1 Law 640 Real Estate Trans Krtbeek
2 Trrens System f Land Title Registratin One f the mst efficient land titles systems in the wrld Transfers prperty by way f registratin f title Gvernment has custdy f all riginal land titles and dcuments registered against titles thus guaranteeing the title and prtecting it frm fraud and wrngful pssessin There are sme essential cmpnents Certificate f Title: gives the legal descriptin f the land (name f registered wner, any rights f reservatins t the Crwn i.e. mines and minerals, interests registered against land i.e. mrtgage) In rder t transfer title, yu register a transfer f land. When certificate f title is issued, it is a guarantee by the gvernment that this persn wns the land Primary Functins f the Land Titles Office Registratin f Dcuments: Usually submit dcument with frm and it gets put int queue Searches: Getting cpies f what is registered against title. Typical things registered against title include mrtgage, easement, and/r restrictive cvenant Easements Restrictive Cvenants Allwing a right f access t the land. They can als be utility easements. Building restrictins (hw big the huse can be, hw many trees need t be there, etc.) 3 Fundamental Principles 1. Indefeasibility and Certainty f Title a. Mirrr Principle: certificate f title accurately reflects all interests relating t the land at that pint in time b. Curtain Principle: ensures a prspective purchaser des nt have t lk beynd the title t determine the existing interests in the land because the prvincial gvernment guarantees title 2. Cmpulsry Registratin f All Transactins Relating t the Land If ne wants the interest in land t bind subsequent wners, it must be registered against title t the land. The interest must hwever be an interest in land. 3. Cmpensatin fr Lss f Any Rights Resulting frm the Use f the System A General Revenue Fund has been created by the prvincial gvernment which will cmpensate a party wh suffers a lss as a result f any errrs in the system Registratin Yu can register the instrument itself: nce it is registered as an instrument, everyne can see it Yu can register it by caveat: primary disadvantage is that if there is a caveat n title, smebdy can send ntice t prve caveat. If yu dn t respnd in 45 days, the caveat is discharged. Easier t discharge Different Types f Ownership Freehld Interest: basic wnership Leasehld interest: right t use Life Estate: right f use and ccupatin Jint Tenancy If ne dies, the deceased's interest autmatically ges t the survivr. Example: Husband and wife, if ne dies, it ges t the ther.
3 Tenancy in Cmmn Each f yu has yur prprtinate wnership and if yu die, yur interest remains with yu and flws thrugh yur estate. S the prperty wuld be wned by yur estate and the survivr. Example: siblings. Different Types f Listings Open Listing: Realtr will get cmmissin nly if sale results frm that realtr Exclusive Listing: If sale ccurs during currency f listing, then realtr gets cmmissin even if sale had nthing t d with realtr Multiple Listing: Allws fr sharing f the cmmissin. Psted n a multiple listing service Payment f Cmmissin When is cmmissin payable? It will depend n the wrding f the listing agreement First Instance: If sale ccurs during a listing perid, then yu have t pay Secnd Instance: If sale is utside listing perid but within 60 days f that perid prvided additinal requirements are met Third Instance: If realtr has lined up purchaser wh is willing t cmplete and the seller has signed the agreement yet seller desn t g thrugh with deal Duties f Realtrs First Duty: Cntractual Secnd Duty: Fiduciary Third Duty: Duty f Care Cntractual Duty: Whatever the listing agreement says sums up the cntractual duties f the realtr Fiduciary Duty: Obligatin t act in the best interest f yur client. Act hnestly, full disclsure, cnfidentiality, reasnable skill and care, and full accunting f any funds Duty f Care: Kind f Unclear (setting a listing price and ding title search/knwing brad zning issues) 1. Statement r representatin needed 2. There has t be reasnable and freseeable reliance 3. There has t be damages r sme kind f lss Dual Representatin Situatin where realtr is acting fr bth the seller and the buyer In rder t d that, yu have t limit fiduciary duty Dual Agency Disclsure has t be signed which limits the realtr s fiduciary duty Rule fr realtr is t stay away frm price issue altgether Dual Agency in Law Prfessin Same rule des nt apply since interests are cmpletely ppsite Dual Agency is still allwed in the law field but yu have t meet certain requirements Written cnsent f the parties Full disclsure Cease t act in the event f a cnflict Requirement f Writing and Statute f Frauds A purchase f land r any interest in land must be evidenced in writing. It applies t any interest in land such as a lease interest, easement interest, etc. Statute f Frauds became a tl that peple used t get ut f cntracts.
4 They culd just argue that agreement was nt in writing and therefre it became a way t get ut f legitimate cntractual relatins. Curt did tw things t mitigate this effect: (1) Relax interpretatin f what cnstitutes written indicia (2) Adpt a dctrine f part perfrmance Nte: A cmpleted cntract cannt be undne based n the Statute f Frauds. It can nly be used as a defence First Step: Was there an ral agreement? If nt, then they dn t g any further Written indicia des have t cntain the essential terms (parties, purchase price, and prperty) Nn-essential terms will be implied by the curt (example: clsing f transactin, interest payable, pssessin, date f clsing) SUMMARY TO DETERMINE IF STATUTE OF FRAUDS IS AN ISSUE 1. Agreement: If there was n written cntract, was there an ral agreement between the parties? 2. Interest in Land: What is the subject matter f the agreement? If it is fr the sale f an interest in land, then the Statute f Frauds may be an issue and yu must g t step 3 3. Statute f Frauds Satisfied thrugh Written Memrandum: Was there ne r mre written memrandum r ntes that cntain essential terms? If s, was ne r mre them signed r initialled by the party t be charged (r his/her/its agent, lawyer, realtr?) If yes t bth, Statute f Frauds is nt an issue. If n, must g n t step 4 4. Statute f Frauds Satisfied thrugh Part Perfrmance Was there part perfrmance which supprts the existence f the cntract? If s, Statute f Frauds is nt an issue If nt, Statute f Frauds may be raised as a defence rendering the agreement vidable Part Perfrmance If yu cannt find any written indicia, yu can lk t see if there was any part perfrmance. Test fr part perfrmance: Are the acts relied n unequivcally r in their wn nature referable t sme such agreement as alleged? Acts that wuld cnstitute part perfrmance wuld include building imprvements, paying taxes, wrking n a farm withut remuneratin, and pssessin f prperty Requirements fr Part Perfrmance 1st 2nd 3rd Plaintiff must have carried ut certain acts t his detriment Actins must be cnsistent with the alleged ral agreement Defendant must be aware f thse acts 4th Plaintiff must have acted prperly Certainty f Terms Need certainty f terms fr valid cntract (meeting f the minds) Parle evidence can be intrduced nly if there is an ambiguity in the cntract
5 Yu lk t surrunding circumstances t ascertain what the parties intended Parle evidence: discussin between the parties, emails, letters between cunsel, etc. Effects f Uncertainty If the uncertainty applies t an essential term, then the cntract is vid Even if the cntract is dne and the purchaser has paid mney, the cntract is undne Exceptin: Purchaser has transferred land t bna fide purchaser fr value. Then it is a damages claim Essential terms: Parties, Purchase Price, and Prperty r any ther term that wuld be cnsidered unique in the circumstances Nn-Essential Terms If the term is nt an essential term, the cntract will nt be vid. Instead, the curts will imply the nnessential term In making these assessments, there will be an bjective inquiry based n what is reasnable in the circumstances Nn-Essential Terms include: Clsing dates (unless they are like 4 years away) Pssessin Date Mechanics f clsing Summary f Certainty f Terms In practice, the curts inclinatin is t nt find an therwise valid agreement vid fr uncertainty Ratinale: Prefer nt t hld an agreement freely entered int tw parties invalid Hwever, if an essential term f the agreement is ambiguus and incapable f being ascertained bjectively thrugh parle evidence, the agreement will be vid fr uncertainty Lawyer Cnsideratins Be careful t avid uncertainty when drafting agreements. Ensure a clause is sufficiently certain and if nt, ensure there is a clause which details hw t remedy any uncertainty r agreement t agree Cnsider the inclusin f a severability clause Severability Clause Any term that is invalid r unenfrceable can be deleted frm the agreement and the rest f the agreement remains in full effect DOWER RIGHTS Dwer Act was enacted t prtect the wives and the husbands were left t their cmmn law rights f curtsey. Purpse was and is t prevent a married persn f dispsing the hmestead withut the cnsent f the spuse. Histrically, the spuse was meant t be the wife. The Adult Interdependent Relatins Act prvides sme rights and entitlements but des nt specifically refer t Dwer. In mst cases nw, bth spuses will be n title. Legislatin The Dwer Act gives tw main rights t spuses (s. 1(c) and s. 18 DA): Prevent a Dispsitin Life Estate a. Prevent a Dispsitin - The right t prevent a dispsitin f the hmestead by withhlding cnsent; and
6 b. Life Estate - The right f a surviving spuse t a life estate in: the hmestead f the deceased married persn; and the persnal prperty f the deceased married persn that is exempt frm seizure under writ prceedings. What cnstitutes a DISPOSITION (s. 1(b))? Any transfer, agreement fr sale, lease fr mre than 3 years, r any ther instrument intended t cnvey r transfer an interest in land. A mrtgage r encumbrance intended t charge land with the payment f a sum f mney. What is a HOMESTEAD (s. 1(d))? A dwelling huse ccupied by the wner that cnsists f nt mre than 4 adjining city lts in ne blck if urban (i.e. subdivided) land r nt mre than a ¼ sectin if rural (i.e. unsubdivided) land. Essentially at least ne f the spuses must have lived in the prperty since the marriage (nte that it des nt require bth spuses t have lived there since the marriage). Hmestead Nte It desn't have t be a place where bth the spuses have lived since their marriage. As lng as ne has, then yu're kay. It desn't even have t be their huse that they live in. They have t reside there fr sme perid f time (culd be a weekend hme etc.) Dwer des nt apply if bth parties are n title since bth wuld have t sign ff. Dwer will nt apply als when the spuse wns the prperty with a 3rd party. Requirements fr Dwer t Exist The fllwing requirements must exist in rder fr dwer rights t arise: a. Spuse b. Hmestead At least ne f the spuses has t have lived n it It desn't have t be actual residence prvided they reside n it at times c. Title It can nly be in the name f the spuse in rder fr dwer t apply If bth spuses are n title, yu dn't have t wrry abut dwer If the land is c-wned with the 3rd party, yu dn't have t wrry abut dwer d. Owner (nt Lessee) It has t be a relatin with land that is wned nt leased Dcuments Required Under Act (and Regulatins) If a Dispsitin If there is a dispsitin under the Act (sale r mrtgage etc.) cncerning land whereby nly ne spuse is n title, then the Act requires any ne f the fllwing (4 main ptins/scenaris):
7 1. Cnsent and Acknwledgement (s. 4 and s. 5 DA) (i) Cnsent f Spuse (signed by the spuse) must be given freely and vluntarily yet need nt be given apart frm his/her spuse (ii) Acknwledgment f Spuse (signed by the Cmmissiner fr Oaths/Ntary Public) must be given freely and vluntarily dwer rights must be explained t the spuse dwer rights must be understd by the spuse it must be acknwledged apart frm the spuse (befre a Cmmissiner/Ntary) a specific frm is prescribed by legislatin 2. Release f Dwer Rights and Affidavit (s. 7 and 9 DA) REQUIREMENTS fr Release f Dwer Rights and Any Agreement Releasing Dwer Rights: a. The Release f Dwer Rights and accmpanying affidavit shall be: in prescribed frm; executed and swrn apart frm the married persn befre a lawyer that is nt als acting fr the spuse (i.e. independent legal advice). b. The Agreement releasing Dwer Rights (s. 9) which is ften given in cnjunctin with a. abve must be: in writing must be fr valuable cnsideratin which is set ut it must be acknwledged befre a lawyer that is nt als acting fr the spuse (and such lawyer must sign and attach an Acknwledgment t the agreement) it may be cntained in, r frm part f, a separatin r ther agreement; it can be general applying t all hmesteads wned by ther spuse r specific t simply ne 3. Curt Order Dispensing with Cnsent (s. 10) One can apply t the Curt fr an rder dispensing with cnsent f the spuse if the Curt cnsiders it fair and reasnable under the circumstances. The applicatin can be made in any f the fllwing circumstances: when the cuple are separated/living apart when the spuse has nt lived in Alberta since the marriage when the whereabuts f the spuse are unknwn when the married persn has 2 r mre hmesteads (in which case the curt will cnsider which hmestead such spuse wuld likely prefer) when the spuse has executed an agreement pursuant t s. 9 (Agreement Releasing Dwer Rights - in which case the curt will cnsider whether the ther terms have been dne and whether cnsideratin has been paid) when the spuse is mentally incmpetent 4. Affidavit Regarding Dwer (s. 4(6) DA) The spuse may als file an affidavit stating: that the persn is nt married r
8 that neither the married persn r the spuse have lived n the prperty at any time since their marriage. Remedies Vid: transactin can be undne at any time Vidable: can nly be undne prir t its cnclusin Current case law renders it uncertain as t hw it wuld be applied if there is n cmpliance with the Dwer Act Damages Sectin 1(c)2 and Sectin 11 deal with the damage issue Equal t the greater f half f the dispsitin paid r half f the fair market value If judgement is granted cnsistent with the damage award and the spuse desn't pay, then the deserving spuse is entitled t a claim frm the general revenue fund Questin: is the spuse restricted t damages? What if they want the prperty? Curt says a chice des exist Can set the transactin aside (suggests vid) Sue fr damages Example A sells t B withut spuse's permissin and then B sells t a bna fide purchaser fr value, then spuse cannt get the land but wuld still have a claim against the spuse and $ frm general revenue fund if spuse desn't pay. Q: Can Dwer Exist in All Real Prperty Owned by a Spuse? It has t be a hmestead which means it has t be resided n Questin f fact as t hw lng persn has t reside n it Q: Can a spuse have a dwer interest in mre than ne piece f real prperty? Yu cannt have it in mre than ne prperty If yu have a huse and a few ther prperties which yu reside n ccasinally, technically the Dwer rules apply t all f thse Q: Suppse yu have a cuple and the prperty is wned by the spuse and spuse's brther? N the dwer rules will nt apply CONDITIONAL CONTRACTS Cnditins Precedent Until an event ccurs, the prperty des nt pass. Cnditin Subsequent The prperty vests but if a cnditin des nt ccur, the prperty divests What is a "cnditin precedent?" A cnditin precedent is an external cnditin upn which the existence f the bligatin depends (Turney v. Zilka)
9 Nte: Agreement des nt require cnditin precedent t be satisfied in rder fr it t exist. The agreement is subject t the cnditin precedent. 3 Main Cnditins Precedent fr Residential Sale Subject t the sale f yur current hme Subject t financing Subject t satisfactry inspectin Dctrine f Waiver General Rule fr the Dctrine f Waiver: One has an implied right t waive a right if slely fr the benefit f such party and prvided it can be easily severed EXCEPT if it is a cnditin precedent. 4 Requirements fr Dctrine f Waiver t Apply 1. Must be fr the benefit f ne party Nature f the clause Wh inserted it? Why? Can the ther side suggest a pssible benefit t himself? 2. Must be capable f being severed Des the agreement still make sense? 3. Cmmunicatin Waiver within a specified time (1) Must be cmmunicated t the ther side (2) Cmmunicatin must be prir t the date fixed fr cmpletin r perfrmance 4. Prvisin being waived cannt be a cnditin precedent If the cnditin precedent is nt satisfied, the next questin is was there substantial cmpliance with it? If there wasn t substantial cmpliance, then yu have t lk at whether the reasnable party tk reasnable t ensure that cmpliance. Reasnable Steps Respnsible party tk reasnable steps Did the ther party actively thwart r impede the parties actins Factrs That Determine Whether a Cnditin Precedent Exists Hw external the cnditin is (the greater the extent t which the active interventin f a 3 rd party is required, the mre likely it will be a cnditin precedent Hw essential the cnditin is (the mre essential, the mre likely t be a CP) Is it a matter f frmatin (CP) r perfrmance? What is the character f the 3 rd party functin? Judicial (CP) as ppsed t rutine r administrative actin (cp) Type f Wrding used fr the cnditin that may suggest a cnditin precedent Subject t, Cntingent upn, cnditin upn, n the cnditin that, nly if (this ne is sketchy) Arguments t Keep the Agreement Alive Even if the Cnditin Precedent is nt Satisfied 1) Waiver Clause 2) Substantial Cmpletin
10 3) Breach f Cntract t Take Reasnable Steps t Fulfill the Cnditin Curt will imply duty upn parties t take reasnable steps t btain satisfactin f a CP Curt will nt allw ne f the parties t frustrate the fulfillment f a cnditin, even a true cnditin precedent Practical Advice Cnsideratins if Client Wants t Insert a CP Agreement includes express waiver clause Cnditin precedent is wrded as bradly as pssible Cnditin precedent is sufficiently certain in wrding Sufficient length f time is set ut t ensure time fr cmpletin f CP Practical Advice Cnsideratins if Client is n the Other Side Tightly cntrlled cnditin precedent that has bjective standards (nt left t ther party s discretin) Shrt time perid is specified since dn t want t tie up land fr lng perid f time If mre than 2 parties t agreement, express waiver clause inserted if ther side wants t waive In bth cases, whether acting fr purchaser r vendr, there are 2 additinal cnsideratins: Mechanism f Ntice: hw is ntice ging t be given Time fr Satisfactin is sufficiently clear f clsing date Turney v. Zhilka Beauchamp Defines what a cnditin precedent is. This case dealt with subdivisin apprval but the subdivisin apprval was nt btained. Curts acknwledge that they cannt d much even if there a legitimate argument. It was nt actively pursued. Turney case is wrng fr the fact that an agreement is in existence even prir t the cnditin precedent being satisfied but it terminates if the cnditins precedent is nt satisfied. This case dealt with substantial perfrmance. Where there is substantial perfrmance f a cnditin precedent, that may be satisfactry. Planning Requirements It used t be that there was a Planning Act but it gt repealed. Essence f the legislatin is that there is a general prhibitin f the subdivisin f land if there isn t subdivisin apprval. Gvernment was trying t balance the private interests f an wner against the rderly develpment f land. Things Cnsidered: Is there a park reserve? Reserve fr utilities? Envirnmental reserves? Legislatin The tw acts that are relevant are sectin 94 f the Land Titles Act and Part 17 f the Municipal Gvernment Act. The main sectin is f Part 17 is sectin 652. Sectin 652 A registrar may nt accept fr registratin an instrument that has the effect r may have the effect f subdividing a parcel f land unless the subdivisin has been apprved by a
11 subdivisin authrity. Sectin 94 Sale f subdivided land: N lt shall be sld under agreement fr sale r therwise accrding t any twn site r subdivisin plan until a plan creating the lts has been registered Effect f Nn-Cmpliance If yu d nt satisfy these prvisins, sectin 94 states that it is unenfrceable. What is subdivided land? Any land that is less than a 1/4 sectin wuld have t be subdivided in rder t sell. Factrs in Determining if a Lease is Legitimate r nt? Length f term Exclusive pssessin Intent: Is the intent t circumvent legislatin r is this a legitimate leasing arrangement? Was there a large payment paid at the utset Hw many rights were reserved t the wner? Summary f Planning If an arrangement (lease, transfer, right f ccupatin) nly cncerns a part f un-subdivided lands r f subdivided land, yu have t lk if there is a separate legal descriptin fr the area in questin If there isn't, yu ught t cnsider whether it is cntravenes planning legislatin When making the assessment: Nature f the arrangement in substance Intentin f the arrangement Length f the arrangement Extent f wnership rights Owners f land are free t d with their prperty what they wish but this has t be balanced against the Planning Legislatin Freign Ownership f Land Regulatins Purpse The purpse f these regulatins is t preserve agricultural/rural land fr Canadians. Legislatin and Applicatin The relevant legislatin is the Regulatins Respecting the Ownership f Agricultural and Recreatinal Land in Alberta passed in relatin t the Citizenship Act (Canada) and the Agricultural and Recreatinal Land Ownership Act (Alberta) Prhibitin RULE - The Regulatins prhibit ineligible persns and freign cntrlled crpratins frm acquiring r taking an interest in cntrlled land. This includes leasehld interests. Exceptins There are certain exceptins t this general prhibitin. Sme f these are as fllws: Ineligible persns and freign cntrlled crpratins cannt acquire cntrlled land EXCEPT:
12 leases fr less than 20 years prvided it cannt be renewed beynd that term, and it must be registered within 60 days (s. 6 f the Regulatins) land that is less than (bth) 2 parcels and 20 acres (s. 5 f the Regulatins) Therefre an ineligible persn r freign cntrlled crpratin can wn cntrlled land that is nt mre than 2 parcels cntaining, in the aggregate, nt mre than 20 acres. an ptin t purchase land if the ptin is exercisable within 1 year and the P, at the time f exercise f the ptin, is eligible (s. 7 f the Regulatins) A transfer by a freign cntrlled crpratin f an interest in cntrlled land t a freign cntrlled crpratin that is assciated with it (s. 12(1) f the Regulatins). ex. a subsidiary crpratin transferring land wnership t its parent Enfrcement Sectin 22 f the Regulatins This sectin requires a statutry declaratin t be filed (in almst all circumstances) where cntrlled land is invlved. There are at least 4 different prescribed frms attached t the Regulatins. The circumstances dictate the apprpriate frm. s. 28 Land Titles Act This sectin prvides that the Registrar f LTO shall refuse t register an instrument that is nt accmpanied by the dcumentatin required under the Freign Ownership Regulatins. Cntrl f Land Any land in Alberta excluding the fllwing: Crwn land, municipal land (land within cities and twns), and mines and minerals. Summary f Freign Ownership f Land If yu are dealing with rural land whether r nt it is subdivided, it is likely t be cntrlled land s make sure the purchaser is nt an ineligible persn. If the purchaser is an ineligible persn r a cntrlled crpratin, then yu have t lk t see if any exceptins apply. But in all cases, yu have t make sure yu fllw the statutry declaratin. FIXTURES Fixtures are attached t the land. Fixtures are knwn as attached gds and chattels are knwn as unattached gds. An wner f land desn't just wn the surface f the land but wns everything in it, belw it, as well as everything that is permanently affixed t it. Mirrrs Chandeliers Wall Munted TV Fixture Fixture Fixture Ht Tub (stand alne) Chattel Gazeb Chattel Dealing with Items that Start Out as Chattels but Becme Fixtures
13 Typically the PPSA which generally deals with chattels nly but there is als a persnal prperty ntice that yu register at the Land Titles Office PPSA: dealing with security interests Smene has a security interest in a chattel and gives it t an wner f prperty and that chattel becmes a fixture. La Salle case is an example f this. Persn wh supplied carpet was nt paid in full. They had a security interest in the carpet. When yu have that kind f situatin where the carpet is a chattel until yu actually affix it t the flr, persn wh has security interest has t register a persnal security ntice with the Land Titles Office against the land. Gives them pririty ver any ther creditrs. In the La Salle case, the persn did nt register at Land Titles and becme the carpet was deemed t be a fixture, he was ut f luck Summary f Fixtures Fixtures pass with realty. Chattels d nt. Purchaser gets the land plus anything affixed t it Purchaser is nt autmatically entitled t chattels There are sme presumptins that apply t determine if smething is a fixture r nt Thse presumptins are subject t the intentin f the parties and in assessing whether thse presumptins shuld be applied, yu lk t the bject and degree f annexatin Real Prperty Reprts Difficulty in quantificatin is the mst cmmn prblem in real prperty reprts Each municipality has certain zning restrictins and thse zning restrictins include setback requirements that relate t the buildings n the land 2 things yu are lking at Lcatin f the buildings Are there any encrachments? Once the land surveyr des the real prperty reprt, yu submit it t the city and they will advise whether it applies r nt. 3 respnses It cmplies and therefre yu get a cmpliance certificate N it desn't cmply with the current requirements but it did cmply with the frm f requirements (nn-cnfirming cnsent). At the time the prperty was built, it cnfrmed t the requirements at that time. Disadvantage f this is that yu cannt renvate the exterir f the prperty t change the prperties. The building can remain as is but yu can't add t it. Fr sme peple, that's nt a big deal. It desn't cmply and it is nn-cnfirming s therefre yu have a prblem. Pssible ramificatins include the city asking yu t remve the infractin. Example: if it is a garage r huse that desn't meet the setback requirements, culd have a huge impact if yu had t mve the garage r huse. If it desn't cmply, there is a prblem. If the city wanted, they culd make yu mve but usually nly d that if 3rd party Every transactin generally requires a real prperty reprt. Purchaser wants it t make sure the prperty cnfrms. Bank als wants it if the purchaser is getting financing. First step is t hire a surveyr. Once yu get the reprt, yu submit it t the city f the municipality in which the prperty is lcated in. Cst fr residential deals fr the reprt is abut $400-$500. It is mre expensive fr cmmercial deals. Cst f cmpliance is abut $70. General trend is that vendrs get the real prperty reprt and they are bligated t prvide it. There is an expiry date n these reprts. They dn't last frever. If there are changes t the prperty, yu have t get a new reprt.
14 Use f Title Insurance Suppse a garage r huse is encraching n an easement but just a little bit Ptential f having them mve the garage r huse is very small but if that did arise and they had t, the cst wuld be huge. These situatins are perfect fr title insurance since yu just pay abut $500 and they will assume the risk Overall Real prperty reprts are used t see if there are setback requirements r encrachments. Cmmercial Transactin If yu are acting fr a purchaser, yu want t find ut what the zning is and then yu lk t make sure that yur use cmplies with it As a purchaser, yu send a letter t the municipality t cnfirm the zning descriptin. Take that zning descriptin take it t the land use bylaws Residential Transactins If yu are buying in a residential area but want t use it as a business, then yu have t check that zning INCOME TAX CONSIDERATIONS In a residential transactin, it is rare fr a tax lawyer r accuntant t be invlved but in a cmmercial matter, there will almst always be a tax lawyer and accuntant 3 Incme Tax Matters Capital Gains Incme Tax Deductins Withhldings fr Nn-Residents Capital Gains Increase in value abve yur cst Yu have yur cst base which is usually what yu paid fr the prperty as cmpared with the current value The difference is yur capital gain. 50% f the capital gain is taxed Exceptin: Residential Real Estate Exceptin If yu qualify fr the Principal Residency Exemptin, yu dn't have t pay tax n yur increase in value Principal Residence: Yu have t wn it and yu have t regularly inhabit it. Yu als typically have t be a Canadian resident A lt f peple wanted t make their principle residence their cttages since cttages hiked up in value Generally yu are allwed t claim cttage prperty as a principal residence prvided yu d inhabit it sufficiently. This means ging ut t it n the weekends r during the summer Generally, yu nly have t designate the principal residence when yu sell. Yu pick the ne that has the biggest increase in value since that is where yu are ging t get the biggest value Yu are allwed nly ne principal residence per family unit If a client cmes t yu and wants t put it in the surviving spuse and child's name, then yu shuld suggest they get tax advice. If child is living in Capital Gains fr Qualified Small Business Crpratins can wn prperty and rather than having the crpratin sell the prperty, they might decide t sell the shares in the crpratin
15 Sharehlders will sell the shares in the crpratin. Purchaser gets the prperty buy purchasing shares in the crpratin Vendr wants it this way since capital gains tax applies nly t amunts ver first $750,000 (Qualified Small Business Exemptin) Deductin f Expenses if yu have a Hme Business Can allcate expenses such as phne bills, electricity bills, etc. Need t talk t an accuntant t knw what t deduct and talk t accuntant when selling Withhldings with a Nn-Resident Vendr If yu have a nn-resident vendr that is selling prperty, then yu have t lk at sectin 116 f the Incme Tax Act First f all, vendr has t ntify the Minister f Revenue that he is selling the prperty and all the details relating t it (sale price, cst f acquisitin, etc.) Frm there, Minister determines what tax is wing and then upn payment by vendr, a clearance certificate is issued t the vendr Typically the vendr will be required t pay 25% f the gain (difference between purchase price and the cst) If they d nt pay that amunt, they have t give security sufficient r acceptable t the Ministry If there is clearance certificate, as a purchaser yu need t make reasnable inquiry If yu make a reasnable inquiry and yu determine that the vendr is in fact a resident f Canada, then yu are ff the hk If the purchaser desn't get the certificate r desn't make reasnable inquiry and turns ut that vendr is a resident, then the purchaser is liable fr that Overall Make reasnable inquiry. If yu find ut that persn is a resident f Canada, yu dn't have t wrry. If persn is a nn-resident, yu need t get the clearance certificate. Reasnable inquiry requires smething in writing frm the vendr r vendr's lawyer indicating that he is a nnresident. Nte Yu are suppsed t withhld r remit when it cmes t things such as lease payments, management fees, etc. Any times mnies are paid t a nn-resident, yu shuld get sme tax r accunting advice r just remit 25% t the gvernment Transfer f Land Dcument Basic dcument that transfers land title Affidavit f executin: witnesses swear in frnt f the cmmissiner that they saw the vendr sign and he was ver the age f 18 Affidavit signed by purchaser: describes the cnsideratin. Third paragraph yu talk abut what yur pinin f what the land is wrth GENERAL SALES TAX GST: General Principles Regarding its Applicatin and Exemptins G.S.T. issues cme up in many transactins, therefre it is imprtant fr lawyers t have a handle n ptential G.S.T. issues. In general, and where pssible, a G.S.T. accuntant r tax lawyer shuld be cnsulted in any transactin where G.S.T. may be an issue.
16 Gverning Legislatin The gverning legislatin is the Excise Tax Act (Canada). The current G.S.T. rate is 5% (reduced frm 7% t 6% in July, 2006 and t 5% in Jan, 2008). Liability t pay is n the purchaser, hwever the respnsibility t cllect and remit is generally (but nt always) n the vendr. Tw Primary Cnsideratins There are tw primary cnsideratins t be cvered, each f which will be discussed in turn: When is G.S.T. payable? Wh is respnsible fr paying and remitting same? When is G.S.T. Payable? GENERAL RULE G.S.T. is payable n any supply/transfer f gds r services between 2 r mre persns (s. 165 ETA). Hwever are numerus exceptins. EXCEPTIONS (sme f them): Sale f Shares Cnsidered exempt since they are like a financial instrument Granting f a Mrtgage Purchaser btains a mrtgage t finance the purchase f land When purchaser is btaining that mrtgage, they dn't have t pay GST n it since it is a financial instrument Sale f all r Substantially all f the Assets f a Business (s. 167 ETA) Requirements: Bth parties must be GST registrants prir t the clsing date. All r substantially all is generally interpreted t mean 90% r mre f the assets which frm part f a business. [Nte: There may be mre than ne business being perated by the same persn/crpratin.] The electin frm (GST Frm 44) must be filled ut and jintly made/signed. Nte If yu have a sale f cmmercial land that is ging t be sld as part f the sale f a business, yu will typically fall under this exemptin. Transfers f assets n an Amalgamatin r Liquidatin (in mst cases) If yu have public cmpanies that are ging t amalgamate int ne, if they wn land, it will be in the new cmpany's name and they wn't have t pay GST n that Real Prperty Exceptins (in Schedule V t the ETA) Sales f Farm Land t Relatives (in sme situatins) Sales f Persnal Use Prperty (ex. bare lts, cttages) This is cmmnly referred t as the persnal use exemptin. Requirements: Vendr is an INDIVIDUAL nt a crpratin Land is nt being used fr any revenue generating purpse
17 [NOTE: the revenue generating activity des nt have t make a prfit] Rent Payable by Lessees f Used Residential Prperty is Exempt Sale f Used Residential Real Prperty. EXCEPTIONS If the residential cmplex has been substantially renvated r input tax credits were claimed in relatin t it. Requirements: Must be residential premises. Must be used. The land must be 1.25 acres r less. The abve exceptins must nt apply. (Nte that the land can be wned by an individual r a crpratin.) Types f Used Residential Cmplexes: Used Single family hmes **Cautin: If the land is mre than 1.25 acres, further analysis must be dne t determine if G.S.T. is payable. If the vendr is an individual If there was any revenue generating activity, G.S.T. will be payable n the sale f the excess land. If there was n revenue generating activity, G.S.T. will nt be payable because it can be sld as persnal use prperty. If the vendr is a crpratin The sale f the huse will be G.S.T. exempt and 1.25 acres, yet G.S.T. will be payable in relatin t the excess land. Therefre need t ALLOCATE the purchase price accrdingly. Apartment buildings f all sizes Except that ne needs t find anther exemptin fr any cmmercial space and chattels therein as therwise G.S.T. will be payable n thse aspects. This exceptin (i.e. used residential cmplexes ) des nt include: Htels, mtels r similar buildings [hwever ften anther exemptin will apply] New Residential Hmes Therefre G.S.T. is payable yet, if the purchaser is an individual, a G.S.T. tax rebate may be applicable. SECOND PRIMARY CONSIDERATION and general rule: Wh is respnsible fr paying and remitting same? GENERAL RULE The Purchaser is the party liable t pay the G.S.T., hwever the respnsibility t cllect and remit is generally n the Vendr (s. 221(1) ETA). If the Vendr fails t cllect and remit, and
18 the Purchaser des nt thereafter pay, then the Vendr will be liable. EXCEPTION If the supply is the taxable purchase f REAL PROPERTY by a G.S.T. registrant (s. 221(2) ETA), the Purchaser, nt the Vendr, has the bligatin t accunt t CRA fr the G.S.T. (s. 228(4) ETA). Requirements fr the Real Prperty Exceptin t Apply Purchaser must be a G.S.T. registrant by the clsing date. It must be a sale f real prperty, nt a lease. It must nt be a sale f NEW residential real prperty t an INDIVIDUAL. If chattels are cnsidered incidental supplies, then they are treated as real prperty. Basically if a real prperty exemptin applies and they are cnsidered incidental, they will slide under that exemptin. Suppse yu have land where its nn-residential cmmercial land but the purchaser is a GST registrant s vendr desn't have t remit but they have a whle bunch f appliances in the basement that they wuldn't need, thse extra appliances wuld nt be cnsidered incidental and therefre vendr wuld have t cllect and remit n the purchase price amunt attributable t thse chattels. If they are incidental, then they will be treated the same as real prperty. Basic Title Obligatins f the Vendr Tw Primary Cnsideratins When Purchasing Land (Title and Quality) A Purchaser is cncerned with tw main aspects when purchasing land: 1. TITLE t the Land - A Purchaser is cncerned abut the title t the land in the sense that he/she wants t becme the legal wner f land, subject nly t the encumbrances that he has agreed t assume. [Fcus is n the nature f the wnership (intangible).] 2. QUALITY f the Land - A Purchaser is cncerned abut the physical cnditin r quality f the lands (as well as the use t which they can be put) since a defect might restrict the use and enjyment f the prperty. [Fcus is n the nature/cnditin f the prperty.] Summary The STARTING POINT fr title bligatins is the strng presumptin at cmmn law that the Vendr shuld prvide a fee simple abslute title (including mines and minerals), unless there is clear language t the cntrary. If the Vendr desn t, it s a title defect and histrically, the Purchaser had a right t rescind. [Nw, as shwn in the next sectin which deals with the rescissin remedy, the harshness f this rule has been mitigated by simply allwing nminal damages if the value f the title defect is nminal.] APPLICABILITY OF THIS PRESUMPTION When determining the applicability f this presumptin, the curts will cnsider the fllwing (sme f which may limit r rebut the presumptin): Terms f the Cntract If it is an OPEN cntract such that title is nt addressed in the cntract, there is a presumptin that perfect title will be prvided by the Vendr. If there is n limitatin in the agreement, this presumptin applies (unless the knwledge exceptin applies). If it is a CLOSED OR COMPREHENSIVE cntract (such that the nature f the title t be transferred is stated):
19 While the terms f the cntract gvern, since any limitatins n the title will be viewed as being inserted fr the benefit f the Vendr, they will be subject t a restrictive interpretatin as against the Vendr T rebut the basic cmmn law presumptin, there must be clear, cncise and unequivcal language; and Any ambiguities will be reslved in favr f the Purchaser; and If it is a CLOSED OR COMPREHENSIVE cntract (such that the nature f the title t be transferred is stated) a Vendr has a duty t disclse t the Purchaser any latent defects in title, knwn t the Vendr, f which the Purchaser is unaware unless it is a typical title defect. Knwledge f the Purchaser There is NO DEEMED knwledge f the Purchaser. Therefre the Purchaser is nt deemed t have knwn what the title lks like at the Land Titles Office, even thugh a Purchaser is fully capable f pulling a title search. HOWEVER, if the Purchaser has ACTUAL KNOWLEDGE f a defect, the curt may, in sme cases, either: determine that the limitatin n the title was cnsistent with the agreement between the parties such that there was n breach by the Vendr in its title bligatins; and limit the remedies available t the Purchaser by nt allwing the rescissin remedy and ptentially limiting the remedy t nminal (r mre substantive) damages [discussed in mre depth in the next sectin] NOTE One must fcus n the substance f the knwledge. Ptential Title Issues Mrtgage Easements and Restrictive Cvenants Title Defect (encrachment) NOTE: TITLE IS IMPORTANT BUT IT IS NOT AN ESSENTIAL TERM 4 Cmmn Law Principles that Relate t Vendr s Obligatins 1. Strng presumptin at law fr the vendr t prvide a fee simple abslute unless there is clear language t the cntrary 2. If it is an pen cntract, then the curts will imply that vendr must prvide the fee simple abslute with pssessin 3. If it is a clsed cntract and if the vendr includes restrictins as t what kind f title they will prvide, then they must d s in clear terms and the restrictins will be interpreted narrwly against the vendr 4. If yu have a clsed cntract and there is a latent title defect f which the vendr is aware, the purchaser can rescind if that defect was nt disclsed t him. Exceptin: Typical Title Exceptin Nte: Typical Title Exceptins DO NOT APPLY t pen cntracts Only applies t clsed cntracts It wuld nt apply t pen cntracts A vendr is nt required t prvide smething that is typically reserved frm title Mst cmmn examples are mines and minerals r dealing with sme variant such as cal The secnd mst cmmn exceptin is cmmn easements against prperty (utility easements fr telephne, gas, electricity, etc.) AVAILABILITY OF THE RESCISSION REMEDY
20 What is rescissin? It is an equitable remedy that restres the parties t their pre-cntractual psitin (therefre depsits will be returned t ensure that the parties are in the psitin in which they std befre the cntract was entered int). The rescissin remedy allws: a. terminatin (in a sense) f the cntract by putting the parties int their pre-cntractual psitin b. recvery f depsit (and ptentially interest theren) c. recvery f incidental csts f searching title etc. Rescissin v. Repudiatin: Rescissin Typically, it is a remedy available t a representee, when the ther party has made a false r misleading representatin. Fr title issues, the Vendr is presumed t represent he/she will prvide perfect title, except as clearly stated. If the representee decides nt t prceed because f the misleading misrepresentatin, then his electin t refuse t be bund by the cntract cnstitutes rescissin. Rescissin allws the rescinding party t treat the cntract as if it were vid ab initi. Repudiatin By cntrast, repudiatin, if accepted by the nn-repudiating party, is essentially a terminatin f the cntract (but it des nt render the cntract vid ab initii). Repudiatin ccurs when wrds r cnduct f a party shw an intentin that that party intends nt t fulfill its bligatins under the cntract (r t be bund by the cntract). It further requires the nn-repudiating party t accept the repudiatin. If the nn-repudiating party instead elects t treat the cntract as still being in frce, the cntract remains in frce fr the future and the parties can sue fr past r future breaches. If the nn-repudiating party elects t accept the repudiatin, the cntract is terminated and the parties are discharged frm future bligatins. Hwever, rights and bligatins that have already matured are nt extinguished (therefre the cntract is nt vid ab initi, in cntrast t rescissin). When Des The Rescissin Remedy Apply? Generally, at law, rescissin is cnsidered a very strng remedy that is nly granted in exceptinal circumstances. Hwever, the traditin f the curts t accrd a strng reverence t the cncept f a perfect title (a fee simple abslute) allwed the remedy t apply in all cases where there was a title defect, prvided that the defect was nt trivial. The current trend f the curts is t braden the categry as t what cnstitutes trivial such that less title defects will allw the Purchaser entitlement t this remedy. GENERAL RULE The general rule is that a Purchaser will be entitled t rescind the transactin because f a title defect subject t the fllwing: 1. Materiality f the Defect The defect must be sufficiently material t justify rescissin. It cannt be trivial r immaterial. If cnsidered trivial, the remedy will be limited t mnetary cmpensatin in the frm f an abatement f purchase price (if any). Rescissin will nt be justified. 2. Is the title defect a defect in cnveyance as ppsed t a defect in title such that the Vendr has a reasnable perid t remedy the defect?
21 Defect in Title - A title defect whereby the Vendr des nt have the present means f enfrcing, cmpelling r btaining gd title. Defect in Cnveyance A title defect whereby the Vendr has the present means t enfrce r remedy gd title, but has yet t pursue that means t cnclusin. Defect in Title Defect where the vendr itself cannt slve the issue. It is dependent n sme 3 rd party act r smething ut f the vendr s cntrl. Example: Vendr did nt get dwer cnsent r did nt yet wn the land befre it cmmitted t sell it r there is a mrtgage against the land that exceeds the purchase price Defect in Cnveyance Vendr has the ability t remedy it. Example: A mrtgage that can be paid ff r there is an ptin t purchase land that it can exercise fr a nminal amunt and then it can sell the land Vendr s Quality and Fitness Obligatins GENERAL RULE FOR QUALITY DEFECTS The GENERAL RULE fr quality defects has tw elements: 1) Caveat Emptr (Buyer beware) Caveat emptr, qui ignrare nn debuit qud jus alienum emit. Let a purchaser, wh ught nt t be ignrant f the amunt and nature f the interest, exercise prper cautin. IMPLICATIONS are twfld A term as t quality r fitness f the subject matter being sld will nt be implied int the cntract. If a warranty is wanted, it must be expressed. Silence is glden. The Vendr is under n bligatin t disclse defects, even if he/she is aware f the defects. 2) Dctrine f Merger The terms f the cntract are merged int the final cnveyance and spent unless they can be said t clearly survive cmpletin f the cntract. RATIONALE (behind Dctrine f Merger) The curts wish t discurage resurrectin f the cntract nce it has been cmpleted and favur finality and certainty in business affairs. These tw principles f caveat emptr and the Dctrine f Merger significantly limit the prtectin affrded t the Purchaser and severely restrict the remedies f the Purchaser. MITIGATION f the GENERAL RULE The SEVERITY f the tw aspects f the general rule are MITIGATED by the fllwing: a. Limitatins n the Dctrine f Merger Executry cntracts and cntracting ut f the dctrine f merger.
22 b. Exceptins t Caveat Emptr There are certain exceptins t caveat emptr which, if applicable, will allw a Purchaser t make a claim against the Vendr. LIMITATIONS n the Dctrine f Merger There are the fllwing limitatins t the Dctrine f Merger: 1. Executry Cntracts If the cntract is still executry (as ppsed t executed), the dctrine f merger is nt applicable. 2. Cntracting Out - If the cntract expressly states that the terms f the cntract d nt merge in the final cnveyance, ne can avid the strict applicatin f the dctrine f merger. 3. Oral Cllateral Obligatin (survival f terms) The parties may agree that certain terms in the first cntract will nt merge in the final cnveyance. If s, the dctrine f merger des nt apply t a cllateral r independent undertaking (matters nt ging t cnveyance issues). EXCEPTIONS t r LIMITATIONS n Caveat Emptr There are certain exceptins t the caveat emptr rule where a Purchaser can maintain an actin against the Vendr fr quality defects. These assume that the defect in questin is sufficiently material t justify an actin and (typically) include a minimal degree f disclsure as mre particularly set frth belw. The exceptins are as fllws: 1. Terms/Wrding f the Cntract a. Is it a term f the cntract? b. If s, cnsider: i. Des the Dctrine f Merger apply t preclude a claim? If nt, is there an exclusin ii. clause? Is there an exclusin clause which precludes a claim (if the term is nt in the cntract ex. an ral term)? When yu are dealing with ral terms utside f the agreement, yu have t cnsider if there is an exclusin clause. Clause that says this is the entire agreement between the parties that says this is what it is. c. Cnditin v. warranty and impact n the remedy. If there is a claim under the cntract, the remedy depends n if the term is cnsidered a warranty r a cnditin If it is a warranty, yu nly get damages and generally applies t less imprtant terms If it is a cnditin, its cnsidered a very imprtant term and then yur remedies include recissin and/r damages Innimate terms: where the severity f the breach makes it ne f the ther. If it is a significant breach f a minr matter, it becmes elevated t a cnditin. Imprtance f the breach will determine the remedy Inncent Misrepresentatins a. Requirements Vendr makes a representatin abut the quality f the prperty but the vendr des nt knw the representatin is false Requirements include
23 1. Representatin by vendr 2. Reasnable reliance by purchaser 3. T the detriment f the purchaser 4. Vendr desn't knw f the falsehd f the representatin b. Remedy If these 4 requirements are met, the remedy is recissin Prblem: recissin is nly available if the cntract is executry meaning the cntract cannt be cmpleted. It is a very limited remedy 2 prblems with this remedy Fraudulent Misrepresentatins Yu will nt be able t see the prblems until yu get int the prperty Mst times there is ging t be an exclusin clause in the cntract that says there are n ther ral representatins r warranties which makes it difficult t get this remedy a. 4 Requirements There must be a false representatin f fact The purchaser must have relied upn this representatin f fact There must have been sme damages suffered Vendr knwingly made the false representatin b. Remedy Vendr is vicariusly liable fr his realtr. Fraudulent misrepresentatin is a very hard t prve. But if yu are successful, yu will get a whle array f remedies such as recissin, damages, etc. It desn't matter if cntract is executed r executry. The state f the cntract is irrelevant Errr in Substantialibus a. Requirement in Canada v. England This is based n the cmmn law mistake dctrine Yu can nly raise this when there has been a ttal failure f cnsideratin Ttal failure f cnsideratin has t be resulting frm a fundamental mutual mistake between the parties If yu want t make this claim, yu have knw that there is risk invlved since it is unclear when it is ging t apply Defect has t be very substantial such that it radically transfrms what the purchaser thught it was getting b. Remedy. Recissin and/r damages and desn't matter if cntract is cmpleted r nt Typically it is ging t be recissin Implied term as t Reasnable Fitness fr Human Habitatin a. Previusly ccupied hmes. There is n implied warranty that it will be fit fr human habitatin If there is an express warranty, then the purchaser may have recurse. Fr example: an area purchase cntract (it states that there are n latent defects rendering