Area of Law: Real Estate Law
Answer Number: 389
Agreement of Purchase and SaleRegion: Ontario Answer Number: 389
An Agreement of Purchase and Sale is a written contract between a seller and a buyer for the purchase and sale of a particular property. In the Agreement, the buyer agrees to purchase the property for a certain price, provided that a number of terms and conditions are satisfied. The process begins when the purchaser makes an offer, which is irrevocable for a certain time-period. If there are no counter-offers, the Agreement becomes a legally binding agreement if the offer is accepted by the seller, within the time-period set by the buyer. At this point, the Agreement cannot be cancelled unless both the buyer and the seller agree.
Because all agreements for the purchase and sale of land must be in writing to be legally enforceable, the Agreement provides a general layout for addressing the main issues. Most local real estate boards and the Ontario Real Estate Association have established standard form Agreements of Purchase and Sale. Although these forms contain standard terms and conditions, the Agreement can be changed if both the buyer and the seller agree and initial any additions or deletions.
Overview of the terms contained in the Agreement
Most standard form Agreements begin with some basic information about the buyer, the seller, and the property in question. There will also be an area to record the purchase price being offered by the buyer, and the deposit being paid by the buyer to the seller’s real estate agent in trust for the seller. The exact date and time that the offer is open (and irrevocable) is also specified. It is usually a few hours or days. If the offer to buy the property is not accepted by the seller before that date, it will become void.
Fixtures and chattels
The Agreement also deals with fixtures and chattels. Fixtures are generally improvements that have been made to a property that are attached or cannot easily be removed without causing damage to the property. Hot water heaters, built in cabinets and light fixtures are a few examples of fixtures. Fixtures are assumed to be included in the sale of the home, unless they are specifically excluded in the Agreement. Chattels, however, are moveable items of personal property contained on the property, and must specifically be listed in the Agreement if they are to be part of the sale of the home. For example, if the seller agrees to include a refrigerator and stove or gardening equipment in the sale, these items must be specifically identified in the Agreement. If there is any doubt as to whether an item is included or excluded, it should be clearly specified in the Agreement.
Title and other searches, closing arrangements, and completion date
Included in the Agreement are clauses dealing with:
The requisition date, which is the time within which the purchaser has to examine the title, and complete all other searches. It is generally set for 15 days to one month before the closing date of the transaction. Before this date, it is the purchaser’s responsibility to do a number of searches to ensure that there are no problems with the property. These are usually handled by the purchaser’s lawyer, and include things such as searching the registered ownership of the property with the land registry, checking that the property complies with zoning regulations, and searching for any outstanding municipal work orders.
The closing arrangements and completion date is when all relevant documents are exchanged by the parties’ lawyers and the sale is finalized. This is the date that the seller must give vacant possession of the property to the purchaser.
Most Agreements also establish a number of conditions and any special arrangements they are agreeing to. Common conditions include:
- That the buyer’s entire offer to purchase the home is conditional on the seller being the legal and registered owner of the property,
- If the buyer’s lawyer discovers any problems while doing the various document searches, the buyer must send a letter to the seller’s lawyer before the requisition deadline explaining the problem. If the seller is unable to fix the problem, then the entire agreement may come to an end unless the buyer chooses to take the property with the particular defect,
- That unless the buyer makes an objection in writing before the requisition date, the buyer cannot later complain about any defects in the seller’s ownership of the property. For this reason, it is very important for the buyer’s lawyer to perform all the necessary searches to ensure that there are no hidden problems that may arise at a later date,
- The buyer may agree to assume the seller’s existing mortgage, rather than arranging separate financing through a bank,
- That the agreement is conditional on the sale of the purchaser’s current home, or on the purchaser arranging financing,
- That the seller provide a survey of the property,
- In the case of a condominium purchase, that a Status Certificate be provided, and
- That the offer can be voided by the purchaser if problems are discovered during a home inspection.
The remaining clauses in the Agreement deal with a number of technical issues in relation to the future use of the property, the production of documents, insurance, the Planning Act, tax arrangements, adjustments, spousal consent, and other standard clauses. Your lawyer or real estate agent can provide a more detailed explanation of these terms.
Completing an Agreement of Purchase and Sale can be complicated and technical. Before the Agreement becomes final, it may get modified as the result of negotiations between the buyer and the seller, and counter-offers presented to the buyer by the seller. To be certain that you understand all the terms of the Agreement, it is best to have your Agreement reviewed by a lawyer before your purchase or sale of land is finalized.
If you are buying a home and want to know how much of a mortgage you qualify for, use the Scotiabank mortgage calculator .
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