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The topics in the Dial-A-Law series provide general information on a wide variety of legal issues in the Province of Alberta. This service is provided by Calgary Legal Guidance funded in part by the Alberta Law Foundation.
This topic discusses things to consider when you purchase a home. Your home is probably the biggest investment you will make in your life. The transactions for purchasing and selling your home are complicated and it is easy for things to go wrong.
You should consult a lawyer before signing any Agreements with respect to the purchase of your home. Your real estate agent or your financial institution may suggest a lawyer but you can insist on a lawyer of your own choice. Check with several lawyers as to their prices and services. Too often, a lawyer is consulted after the Agreements are signed. Sometimes it is too late to fix the problems because binding legal obligations are created once all parties have signed the Agreement.
A real estate agent will provide you with a standard form Purchase and Sale Agreement. You should carefully review this Agreement before you sign it to ensure that it contains the terms upon which you will purchase the property. If you do not understand any term in this Agreement, ask the real estate agent for a written explanation or ask your lawyer. Once you and the Seller sign the Agreement, binding legal obligations are created. These obligations can only be changed with the written consent of the seller and you.
Most sellers will ask that you provide a small deposit as an indication of good faith for the offer to purchase. For example, the deposit may range from 5% to 10% of purchase price. If the seller listed the property with a realtor, then the seller’s real estate agent normally holds the deposit in their trust account until the sale is completed. The payment for the real estate agent’s commission is the seller’s obligation.
Conditions on the offer to purchase are required in most cases. The Agreement is not a binding contract until you either meet the conditions or waive the conditions. A condition may be to get a mortgage or sell your home by a certain date before you can purchase the property. If you do not get a mortgage or sell your home within the allotted time, you are released from the Agreement and entitled to the return of your deposit. Other conditions on the offer to purchase may concern the condition of the property. For example, you may want a satisfactory home inspection or want certain repairs completed before you move in. Once all of the conditions to the purchase and sale are met or you have formally waived the conditions, you must purchase the property. If you decide, at this point, that you do not want to purchase the home, the seller may keep the deposit or sue you for damages suffered or both.
The fixtures included as part of the purchase should be clearly identified in the Agreement for purchase and sale. Fixtures are the major appliances, furnaces, lighting fixtures, satellite dishes, and anything that is physically attached to the home. Vanity mirrors and mirror closet doors should be expressly stated as part of the purchase in the Agreement. Drapes, blinds, picture mirrors and picnic tables are not generally considered fixtures. To be clear, you should write down in the Agreement any item you intend to take with you that is attached to the walls, ceilings or floor.
A warranty that the buildings and land complies with all local by-laws should be clearly stated in the Agreement. The Agreement should state:
“The Seller warrants to the Buyer that the land complies with all local by‑laws.”
The Seller is responsible for costs to have any problems rectified. For example, if the garage is not the required distance from the sidewalk or alley, the seller must pay the costs to move the garage to comply with local by-laws. The seller may also obtain a “relaxation” or consent from the municipality to have the garage infringe on its property. The warranty written into the Agreement ensures it is the responsibility of the seller to ensure by-law compliance.
A “Real Property Report” for the home you are purchasing must be provided by the seller unless the Agreement clearly states otherwise. A Real Property Report is a survey of the land and its buildings. It will show the location of all buildings on the property, the location of the easements, utility right of ways, and so on. It will also show if there are any encroachments onto the neighbouring property. The Real Property Report must be up-to-date. It must also be stamped by your local municipality “Municipal Compliance” to show that the property does not encroach upon City property. The municipality will not certify the survey if there is a problem with the location of any building or improvement. If you do not have a current Real Property Report with Municipal Compliance, you should contact a lawyer immediately.
The closing or possession date must also be clearly stated in the Agreement. The closing date is generally the day the seller’s interests in, and responsibility for, the property ends and yours begins. Property insurance should be placed on your purchased home effective on the closing date. All utilities should also be connected on that date.
The lawyers must complete all the financing paperwork and searches before the closing date. Searches must be made of the title to the property. A search will indicate whether there are any special requirements that must be fulfilled before the title transfers to you. You pay for the costs of the searches. Title Searches are done at the Land Titles Office. Title to the property shows all registrations of encumbrances and charges against the land. These include mortgages, gas easements, restrictive covenants, rights-of-way and builder’s liens.
All financial encumbrances of mortgages and liens must be removed from title by the seller before the closing date. Some non-financial encumbrances which interfere with the owner’s use of the land will not come off title. These are the utility rights of ways and restrictive covenants which will transfer to the new title. A search is also made at the Personal Property Registry to see if there are any outstanding debts which could ‘attach’ to the land and interfere with the sale unless cleared up.
Searches are also made with the municipality for payments of tax, utilities and compliance with the local by-laws. In some municipalities, property taxes are paid by June 30 for the entire year. This means that an adjustment for tax costs is required between you and the seller. For example, if the seller pays the taxes on June 30 for the entire year, and you bought the home with a possession date of October 1, then you must pay the taxes for the months you lived in the home. This would be 3 months.
The adjustment for the taxes is made on a Statement of Adjustments prepared by the seller’s lawyer. The “Statement of Adjustments” determines the final amount of money due for the sale of the property. It states the cost of the property, less the deposit, and adds in the “unseen” costs. This is usually the property tax adjustments. There may also be costs from adjustments made for security deposits, tenant rents, or condo fees.
Your lawyer sends the entire amount owing on the Agreement of Purchase and Sale to the seller’s lawyer. The seller’s lawyer pays all outstanding financial obligations affecting the property or the Agreement and provides you with evidence that all financial encumbrances have been discharged.
The ownership of land is transferred in Alberta by a “Transfer” title signed by the seller and registered at the Land Titles Office. The Transfer is often registered at Land Titles before the seller is paid because most lenders will not advance any mortgage funds until certain conditions are met. For example, money will only be transferred when the title to the property is in the name of the mortgagee or purchaser. The seller is protected because you sign a “Transfer Back” to the seller in case the mortgage monies are not advanced as expected. The Transfer Back is held by the seller’s lawyer until the mortgage monies are dealt with.
Sometimes the mortgage funds are not paid until after the closing date. If you wish to move in to the property, you must pay interest on the amount of money still owing to the seller. You may also move in as a tenant and pay rent to the seller until the final payment is made for the purchase of the property. You must sign an agreement called a Tenancy-At-Will. The Tenancy-at-Will may require you to vacate the property on 48 hours written notice if the outstanding sum is not paid within a specified amount of time.