When you sell your home, if you expect the buyer to take over any of your rental obligations, be clear, or you will end up paying for it yourself later.
Here’s why: Aidong Gu sold his home at 4082 Robin Ave. in Niagara Falls to Anna Carnovale on July 19, 2012. The deal closed on August 17, 2012. About 18 months before the sale, Gu installed an alarm system with Reliance Protection in his home and signed a 3 year contract for monitoring the home, at $39.95 per month plus HST of $5.19. When he sold the home to Carnovale, under the chattels included section of the real estate contract, it said “Alarm System and equipment.” Later, under the rental item paragraph, it said that the buyer agreed to assume the rental contract for the hot water tank. No mention was made of the buyer assuming the monitoring contract associated with the alarm system.
The alarm system included a working modem, which continued to activate communication with Reliance after the deal closed and resulted in Gu continuing to be billed the monitoring charges after the deal closed. Gu thought that Carnovale was going to take over the payments after closing and when he learned that she wouldn’t, he sued, claiming that she was getting the benefit of the system after she moved in. The real estate agent who prepared the contract testified that it was his understanding that Carnovale would take over the contract but that was clearly not what the contract said.
Carnovale testified in court that she knew nothing about the modem and never agreed to assume any of these payments. She expected to receive the alarm system equipment with the understanding that if she wanted to activate it later, she would call someone at Reliance to arrange this. She said she knew nothing about the monthly payments being charged or the modem.
In a decision dated September 11, 2013, Deputy Judge Terry Marshall of the Welland Small Claims Court preferred the evidence of Carnovale that she was unaware of the ongoing monitoring charges and dismissed the claim. It was clear to the judge that the alarm system should have been listed as a rental contract, so Gu’s claim was dismissed.
More and more consumers are taking advantage of offers in the marketplace to buy home equipment on rental contracts, including hot water tanks, furnaces, air conditioners, water softeners and alarm systems. When it comes time to sell a home, sellers must be clear as to which contracts must be assumed by the buyer and should disclose the details of every contract, so that the buyer can make an informed decision.
If the listing for a home does include several rental contracts that need to be assumed, buyers should consider making any offer conditional on their reviewing and being satisfied with all the terms of the rental contracts, especially if there are any penalties relating to cancellation of the contract before it ends. By being clear and prepared before signing any real estate deal, there will be no unwanted surprises or unanticipated charges after the deal closes.
This case was forwarded to me by Merv Burgard. Merv has been educating real estate salespeople, brokers and lawyers across North America for the past 30 years with his ever popular Merv’s Memos. Merv is now retiring and as of December 31, 2013, he will be discontinuing his memos. On behalf of myself and I know I speak for thousands of devoted readers, I wanted to thank Merv for all of his contributions to the real estate industry and to wish him and his wonderful wife Sheila good health and happiness in the coming year.
Click here to read the article: http://www.thestar.com/business/personal_finance/2013/12/06/be_clear_about_rental_items_in_real_estate_contracts.html
The Perils of helping kids buy a home
As a result of the high prices in the Toronto real estate market, parents are assisting their children with the purchase of a home. Depending on the type of assistance provided, care must be taken in how the deal is structured so that the parents, kids and the bank are all informed and protected.
Sometimes parents assist with the down payment. Questions need to be asked if this is intended as a gift or a loan. If it is a loan, there will likely need to be a second mortgage registered on title to protect the parents. The bank will have to be notified about this and approve.
When the kids cannot qualify for the mortgage payments because of their income, parents are offering to include their own income in the equation and guarantee their kid’s mortgage. This would be a good solution, however, many lenders are now requiring the parents, either one or both, to be on title to the property and sign the mortgage, even if they are holding just a 1% interest. Apparently lenders feel more secure if the parent is on title as opposed to a guarantor, although most lawyers could not explain the difference.
However, taking even a 1% interest in the title means that the deal must be carefully structured. How is the 1% supposed to come back to the kids, if that was what was intended? Stephen Pearlstein, a lawyer from Minden Gross inToronto, recently gave a seminar on this point to several hundred lawyers and many questions arose. For example, if the parents try and transfer the 1% interest back to the kids, without telling the lender, this will actually cause the mortgage to go into default, because the standard terms of a mortgage typically state that the mortgage becomes due at the option of the lender if someone sells their interest. It is worth explaining that even if the parents do transfer their 1% share, they are still responsible if the kids don’t make the mortgage payments, since they signed the mortgage originally.
Alan Silverstein, another lawyer speaking at the same event, noted that if the person assisting with the loan and taking a 1% interest is not the parent of the buyer, but perhaps an aunt or uncle, who is not moving into the home, then it could jeopardise the kids’ eligibility for the HST new home rebate, if it is a new home or condominium. This could cost a buyer up to $27,000 if investigated by the income tax authorities.
It was suggested that the parents just leave their 1% share to the kids by just doing an amendment to their will, so the kids would end up with it later. Without a will, problems could arise later if the parent dies and the other beneficiaries do not wish to co-operate and want to sell the home to get their share paid for.
Sometimes it may be necessary for one of the kids or even the parents to have a different lawyer advise them, as there may be conflicting interests.
As you can see, it is not simple. Te best thing is to make sure that before parents make any offer to assist with any purchase decision of their children, they get legal advice in advance to make sure that everyone is properly protected.
Click here to read the article: http://www.thestar.com/business/personal_finance/2013/11/30/the_perils_of_helping_kids_buy_a_home_weisleder.html
Initial all changes and pages of real estate contracts
I am often asked if every page or change on a real estate contract needs to be separately initialed by a buyer and a seller to make it legal. The short answer is no, but if it is initialled, it is better proof that all terms were clearly brought to the attention of the buyer or seller and agreed to.
Here is what can happen when things get missed:
In the spring of 2011, a company controlled by Sushil Batra and his wife were looking for a property in Surrey BC to open a store selling wholesale and retail cloth. He became interested in a 2 acre piece of land owned by a company controlled by Satish Kumar. An offer was presented on June 28, 2011, and was open for acceptance until June 30, 2011 at 9 pm. The price was negotiated back and forth and finally agreed at $4,000,040, with a deposit of $100,000, closing on July 28, 2011. The deposit was supposed to be paid within 48 hours of acceptance.
In the original offer by Batra, it stated that the deposit would be paid to Century 21, the real estate brokerage, in trust. When it was signed back and accepted by the seller, the words “Century 21” were removed and replaced with “direct to seller.” The words “in trust” were not removed. This clause was initialed by Mr. Kumar, the seller, but not by the buyer Mr. Batra.
The deposit was paid to the real estate brokerage on July 2, 2011, not to the seller. Batra later found out that Kumar had sold the property to someone else on July 14, 2011 and completed the deal on July 21, 2011. Batra buyer sued for damages of $300,000, which were as outlined in the agreement itself if the deal did not close because of the fault of the seller. The seller took the position that there was no deal with Batra’s company because the deposit was paid late and to the wrong party. In addition, since the deposit language change was not initialed by Batra, the contract was void.
The judge disagreed. In a decision dated June 21, 2013 out of the BC Supreme Court, Madam Justice Barbara Fisher decided that even though the deposit clause was not initialed by the buyer, it did not result in the contract being void. She stated further that even if the parties were not in agreement on this issue, there was a binding contract, as the parties had agreed on the essential three elements of the contract, namely the parties, the property and the price. This was the principle laid down by the Supreme Court of Canada in the case of Mckenzie v Walsh in 1920. She also noted that the words “in trust’ were not deleted by the seller. So even if there was no final agreement on where the deposit would be paid, it would not make the contract void.
When contract terms are ambiguous, a judge is permitted to hear evidence from the people involved in order to correct any ambiguity. It was clear from the decision that the judge preferred the evidence given by Mr. Batra, the buyer, over the evidence of Mr. Kumar, the seller.
The main lessons from this case are that although a contract can be fixed sometimes if certain terms are vague or not properly agreed to by everyone, it makes much more sense to make sure that all contract changes and pages are initialled by both the buyer and the seller, so that there is no confusion or unnecessary legal expenses later. In addition, do not try to cancel any contract before obtaining legal advice.
Now is the time for home closing protection insurance
Since writing my column on how to avoid a real estate train wreck, I have received many inquiries from buyers, sellers and realtors about home closing protection insurance, and how it can solve many of the problems associated with delayed closings.
Due to the growing possibility of buyers being declined their financing at the last minute, sellers need some protection in the event their closing is delayed or cancelled and they are forced to carry 2 homes for an extended period of time.
One company that I have dealt with that provides this coverage is Canadian Home Shield. Their President, James Vlachos, who is an insurance broker, advises me that for as little as $99, sellers can purchase a $25,000 insurance policy that will cover all mortgage payments, real estate taxes, utilities and insurance premiums up to a total of $25,000 in the event that the deal does not close through no fault of the seller. I personally have had 2 seller clients recover over $9,000 in costs after a buyer failed to close their purchase agreement.
Buyers can also purchase breakdown insurance protection for their home systems and appliances. Since most real estate contracts provide that sellers only warrant their systems and appliances to the date of closing, this provides buyers with the opportunity to purchase additional insurance protection for a year after closing.
For further information, please see www.canadianhomeshield.com
My Law Practice
I have received many inquiries about my law practice, providing legal services to real estate buyers, sellers and investors. Working with Real Property Transaction Centres, I am now able to close real estate transactions throughout the GTA. If you require any assistance on a transaction that you are working on, please email me at email@example.com
If you or your clients are looking for a written quote, please visit www.realproperty.ca and search under “How much does it cost” or contact Suzanne at 1-877- 219-9618, ext. 231.
About Mark Weisleder
Mark is a lawyer, author, instructor, Toronto Star columnist and keynote speaker for the real estate industry.