and clean for the adjudicating judge. As well, it may result in a significant amount of tax money saved, allowing more estate to be distributed to the beneficiaries.

 

Trusts


Often times, parents would to leave behind assets to their children but are afraid that they’d blow it all in one year… or even in a couple of weeks? Or the fear is that the children would spend it on a fun but wasteful trip across Europe rather than on their education or careers.

 

In those cases, parents may set up Trusts in their Wills to dictate how the money left to their children should be spent. For example, parents may decide that only a certain amount of money may be released to their children per year, to ensure they don’t spend all the money at once and having nothing left for the future.

 

A Wills & Estates lawyer can present various Trust options and properly draft them in the Will(s).

 

Power of Attorney

Another anticipated situation is when you become unconscious and/or loses the ability to make rational decisions. Often, you would want trusted family members to make decisions on your behalf in those situations.

 

When you still have a clear mind, you can decide who would make those decisions by creating Powers of Attorneys.  Under a general Continuing Power of Attorney, the assigned attorney may make any decisions that the grantor could make, except to make a Will.

 

There are two main types of power of attorneys. The power of attorney for property allows the attorney to make all decisions regarding the grantor’s property, including real estate property, assets held in a safety deposit box, bank accounts at financial institutions, etc.

 

The power of attorney for personal care allows the attorney to make decisions regarding nutrition, shelter, clothing, hygiene, safety, and health care on behalf of the grantor.

 

Of course, if you believe that this power is too broad, then you can instruct the Wills lawyer to draft restrictions. You may restrict the Power of Attorney’s decision-making powers to certain type of properties. For instance, you can dictate that the attorney may only give instructions regarding your real estate property.

 

Or, you can restrict the Power of Authority’s authority in time. Commonly, the power of attorney is set to not begin until the grantor becomes mentally incapable of making decisions.

 

Things may get troublesome if you don’t have Power of Attorneys in place and you became incapable of making rational decisions. In that situation, a family member, close friend, or someone else in your life may apply to the Court to become your Power of Attorney. However, if it’s unclear who is suitable to become your Power of Attorney, and there are more than one person competing for this position, things will likely get messy.

 

Also, if the Court determines there is no suitable person to fulfill this role, it may appoint a government official through the Office of the Public Guardian and Trustee.

 

Thus, to have more certainty, it’s more ideal to have Power of Attorneys in place.

 

Conclusion

In addition to those considerations, there are many other areas in Wills & Estates that are best handled by a Wills lawyer, such as foreign assets, corporate shares, leaving assets to adopted children, etc. Having a knowledgeable lawyer walk you through this process will help you better execute your wishes and avoid any unnecessary complications in the future.

 

This article is only meant to give general legal information. For legal advice on your specific Wills & Estates case, please consult a legal professional. 

 

Yi Dan (Sabrina) Ding 
Principal Lawyer 
Varity Law Pro. Corp. 
Tel: 416-477-5439 
Fax: 1888-620-4752 
Email: sabrina@varitylaw.ca
Address: 95 Mural St, Unit 600
Richmond Hill, ON, L4B 3G2
www.varitylaw.ca

If you are thinking of starting your own full time or side business, it’s very important to select the most suitable business structure from the beginning.

There are many business vehicles that exist, each with a different degree of risk/liabilities and tax consequences, and each with its unique advantages and disadvantages.

start business

 

Sole Proprietorship

Sole proprietorship is the simplest business structure, where you are the only owner of your business. Anyone who works with you are considered your employees or independent contractors.

Advantages:

  • Easy and inexpensive to set up
  • Working for yourself à less likely to have disagreements or stalemates with co-owners or partners

Disadvantages:

  • Unlimited liability
    • All business earnings are your personal earnings
    • All business losses are your personal losses
    • If anyone sues your business, they can also come after your personal assets such as your car or house

Licensing

  • While sole proprietorship is easy to set up and operate, you still need to obtain all relevant licenses required for your business
  • There are federal, provincial, and municipal licensing requirements
  • For most small businesses, the municipal license requirements are the most relevant, and those requirements may different significantly from city to city.
  • Examples (City of Toronto): liquor license, commercial parking lot license, hair styling license.

Other Restrictions and Compliance Issues:

  • Example: some Toronto areas are considered “Toronto’s Business Improvement Areas”; if your business is situated in those areas, you must follow their rules regarding whether and where you can place physical signs and how you can decorate your exterior physical premises

Tax:

  • Very similar to employment income à all earnings and losses are included in your personal income, and then your personal income is taxed at the marginal tax rate that’s applied to individuals
  • “Source of income”
    • Only income and losses in the same category can be used to deduct against each other
    • Example: capital losses may only be used to deduct capital gains, and cannot be used to deduct employment income

Partnership

Generally speaking, partnership refers to any relation that subsists between persons carrying on business together with a goal of earning profit. “Persons” may be ndividuals or corporations.

It’s essential to clearly define the partnership relationship via partnership contracts, because decisions made by one partner may be binding on the other partner(s).

 

Three Main Types of Partnerships

  • General Partnership: each partner has unlimited liability, similar to a sole proprietorship
  • Limited Partnership: has at least one general partner who has unlimited liability (meaning that partner’s personal assets may be claimed by creditors) and at least one limited partner who has limited liability (meaning that partner would only suffer losses up to the amount of money he/she put into the partnership)
  • Limited Liability Partnership (LLP)
    • May only be used by certain type of professionals such as lawyers and accountants
    • Each partner’s business losses is limited to the money they put into the partnership
    • However, each partner is individually responsible for their own negligence or the negligence of staffs who are under the partner’s direct supervision and control; usually enforced by their professional licensing board (e.g. Law Society)

Tax:

  • Partnership itself is not taxed
  • All income and expenses are deducted against each other within the partnership — the “partnership” is considered a “source or category of income”
  • The partnership net profit or loss (after income and losses are deducted against each other) is divided amongst the partners, and this profit/loss is included in each partner’s personal income for tax purposes

 

It’s very important to have well-drafted partnership agreements in place. Below are several considerations that should be in a partnership agreement:

  • How to divide up assets and liabilities
  • How much and what form of contributions must each partner make to the partnership
  • What is the authority of each partner (e.g. can each partner individually obtain loans, seek investors, choose suppliers, issue cheques?)
  • Are there any restrictions in transferring partnership interests?
  • Confidentiality and non-competition clauses
  • Dispute resolution – what happens if the partners disagree on a major decision and reach a stalemate?

 

Partnership vs. Co-ownership

  • Co-ownership: consist of persons who own property together
    • each owner (if they are tenants in common) has their own separate interest in the property and can freely deal or sell his/her interest in property
  • Partnership: each partner has no separate interest in any property owned by the partnership
    • Each partner may only sell his/her partnership interest, but not his/her interest in the property owned by the partnership.

 

Corporations

Unlike other business structures, corporation is a legal entity or “person” by itself.

Advantages:

  • Shareholders of a corporation has limited liability, as anyone who sues the Corporation can only come after the Corporation’s assets, and cannot go after the shareholders’ personal assets; hence, the shareholders’ interests are limited to money they have put into the Corporation
    • Caveat: if a shareholder use their personal capacity to guarantee an obligation on the Corporation’s behalf, then that shareholder is personally bound; example: if a shareholder decided to use his house to guarantee a loan given to the corporation, then upon default the bank can come after that house
  • Corporations have “perpetual existence”à corporation continue to exist despite frequent changes in ownership
    • A corporation may only end or be dissolved by a resolution made by the majority of shareholders, by court order, or by operations of legislations (e.g. corporation breached legislations, causing its dissolution)
    • To avoid unwanted dissolutions due to court order or breach of legislations, ensure you have a good corporate lawyer to guide you
  • Corporations are good tool for estate planning
    • Leaving corporate shares to beneficiaries is an easy and usually tax-free way (if it’s a private corporation) of passing on your assets.

Taxes

  • Corporation is taxed by itself
  • Then, the corporate earnings are distributed to shareholders, and those dividends are taxed again at the individual level
  • There is usually favourable tax rates for corporations and for dividends (it’s important to consult a corporate lawyer and/or an accountant for more details)

 

Other Types of Business Structures

In addition to those business structures, there are other business types including Joint Ventures, Licensing Arrangements, Franchises, etc. Those are beyond the scope of this article, but I may write another article dedicated to them in the future.

An essential element of those structures is having sufficient written agreements in place at the beginning.

 

Conclusion

As evident from the above, there are many structures to choose from when starting your own company.

It’s crucial to choose the most suitable business vehicle at the beginning to avoid costly and complicated situations and litigations down the road.

Of course, choosing wisely at the beginning can also reduce your risks, facilitate the business process, and help you save on taxes.

 

This article is only meant to give general legal information. For legal advice on your specific business situation, please consult a legal professional. 

 

Yi Dan (Sabrina) Ding 

 

Principal Lawyer 

Varity Law Office 

Tel: 416-477-5439 

Fax: 1888-620-4752 

sabrina@varitylaw.ca

95 Mural St, Unit 600

Richmond Hill, ON, L4B 3G2

www.varitylaw.ca

 

Introduction

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?

house

 

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.

 

Realty Taxes

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.

 

Writ Search

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.

 

Title Insurance

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.

 

Conclusion

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. 

Yi Dan (Sabrina) Ding 
Principal Lawyer 
Varity Law Pro. Corp. 
Tel: 416-477-5439 
Fax: 1888-620-4752 
Email: sabrina@varitylaw.ca
Address: 95 Mural St, Unit 600
Richmond Hill, ON, L4B 3G2
www.varitylaw.ca