Death of a Seller Prior to Closing

Sometimes after a series of unfortunate events the Buyer, or more likely the Seller of a parcel land dies after signing a binding contract for the purchase, but prior to completion (and signing the transfer).

At common law, where a contract was for “personal services”, the death of the party providing those services would “frustrate” the contract making it impossible to perform. For example, a man’s promise to marry was not held to be binding after his death (Mc Bride [1962] SCR 202).

This is not the situation for Real Estate Contracts. Real Estate Contracts are financial obligations and the foundation or subject matter of the contract, being real property, continues to exist after the death of any one of the parties. Canadian courts have consistently upheld the principal in Witicki v. Midley [1976] 6 WWR 471, wherein a contract for the sale of land was binding on the deceased’s estate despite the seller dying prior to signing the transfer document.

But… procedurally, the executor cannot sign the transfer until probate is granted… what happens? Usually, the parties (and their lawyers) will grant a pre-closing possession/ tenancy on the strength of having all the necessary documents (except the transfer) held in trust until such a time as probate can be granted.

Saving Your Client Money in a Real Estate Transaction

This weeks blog post is definitely not legal advice, however growing up in the Real Estate industry for the past 34 years, there are definitely a few ways I have discovered that both Realtors and Lawyers can add value to their clients transaction:

Negotiate from a position of strength – in short, ensure that your client has done everything they can do to help a deal move forward. This includes obvious things like obtaining a pre-approval and limiting subject conditions only to “bare essential items” (like title review, strata docs, home inspection, financing). However, taking this to the next level means having this discussion with your client:

1. What is the BEST outcome if the deal does NOT go through? And
2. What is the WORST outcome if the deal does NOT go through?

These two questions very quickly get to the heart of your client’s motivation.

Setting good dates – everyone wants to close at the end of the month, this means that you client is just one of many people needing services from lawyers, movers, strata companies. The best advice here is to remove subject conditions at least 30 days prior to closing, and have closing occur on the "off-weeks" during a month (ie; those weeks that do not contain the 15^th or 30^th).

Knowing the Local Area – there are many areas in the Central Okanagan where housing costs will be dramatically different for a number of reasons that are not immediately apparent from the listing, for example:

1. Are you too far from a fire hydrant/ protection area to obtain cost effective fire insurance (Some parts of the Upper Mission)?
2. Does the area you are in have such poor water quality which will necessitate you bringing in outside sources (ie; Glenmore – Ellison Irrigation District)?
3. Does the smaller municipality mean that you property taxes are going to be markedly higher (ie; Lake Country, Peachland)

Search out Hidden Costs

1. Get a good home inspection, but then get a follow-up expert inspection if anything substantive arises (ie; roof, foundation, building envelope/ water, electrical, plumbing).
2. Get to know your strata council – everyone reads strata docs, this is standard. However don’t be afraid to take the extra step of calling the Strata Council President, you’d be surprised what doesn’t make it into the minutes.

Dealing with Divorcing Clients - Fiduciary Obligations

As a professional, dealing with clients who are undergoing a divorce is always very difficult. Recently there was a local news story highlighting some these issues (http://www.chbcnews.ca/kelowna+lawyer+suspended+from+practice/6442483996/story.html)

As Agents where we know a client is undergoing a divorce it is important to get clear and unequivocal instructions from "your client". Realtors and Lawyers owe a duty of care to their clients, this includes, in the context of a Divorce, duties of:

1) Full Disclosure - to BOTH parties (for example, cc the other spouse on ALL emails)
2) Undivided Loyalty - You cannot favor the interests of one spouse over another
3) Confidentiality - Without your client's permission, you have to keep your conversations with both spouses confidential and not publicly disclose that information (ie; the fact that they are getting a divorce).

A caveat - the fact that there is an ongoing divorce proceeding MUST be disclosed to the lawyer representing the separating parties (who also must keep the information confidential) as this effects the legal work that needs to be done at closing.


Failure to ensure that both spouses are "on board" will quickly "scuttle" a real estate deal. For Realtors this means getting CLEAR and UNEQUIVOCAL instructions, preferably written, from both spouses. This is even true where only one spouse is "on title".


At Pihl Law Corporation, upon file opening we always ask all our clients whether they are aware of a pending family dispute among the parties as this is such an important issue. Both spouses must sign and approve an "Order to Pay" which sets out all deductions from the purchase price (including commissions and legal fees).

A Commercial Landlords Remedies Under a Valid Lease

 A landlord has five basic options when a commercial lease goes into default:

1. affirm the lease and sue for amounts due;

2. affirm the lease and distrain the tenant’s goods on the premises for rent in arrears;

3. terminate the lease and re-enter the premises;

4. affirm the lease and relet the premises on the tenant’s account; or

5. negotiate a surrender of lease.

Importantly: Choosing one of these options will often foreclose the possibility of choosing another alternative, therefore it is often in your best interest to discuss these options with your lawyer prior to proceeding.

1. Sue for Amounts Due:

The landlord can refuse to accept the repudiation of the lease by the tenant and do nothing to alter the relationship of landlord and tenant. The landlord can then insist on performance of the terms under the lease and sue for rent or damages on the basis that the lease remains in force.

2. Distress when rent has not been paid:

If the lease has not been terminated and the tenant owes rent, the landlord may seize the tenant’s goods at the leased premises and hold them as security for payment of the outstanding rent.

A landlord cannot distrain a tenants' fixtures or improvements. A fixture is personal property that is attached to land or a building and is regarded as an irremovable part of the building.  A landlord can then sell the seized moveable property (chattels) and apply the proceeds of that sale to the outstanding rent.

A landlord must be careful not to commit an illegal distress. An illegal distress occurs when:

1. there is no tenancy (if the possession is characterized as a mere license or other interest); 
2. no rent is due; or 
3. rent is due, but:

a. the landlord has terminated the lease;

b. the landlord or the bailiff break into the premises, or enter during a prohibited period;

c. exempt goods are seized, such as personal property of someone who is not the tenant;

d. the distress is made more than six months after the end of the term;

e. the landlord continues the distress after the tenant tenders the rent and costs of the distress; or

f. goods are seized off the premises when not permitted

When dealing with large items, a landlord should have a bailiff state that the goods are seized, secure and sell the property on the premises rather than removing them. If the tenant retakes them, then the landlord can recover damages and costs.

3. Re-entering and Terminating the Lease

The landlord will have terminated the lease if the landlord's actions made it clear that the landlord had no intention of allowing the tenant to re-enter the premises again or to carry on with the lease unless the money owing was paid. Once a tenancy is terminated and the landlord has taken possession of the premises, the landlord is then only able to sue only for rent due or for damages for breaches of covenant committed before the date of termination.

4. Affirming the Lease and Re-letting the Premises

The landlord can refuse to accept the repudiation or abandonment of the lease, but advise the tenant that it will re-enter the premises and re-let the property “on the tenant’s behalf”. The landlord then holds the tenant liable for any deficiency in rental for the balance of the lease term.

                         

This is foregoing is generalized information only and not legal advice for any particular set of facts.

For more information, please contact Peter Borszcz at PIHL Law Corporation:

Peter.borszcz@pihl.ca

250-762-5434

Twitter: @pihllawcorp

Higher Standards for Property Disclosure Statements

In BC, Sellers have a choice with Property Disclosure Statements ("PDS"), they could either:
a) simply cross them out and do not complete the questionaire and mark "as-is"; thus the principal of "buyer beware" would apply (Smith, 2005 BCSC 635); or
b) they would have to fill out the PDS "to the best of their knowledge" (Curtin v. Blewett, 28 RPR 3d 115).

Now, a recent Ontario Court of Appeal case, Krawchuk v. Scherbak 2011 ONCA 352, seems to impose a markedly higher standard on sellers who chose to fill out the PDS. The ONCA stated that Sellers, once they have chosen to complete a PDS have an obligation to "provide to the extent possible, accurate and complete information" and the Court went onto say that the Vendor was liable despite the fact that they "tried to be honest".

Although not technically the "law" in British Columbia, this case will be compelling for BC Courts. Realtors should always advise Sellers that they have an obligation to "look further" if there are "issues" with a property of which they are aware. 

Of note also in this case, the Realtor, who has a dual agent, was liable to both the Buyer and Seller and had judgement against them for over $100,000 for failure to a) emphasize the importance of a home inspection to the Buyer and b) emphasize the importance of making full and complete disclosure to the Seller.

Addendum:
For those looking for the full text of the case it can be found here:
http://www.canlii.org/en/on/onca/doc/2011/2011onca352/2011onca352.html

The BC Real Estate Association in its July 2011 Issue of "Legally Speaking" discussed this case and came to the conclusion that "the outcome of the case would have been different had the case been decided in BC". With respect this ignores the fact that the Court on Ontario has changed the law in Ontario and this case now gives more traction to a BC Court wishing to similarly change the law in BC.

But... stay tuned... this case has submitted for leave to appeal to the Supreme Court of Canada...

Who Should be on Title?

When buying a house, you must decide whose name will go on title. Will you be the sole owner? Should you be on title at all? Will you and your spouse go on title together? If so, will you be joint tenants or tenants in common? What about your children?

What is the difference between Joint Tenancy and Tenancy in Common?

Joint Tenancy means that two or more people own property in equal undivided portions, with an equal right to use the whole property. When one joint tenant dies, the property is transferred to the surviving joint tenant immediately before the moment of death. This means the property does not become a part of the estate of the person who died and the property will not be subject to probate fees, will not be taxed as a part of the estate and will not be distributed among the beneficiaries of the estate.

Joint tenancy is generally preferred for most spouses.

If two or more people own property as a Tenancy in Common, it does not have to be divided equally. Tenants in Common can own different proportions of the property, for example ¼ and ¾, and they can sell or mortgage their portion as they please. If one tenant in common dies, that person’s share of the property becomes a part of the deceased’s estate. It is subject to probate fees and it will be distributed to the beneficiaries of the deceased’s estate. As you can imagine, property can be a difficult thing to “distribute”.

Tenants is generally preferred for blended families and other unique arrangements (like a shared vacation cottage).

Can I hold title in only one name, excluding my spouse or common law partner?

Having title in your name does not always mean you are the only one with an interest in the property. If you are in a relationship and have been living together for at least two years, your partner may have a claim to part of the property even though they are not on title.

If you are a self-employed professional, you want to protect your assets from any business creditors. Some people attempt to protect their assets by placing title in their spouse’s name or have title held by a holding company.  This protection is not absolute and most bank will require a spouse to, at the very least be a Guarantor or Covenanter on the Mortgage.

What about going on title with my Adult Child ?

If you are thinking of holding a property in joint tenancy with an Adult Child for estate planning purposes, you should consult a lawyer. There can be many unintended consequences and pitfalls for such an arrangement. For example:

-loss of control: you cannot sell or mortgage without the consent of the child

-taxes: there may be capitals gains consequences for the parent or the child

-property transfer tax: depending on whether the property is a principal residence, you may have to pay property transfer tax

-creditors: the property will be at risk to claims by the child’s creditors

-uncertainty: it is possible that you may not be successful in creating a joint tenancy if the child does not live in the house. The joint tenancy may be unintentionally severed by a number of events.

Property Transfer Tax: First Time Home Buyers

First time home buyers get an exemptions from paying the property transfer tax and this "tax break" can save FTHB thousands of dollars. However, First Time Home Buyers need to carefully ensure that they qualify for this tax savings. Persons claiming a FTHB credit are regularly audited by the PTT Office.

The Criteria to Qualify are as follows;

Purchaser must:
a)  be a Canadian Citizen, or a permanent resident as determined by Immigration Canada,
b) have lived in British Columbia for 12 consecutive months immediately before the date
you register the property, or you have filed 2 income tax returns as a British Columbia
resident during the 6 years before the date you register the property,
c) never owned an interest in land anywhere in the world at anytime,
and
d) you have never received a first time home buyers’ exemption or refund.

The Property you purchase must also qualify as follows:
a) the price must be less than $425,000
b) the land must be less than 0.5 hectares (1.24 acres), and
c)  the property will only be used as your principal residence.

Importantly, if you sell the property or acquire a new principal residence within 12 months of purchase, you will lose the exemption and the Province will demand for the tax to be paid.

More information here:
http://www.sbr.gov.bc.ca/documents_library/brochures/firsttimehomebuyer.pdf

Key Supreme Court of Canada Case for Developer Disclosure

In the last few years, there had been a landslide of litigation over pre-sale contract under the Real Estate Development and Marketing Act. In a recently released Supreme Court of Canada case (Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23) , the Supreme Court critically defines what information is "material" and gives rise to a disclosure obligation what does not.

Under the terms of the Real Estate Act (now the Real Estate Development and Marketing Act), a Developer MUST disclose all material information, which means:

"Information is material if there is a substantial likelihood that it would have been considered important by a reasonable investor in making his or her decision to invest. In other words, information is material if there is a substantial likelihood that its disclosure would have been viewed by the reasonable investor as having significantly altered the total mix of information made available."

One of the critical points here is that the standard is that of a "reasonable investor" meaning that it is an objective test, and not subject to the variety of factors which may motivate individual purchasers.

Critically Developers who make a false statement in a disclosure statement will be provided a defense where:

"the statutory defence contained in s. 75(2)(b)(viii) of the Real Estate Act would preclude [a developer] from being found liable under s. 75(2). To rely on the defence, [a developer] had to show that it subjectively believed the representations it made were true and that it objectively had reasonable grounds for such a belief."

Developers who use and reasonably rely on experts to produce the information in their disclosure statements may have a defense under this provision.

Sales of Waterfront Property

Who Owns the Water?

All water in BC is owned by the Crown and strictly regulated. As property lines extend to, but do not include the foreshore, the upland owner has no rights to use or “possess” the water, only a right to access. A license from the Provincial Crown is require to use/ possess.

Waterfront Boundaries Can Change

The Crown owns all property which exists below the high water mark therefore if the high water mark changes, the property boundaries will change. A new survey is required to re-define the property after erosion (loss) or accretion (gain), especially for:

1. Property tax issues
2. Building on property (building envelope)
3. Building on water (dock location)

General Public has a Right of Access to Foreshore.

In Minor v. Van Ewyk, 2008 BCSC 558 the Court said that “the foreshore is open to public use…. The only rights the [land owner] may assert are her common law riparian right to unrestricted access to and from the water frontage, and the right conferred under a “License of Occupation””.

Dock Licenses

As Docks occupy Crown Land, a License is required for a legal dock. A License is a Personal Right and is not transferred with a transfer of the upland. There are Three Types of Dock Licneses commonly found on Okanagan Lake

A. License of Occupation (pre-2008)

B. Specific Permission (non-exclusive)

C. Water Lot Lease (exclusive occupation)

Importantly, unlike other some other lakes in BC, there is no General Permission on Okanagan Lake to build a dock!

The License will often have Limitations, for example:

A. Not to interfere with other rights or navigation (Fixed Impediments)

B. Environmental Covenants

C. Limitations on Use (# of slips/ commercial v. residential)

D. Cannot interfere with Public Access

E. No “non-moorage” purposes, incl.: patios, sundecks, hot tubs, roofs/ gazebos.

Assignment (Sales) of Dock Licenses

As a License is NOT conveyed with land, must be assigned

Suggested Contract Language:

The Seller assigns and the Buyer assumes all right, title and interest to the License of Occupation [or Permission] #19978722 with the Province of British Columbia, a true copy of which is attached to this Contract, for, inter alia, the Dock adjoining the property.

The Seller represents and warrants that the License of Occupation [or Permission] #19978722 is in good standing.”

Important Note: Consent of Province to the assignment often will be required and may be denied

Deposits on Residential Real Estate Contracts

A DEPOSIT is usually made from the BUYER in the BUYER’s AGENTS trust account and is held according to the stakeholder provisions of the Real Estate Services Act.

This means that the DEPOSIT can generally ONLY be released prior to completion where:
a) it is paid into COURT or in accordance with a COURT ORDER; or
b) by WRITTEN AGREEMENT of the parties.

Currently, there is a “gap” in RESA whereby a Buyer who does not remove his subject conditions could be faced by a stubborn Seller who refuses to release the deposit. This would force the Buyer (who doesn’t want the home anyway) to go to Court to get his deposit returned. In light of this I recommend that Buyer's do not make a deposit is made until subject removal.

The BC Court of Appeal expanded our understanding of “Deposits” in the recent case of Agosti v. Winter 2009 BCCA 490. The court distinguished between true deposits (amounts up to 10% of the purchase price) and excessive deposits. Absent other evidence, EXCESSIVE DEPOSITS (over 10%) may be characterized as punitive by the court and subject to “review and relief” under the Law and Equity Act.

With TRUE DEPOSITS, the court upheld the general rule that a true deposit is “earnest money” and is forfeit in the event of the Buyer’s failure to complete. This upholds the “ordinary meaning” of the word deposit and is reinforced by words such as “non-refundable” and “absolutely forfeited” upon breach by the Buyer. According to the Court, a Seller would be able to claim the TRUE DEPOSIT, even if such amount did not amount to a genuine pre-estimate of damages.

Importantly, this decision did not LIMIT the liability of the non-completing BUYER to the deposit amount alone. If forced to litigate, most Sellers are likely to seek amounts over and above the deposit, including (but not limited to) loss of profit, re-marketing costs, upkeep costs, and interest costs.

How can Realtors advise their clients?
a) no deposit should be made until subjects are removed;
b) a maximum deposit of 10% to ensure the deposit is a TRUE DEPOSIT;
c) once made to the brokerage, inform client that the deposit can ONLY be returned according to RESA; and
d) the minimum claim of a Seller in breach is likely the deposit amount, however the maximum claim may be substantially higher.

Addenda:
The Professional Standards Manual says that Listing Agents should, if no deposit is received, "advise sellers of the merits of a deposit being received from buyers". "Merits of a Deposit" is difficult language for Realtors and it will necessitate "what if" discussions in the event of non-completion. From a Realtor's perspective this is a good time to discuss what lawyer your client wishes to use.