Most purchase and sale agreements come in standard formats, with standard clauses, and are drafted by the builder or real estate board. There are generally spaces throughout the agreement for additional, customized clauses to be added.
It is recommended to have a lawyer review your offer to purchase before you sign it. Regrettably, relatively few people do this, because they either don’t realize they should, perceive it to be an unnecessary or costly legal expense, or could cause delay that could cause a purchase to be lost to someone else, or otherwise kill the deal.
Alternatively, rather than seeing a lawyer before submitting an offer to purchase, some people may wish to insert a condition that states the offer is subject to approval as to form and contents by the purchaser’s solicitor within X days of acceptance.
There are many common clauses and features contained in the purchase and sale agreement, many of which vary from contract to contract according to various circumstances-whether one is purchasing a new or a resale condominium or house, etc. A brief overview follows of some of the common features of the agreement for purchase and sale. This article is Part I of a two part series.
Amount of Deposit
A deposit serves various purposes. It is a partial payment on the purchase price, a good-faith indication of seriousness, and an assurance of performance if all the conditions in the offer to purchase have been fulfilled. The deposit is generally 5% to 10% of the purchase price. If there were conditions in the offer, and these conditions were not met, then the purchaser would be entitled to receive the full amount of the deposit back. This is one reason why it is important to have conditions or “subject to” clauses in the offer to protect one’s interests fully. When making a deposit, it is very important to be careful whom the funds are paid to. If you are purchasing through a private sale and no realtor is involved, never pay the funds directly to the vendor; pay them to your own lawyer in trust.
If a realtor is involved, the funds can be paid to the realtor’s trust account or your own lawyer’s trust account as the situation dictates. If you are purchasing a new condominium from the builder, do not pay a deposit directly to the builder unless it is held in trust by the builder’s lawyer or real estate agent. The money should go to your lawyer’s trust account, or some other system should be set up for your protection ensuring that your funds cannot be used except under certain conditions as clearly set out in the agreement,
Another matter you have to consider is payment of interest. If you are paying a deposit, you want to ensure that interest at the appropriate rate or based on the appropriate formula is paid to your credit. In many cases, deposit monies can be tied up for many months, or in a condo presale situation for many years. These delays could represent considerable amounts of interest.
Conditions and Warranties
It is important to understand the distinction between conditions and warranties, as it is very critical to the wording that you would be using in the agreement. A condition is a requirement that is fundamental to the very existence of the offer. A breach of condition allows the buyer to get out of the contract and obtain the full amount of the deposit back. An inability to meet the condition set by a vendor permits the vendor to get out of the contract.
A warranty is a minor promise that does not go to the heart of the contract. If there is a breach of warranty, the purchaser cannot cancel but most complete the contract and sue for damages. Therefore if a particular requirement on your part is pivotal to your decision to purchase the condominium or not, it is important to frame your requirement as a condition rather than as a warranty. Both vendors and purchasers frequently insert conditions into the agreement, sometimes referred to as subject clauses. You can see why the services of an experienced real estate lawyer are important to protect your financial interests.
Risk and Insurance
It is important that the parties agree to exactly when risk is going to pass from the vendor to the purchaser. In some cases the agreement will state that the risk will pass at the time that there is a firm, binding, unconditional purchase and sale agreement. In other cases, the contract states that the risk will pass on the completion date or the possession date. In any event, make sure that you have adequate insurance coverage taking effect as of and including the date that you assume the risk. The vendor should wait until after the risk date before terminating insurance.
