- An accepted agreement of purchase and sale is a binding contract, not a preliminary step.
- Conditions are the buyer’s protection, and they have firm deadlines.
- The lawyer’s central work is title search, requisitions and closing arrangements.
- Closing costs beyond the purchase price are substantial and should be budgeted from the outset.
The agreement is the contract
Once an offer is accepted, the parties have a binding contract. Everything afterwards is performance of it.
This surprises buyers who think of the agreement as a preliminary. It is not: a buyer who walks away without a right to do so faces a claim for the seller’s losses, which in a falling market can be very large.
The time to negotiate terms is before acceptance.
Conditions
Conditions are what allow a buyer to withdraw. The common ones are financing, home inspection, and status certificate review for a condominium.
Each has a deadline. If the buyer does not waive or fulfil the condition by that time, the agreement generally terminates, which protects the buyer, but also means an inattentive buyer can lose a house they wanted.
A condition must be exercised in the manner the agreement specifies, in writing and on time. Informal notice is a common source of dispute.
In competitive markets buyers are often pressed to submit unconditional offers. That is a decision to assume real risk: no financing protection, no inspection, no recourse if the property is not what it appeared.
What the lawyer does
Between acceptance and closing the lawyer:
- Searches title to confirm the seller can convey clear title, and identifies registered interests such as mortgages, liens, easements and restrictive covenants.
- Conducts off-title searches, tax arrears, work orders, utilities, zoning compliance.
- Submits requisitions requiring the seller to resolve any defects before closing.
- Reviews the survey or arranges title insurance.
- Prepares and reviews the closing documents.
- Receives mortgage instructions and complies with the lender’s requirements.
- Calculates adjustments so that taxes, utilities and similar items are apportioned as at closing.
- Attends to the electronic registration and the flow of funds.
Requisitions have a deadline set in the agreement. A defect not raised in time may be treated as accepted, which is why title work has to begin promptly rather than in the final week.
Costs beyond the price
Buyers regularly underestimate this. In addition to the purchase price and the deposit, the closing costs typically include land transfer tax, with a second municipal land transfer tax in Toronto, legal fees and disbursements, title insurance, adjustments reimbursing the seller for prepaid amounts, and where applicable mortgage-related costs.
Rebates exist for eligible first-time buyers at both the provincial and Toronto levels, with their own qualifying conditions. Additional tax applies to certain non-resident purchasers, and there are restrictions on purchases by non-Canadians that have been extended and amended.
Because rates, thresholds and rebate amounts change, they should be confirmed for the specific transaction rather than assumed.
Where transactions go wrong
The most common serious problem is financing falling through on an unconditional offer, usually because an appraisal comes in below the purchase price and the lender advances less than expected. The buyer must make up the shortfall or default.
Others: undisclosed title defects; work orders or open building permits; the condition of the property on closing, where the obligation is generally to deliver in substantially the same condition, ordinary wear excepted; and a seller unable to close because their own purchase collapsed.
Failing to close has serious consequences: loss of deposit, and liability for the seller’s losses including any shortfall on a resale.
Closing day
Funds and documents are exchanged and the transfer is registered electronically. Keys are released once registration is complete and funds have flowed.
Delays on the day are usually caused by late mortgage advances or unresolved requisitions. Building in time, and not scheduling a mover for the exact hour of registration, is sensible.
Common questions
Can I back out after my offer is accepted?
Only if a condition permits it or the seller agrees. Otherwise the contract binds and walking away exposes the buyer to liability.
Do I need both a lawyer and a real estate agent?
They do different things. The agent handles the transaction commercially; only a lawyer can advise on the contract, search title and complete the transfer.
What is title insurance for?
It protects against certain title defects, fraud and some survey issues. It is not a substitute for a title search but it covers risks a search may not reveal.
When should I retain a lawyer?
Ideally before signing the agreement, and at the latest immediately after acceptance, because requisition and condition deadlines start running straight away.
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