In terms of dollars and cents, the real estate purchase contract is the biggest contract of most people's lives. It is usually not that long and most provincial real estate associations take great pains to ensure that it is available as a form and in plain language.

However, the form is blank in many important regards and includes numerous areas for additions and amendments.

A contract is a contract.

In common law jurisdictions (and in civil law jurisdictions, such as Québec) adults have freedom of contract and those contracts will be enforced by the courts. If it is your calling to sell your $20,000 speedboat to your neighbour for $400, so be it. You won’t find any sympathy from a judge if you later regret it.

With written contracts, the court’s first policy is "it is what it is".

They will not jump hurdles or look for loopholes to circumvent the terms of a clear contract.

So be careful what you appose your John Henry to.

Written contract are binding once they are signed or, in rare cases, even if they are acted upon. For real estate transactions, not only is it wise that the contract be carefully read and signed, but also that all pages be initialled.

As with lawyers, real estate agents are not all created equal. When a deal completes, real estate agents are usually very well-paid. Unfortunately, the level of attention to detail brought to bear on real estate contracts by individual real estate agents is not consistent. I would not be surprised if real estate agents have a slew of horror stories related to the practice of some conveyancing lawyers but I can say that I have a good number of real estate contracts in my files which would suggests a random scale of real estate agent commitment and attention to detail. But some good comes of it as it is on the basis of those experiences that I am able to write this article.

Real estate contract warning signGeneral Advice

Use legible and clear blocked writing.

Sloppy handwriting is a sign of a sloppy real estate agent and a single misplaced letter or punctuation can cause so much hair-pulling and hundreds of thousands of dollars in legal fees to correct.

Similarly, where carbon-back forms are used, it is essential that the person who writes the contract out, usually a real estate agent, press hard enough so that the writing appears clearly on all copies.

Finally, if not because of the too-narrow margins on the forms themselves, real estate agents have a bad habit of writing essential additions in the very narrow margin of the contract. Often these additions are lost when copying or faxing occurs causing all kinds of difficulty down the road.

Identification of the Property Being Sold

This part of the sale contract will set out the civic address of the property including apartment number if it is, for example, a strata or condominium.

It is essential to add the legal description.

Every piece of real property has not only a civic address but also a technical description based upon the work of surveyors.

The legal description can appear to the uninitiated as a foreign language but you should be able to cross reference the legal description set out in your contract against the appropriate survey map. If this is a concern for you, it should be alleviated by your real estate agent or your conveyancing lawyer. As to see the survey map. Spend a few extra bucks to generate one if you have any concerns. Frankly, although perhaps a bit dated, the vendors ought to have one they can share.

Identification of the Parties

The contract will identify the name of the seller and the buyer, sometimes called purchaser and vendor.

Here, again, you will sometimes find the person writing-up the contract misrepresenting a party by not, for example, identifying the capacity in which they act. Some people are just representing the actual seller or buyer, perhaps by way of a power of attorney or in an estate transaction. All of this must be reflected in the identification of the parties segment of the real estate contract.

It is very poor practice to use a first initial to identify a party as in "P. Smith" for Paul Smith. Paul may have two brothers, Peter and Patrick. Which one is it?

Purchase Price and Deposit

A contract of sale of real estate should clearly indicate the purchase price and out of an abundance of caution, this should be set out as it would be on a cheque: longhand and in numbers or, for example, "two hundred and fifty thousand dollars" and "$250,000".

Most real estate deals will require that the purchaser give an up-front deposit. I have never understood the legal requirement of this but I presume it is to confirm the seriousness or commitment on the part of the purchaser.

The deposit immediately creates a number of problems, some legal, some administrative. Usually, things go smoothly and the deposit is held in trust by the real estate firm and eventually taken into account when the transaction completes.

You will want to read the contract carefully to see what happens to the deposit if for some reason, the transaction falls through.

Completion and Possession

Most real estate contracts will set out the date of completion, also known as closing date (which is the date that the parties apply to the relevant land titles office for a formal transfer of ownership), from the date of possession (which is usually the same day in which is the date and time at which the new owner - the buyer or purchaser) gets the keys and takes possession).

Many real estate contract omit an indication of time of possession, merely inserting a date. Sometimes this results in the purchaser showing up with the moving van at 8 a.m. on the date of possession, with the vendor having not yet vacated or cleaned the property.

Not only a date but also a time for possession be provided for in the real estate contract.

Terms and Conditions

There is nothing unimportant in a real estate contract and so I am reluctant to call the "terms and conditions" the "nuts and bolts" of a real estate contract because it suggests that the remainder is not as important.

That is not true.

But because it is in the terms and conditions that numerous points of detail are addressed, and because it is those points of detail that often make the transaction attractive to the purchaser, or the vendor, they have to be looked at very carefully.

Some form real estate contracts include a paragraph called "terms and conditions" which is misleading because there are usually many others terms and conditions set out elsewhere in the contract.

Important terms and conditions to look for in a contract are:

  • A provision dealing with adjustments to a specified date, usually the date of completion, at which time the purchaser becomes responsible for taxes and utilities.
  • A provision which sets out the fixtures or chattels which are sold with the house and included in the purchase price, indoors and outdoors, such as hot tub, aboveground swimming pool, fridge, storage lockers, sheds, fireplaces, stove, carpets, air-conditioning units, mirrors, dishwasher, washer, dryer, bookcases or other furniture, window coverings and blinds. These should be properly described and not just, as some real estate agents add, identified as "as viewed by the buyer on (insert date)" which, obviously, leads to a host of evidentiary difficulties if something is missing when the buyer moves in. When I bought my house, the vendor stripped concrete ornaments from the perimeter fence. The lack of ornaments made the fence look bare yet could not of meant anything to the vendors. We only got them back under the threat of litigation – I had taken the precaution of specifically identifying them in the contract.
  • A common and wise term is that the buyer expects the seller to clear title of all charges or encumbrances by the date of completion including mortgages, restrictive covenants or right-of-ways. Often, there are some limitations on title which the vendor is not in a position to remove and must necessarily be sold with the property. This often comes as a surprise to the purchaser and where the general "free and clear" term has not been qualified by specified exceptions, can cause significant legal problems (suppose, for example, a condominium has a new pet rule which is not brought to the attention of the purchaser until they move in).
  • How payment is to be made; whether by certified cheque or otherwise, and who pays for any conveyancing costs such as legal fees or the costs at the land titles office to file the transfer document.
  • One of the terms or conditions may relate to the prospective purchaser securing financing for certain unspecified period of time failing which, the obligation to complete the contract is vacated (the Ontario decision in Sharifara is a good example of a deal gone sour on this point). Or, just as common, the purchaser may reserve the right to have the property inspected and, subject to his or her review of the inspection report, cancel the contract of sale. Again, the wording of these terms and conditions will govern what and how a court might enforce its terms. Both the buyer and the vendor have every interest in ensuring that they understand the wording as the contract will depend upon it.
  • Most real estate contracts address the issue of disclosure in some form or another. There may be a form mandated by regulation which the vendor is obliged to complete and the purchaser, required to take notice. Such a form may address significant issues or latent defects such as sewage or water supply, plumbing or electrical issues, wells, urea formaldehyde foam or asbestos insulation.

The Best Advice of All  

Most real estate contracts do what they are intended to do: a vehicle for the informed and fair transfer of title of real property. Sometimes, even when there are egregious errors or omissions in a real estate contract, the transaction occurs in seamlessly simply because those errors or omissions are never found or not noted on a timely basis.

The law library has a whole segment of books on such ominous topics as "the collapsing deal" or "real estate litigation". This article cannot do justice to the wide variety of issues that may arise in regards to the circumstances of a particular real estate contract.

Thus, for Joe or Jane Average, lean on the lawyer or notary you are hiring and paying money to represent you in the real estate transaction. That professional ought to review the contract and advise you as to its contents and recommend such changes as may be necessary. The time to do this is not under the looming crisis of completion day.

A good conveyancing lawyer who often retain the services of a paralegal who are experts in the detail of these contracts, although paralegals can sometimes hurt as much as help if they are not detail-orientated. There is also a new real estate law product called "title insurance" which does not cost that much and which a lawyer may wish to suggest to the purchaser and which provides additional piece of mind respect to your real estate contract.

Each Canadian jurisdiction is a little bit different when it comes to real estate agents and real estate contracts. For many real life question related to a real estate contract, ask your conveyancing lawyer or notary public.

REFERENCES:

  • Sharifara v. Akhbari 2007 Superior Court of Justice of Ontario, publihed at www.canlii.org/en/on/onscdc/doc/2007/2007canlii9619/2007canlii9619.html