Brian's Ontario Real Estate Blog

Seller Property Information Statement (SPIS) Ontario ~ Part 4

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Wed, 09 Dec 2009 10:28:16 -0600

Seller Property Information Statement (SPIS) Ontario Part 4

By Brian Madigan LL.B.

(local projects, heritage designations, appliances and equipment, warranties and the GST)

Seller Property Information Statement ~ Residential

15. Are there any public projects planned for the immediate area?
E.g. road widening, new highways, expropriations, etc.

Well, you would have to be a mind reader to know the answer to this question.

Why doesn't the buyer simply go to the municipality and ask these questions? The only way to be sure would be to attend meetings at the local Council Chamber. You would have to go to the Municipal Clerk for the answer to this question.

A correct answer would involve knowing precisely the distinction between "planned" and "discussed". Again the issue is the "immediate area" and that would have to be determined. Further, if the seller has responded to road widenings, new highways and expropriations, he is also presumed to have answered the question "etc." which is inherently vague.

16. Is the property connected to municipal water and sewer? If not, Schedule 222 to be completed.

Relatively speaking, this is an easy question. If the seller doesn't have a well for drinking water, and he's not on a septic system, then he's probably connected to municipal water and municipal sewers. But, don't jump to conclusions so quickly, he may have water, but still be on septic. If the seller is not sure, then he should say so..

Frequently, a property owner will have been given the option (at a cost) to connect. Everybody wants municipal water, but the cost of hooking up to the sewer system can be expensive. If the septic system is working well, then why not connect later, when there is a problem?

This could be the one house on the street that is not connected. Even if it works perfectly, and the seller didn't even know that he was on septic, now because he said "yes" he will have to pay for the buyer to connect to the sewer system. These connections will likely run in the $8,000 to $12,000 range. They are not inexpensive, so, this could be an expensive question to answer.

Again, although the question seems factual, many sellers are looking to registrants to assist them with the completion of the document.

17(a) Are there any current or pending Heritage designations for the property?

This might be a little simpler. Most of the time, these types of designations affect buildings that are over 100 years of age. However, from time to time, newer buildings might be designated, particularly if they were constructed using older building designs or themes.

The risk is if the seller has a century building and is unaware of its possible designation. If it is so designated, then this may be a "plus" because government grants may be available to assist with exterior refurbishing.

If the seller is of an older building is not sure, don't guess. There is also a requirement to disclose pending designations. Presumably, if the seller is the current owner he will have received something in the mail. Then again, how pending is pending? What if the municipal officials were around six months ago, but the seller has heard nothing?

17 (b) Is the property in an area designated as Heritage?

This is a little tougher to answer. Where's the area? The seller may not really know the answer to this question. The only way to be sure would be to contact the municipality.

18. Are there any conditional sales contracts, leases, or service contracts? e.g.: furnace, alarm system, hot water tank, propane tank, etc.

Actually, to be quite fair, this is a very good question and it directs your mind to some issues that will have to be considered if seller is to dispose of his property. To be fair, these questions need to be addressed. The seller needs to obtain copies of the original contracts or contact the supplier if he is unsure.

Are these contracts assignable or will they be discharged?

Unless you have the contract in hand, you likely won't know. If the seller acquired the furnace and it was a conditional sale, then he doesn't own it until he has paid for it. The condition is that upon full payment of the purchase price the furnace company will give the seller legal title to the furnace. Until then, the company owns it. So, it can't be sold.. Also, there may be restrictions concerning assignment. Further, the seller is probably still liable if the buyer defaults. Sometimes, the preferred solution would be to pay it out on closing.

The alarm system may be owned by the alarm company. Contact them in advance about assignment. And, the seller is likely to be renting the hot water tank. Make sure this is clear.

Service contracts may be assignable. There is not much purpose in assigning them because the buyer is not going to pay any more money. So, just close the account. On the other hand, if a seller is giving some kind of continuing warranty about the equipment and there is a service contract, then it might be wise if it stays in place. Let the buyer cancel it after closing.

19. Are there any defects in any appliances or equipment included with the property?

Of course there are defects. There are defects in everything that is man-made. Why would this place be any different? I would be concerned about this clause even if I were a builder constructing brand new homes and installing new appliances.

Most of the time, people don't use all the features on their appliances. So, how would they know if all the features work perfectly? You are better with no warranties here unless you are expecting a substantial amount of the purchase price to reflect the value of the equipment and appliances.

Note that the phrase "equipment" is included. That means any mechanical or operating system, ie. furnace, air-conditioner, hot water tank, plumbing or electrical system, swimming pool filters, motors, heaters, vacuum systems etc.

Remember that everything is included unless it's excluded. The Form does not distinguish between fixtures and chattels in this question.

20. Do you know the approximate age of the building(s)? Age ________

Possibly, if the seller is the first owner, he will have this information at his fingertips. Otherwise, it is probably better to over-estimate. Once a building is older than 30 years, you may have a difficult time guessing. And then again, why should you be guessing? The buyer's guesswork is probably as good as the seller's. So, let the buyer guess!

Any additions: Age ________

This is very difficult to estimate. Again it is probably better to say that it's older than newer, then again, why guess?

21. Are there any past or pending claims under the Tarion Warranty Corporation (formerly ONHWP)? Tarion Warranty Corporation/ONHWP Registration Number.

The only way you can be sure is if the seller is the first owner, and he either made a claim or he did not make a claim. How could anyone be sure about prior owners?

Also, there is an issue concerning the right to assign the Warranty. Inquiries can be made to Tarion directly to obtain clarification.

22. Will the sale of this property be subject to GST?

There are provisions contained in the agreement to deal with this issue. The seller should call his accountant if he is not sure. If it is a commercial property then GST will apply. If the seller claimed input tax credits, then GST will apply. There are exemptions for resale houses. Perhaps it would be wise to obtain professional help?

ADDITIONAL COMMENTS:

This is the seller's opportunity to tell anything else that may be relevant in questions 15 to 22.

If there is something to say, it should disclosed here. This is not a case of "silence is golden". If the seller has undertaken to complete the FORM, then full disclosure is required. In the Form, the seller is given four lines, but do not draw the inference that that is the length of an answer that would be considered sufficient. It is not. Use whatever additional pages or attach whatever additional documents may be necessary in order to provide a full and complete answer.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Seller Property Information Statement (SPIS) Ontario ~ Part 3

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Wed, 09 Dec 2009 10:19:07 -0600

Seller Property Information Statement Part 3

By Brian Madigan LL.B.

(zoning, land use restrictions, and deficiency notices)

Seller Property Information Statement ~ Residential

8. What is the zoning on the subject property?

The seller may not know this. Often zoning is very specific. If the property is residential in nature, then the best guess is that there is some kind of residential zoning. But, do you really know for sure whether it's R1, R2, R3, R4, R4 (Special). You probably don't. So, why guess? And, why have the seller guess?

Either contact the seller's lawyer, or contact the local building and zoning department of your municipality to find out. If there is some kind of commercial or mixed zoning, you are best to leave it to the experts.

By the way, why are you doing this anyway? You're just liable to get yourself in trouble if you're wrong. If there is going to be a representation here, then it should be made by the seller. If you undertake the responsibility to find out, then you also accept the liability if you're wrong.

9. Does the subject property comply with the zoning?

Now, how would you or the seller know that? The prior question was difficult enough, and now the Form is really asking for a "legal opinion". So, buy one! Have the seller's lawyer answer this one, or get the buyer to find out.

As part of the due diligence on the part of the buyer, the solicitor will make these inquiries directly from the municipality. That's the proper and appropriate source of information, not you or the seller. So, be careful here.

These are often the particular type of questions where the seller looks to the registrant for guidance.

If not, is it legal non-conforming?

Tough question, again calling for a legal opinion. If you or the seller happen to be a real estate lawyer, then go ahead, answer this question.

First, you have to know the current zoning. Then, you have to know that the property does not comply. Then, you have to know the nature of the exact use of the property. Then, you have to know the date of passage of the current by-law. Then, you have to know that the use predated the by-law. Then, you have to know that the use was continuous and never abandoned (in a strict legal sense). Then, you have to know that there were no interruptions. That, of course is just a little more difficult, if the seller did not own and occupy the property throughout the entire relevant time period.

You might want to know that lawyers charge a great deal for rendering such an opinion. And, the seller is being asked to provide it "for free". But, if you think you know all the answers, then go ahead and have the seller answer this question. I mean, what's the worst that could happen? You might be sued.

10. Are there any pending real estate developments, projects or applications for rezoning in the neighbourhood?

This is an absolutely great question. No need for the buyer to even hire a lawyer. They have the seller and his unlimited guarantee. This is a wonderful question and as long as you're the Clerk of the municipality, then you'll have no trouble answering.

One question, just where is the neighbourhood? What's it called, what shape is it? How far does it go in all directions 1 block, 2 miles, 5 miles, 10 miles? Well, I'm certainly glad that you know, because I don't, and I'm quite sure that your client, the seller doesn't know either.

However, let's assume that you know your neighbourhood, what are all the developers doing? What are they thinking? Have any changed their minds? Any plans delayed? If so, how long? This is important, it could affect property values.

I guess all developments and projects have to be "pending". If they are already there, then you can probably keep quiet about them. For certain, once they get to the actual application stage for rezoning you had better know about them.

You simply have to appreciate that is a very difficult question. Again, this is the type of open-ended question that can get both you and your client in trouble. Further, when it comes to a lawsuit, your seller will point to you as being the local community expert.

11. Are there any restrictive covenants that run with the land?

It would be nice if you were practising law, or at the very least had immediate access to the seller's lawyer's legal opinion on title. It should be there among the 100 pages of material that he received on closing.

Do you know what a restrictive covenant is? Do you know whether it "runs with the land"? Most of the time, a reasonable person would secure a legal opinion if they wanted to know this information.

Registrants should be very cautious about recommending that this answer be completed, unless you can be sure. It should be in the title opinion but not always.

12. Are there any drainage restrictions?

Of course there are drainage restrictions. There are drainage restrictions everywhere. There are restrictions at common law: Thou shalt not dump toxic waste on your neighbour's property.

Again, if there is something special that applies to the property, then it will be the report on title from the lawyer, or will it be? Maybe not! In fact, something may have occurred after the seller bought the property, so that won't be covered. Or perhaps the lawyer didn't really think that such a comment should be placed in the report.

To be safe, the seller had better get the right answer from the lawyer before answering this question.

13. Are there any local levies or unusual taxes being charged at the present time or contemplated?

Another great question! Only a mind reader would know the answer to this question.

Now, the Form is not seeking simple information about taxes. That would be far too easy. This question is about unusual taxes. Now, if the seller thinks all taxes are unusual, then he had better report on everything. Here, this question is qualified, just the unusual taxes need be disclosed.

To be on the safe side, I'm going to say that a "local improvement rate" qualifies as either a "local levy" or an "unusual tax". Then again, maybe so do assessments for local boards, school zones, or unincorporated municipalities. Better to be safe than sorry.

A local improvement rate is like a special tax levied by the municipality in one neighbourhood and nowhere else. For example, the neighbourhood gets new sidewalks and the municipality decides to assess a special tax to recoup the costs over a 20 year period. If the seller knows about it, he better say so. And, if the seller doesn't know about it, he better say so.

Toronto's land transfer tax might be considered by some to be an unusual tax or local levy. It's not charged in other municipalities. And, what about parking permits for the street and the fees paid to permit front yard parking, are they levies or unusual taxes?

Or, maybe,,....., he shouldn't be filling out this part of the Form.

If so, at what cost?

Maybe the seller knows and maybe he doesn't..

Expiry date

Assuming that you are THE Clerk of the municipality you should have this information at your fingertips.

14. Have you received any notice, claim, work order or deficiency notice affecting the property from any person or any public body?

Well if the seller is like most people, he receives them all the time and throws them out. What's the time period? Most of this stuff is just junk mail. Notices come from the municipality all the time. Most of it is about garbage collection. Sometimes, they are repairing the road or installing new sidewalks. Sometimes, a neighbour has applied to the Committee of Adjustment for a minor variance.

And, don't forget the lawn people placing fertilizer on the lawn. They issue a deficiency notice about the lawn (the property for the sake of this Form). There is always some kind of weed or grub that will infest the lawn and wreak general destruction in the neighbourhood unless one purchases their special remedy. While they may not qualify as a public body, they still would come underthe definition of "person".

The furnace maintenance companies always want to do extra work that's not covered in the standard maintenance plan.

There are times when there will be a significant defect. A furnace may be throwing off carbon monoxide and be red-flagged and shut down. Obviously, that requires disclosure.

ADDITIONAL COMMENTS

What else is there to say? Actually, this is a real "trick" question. You might think that it has no meaning, but it's a big time question. This is the place where the seller is supposed to tell everything else that he knows. Remember that part about the answers being "complete". Do not consider this as simply an innocuous question.

The failure to add any additional information here can easily result in liability.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Seller Property Information Statement (SPIS) Ontario ~ Part 2

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 08 Dec 2009 09:55:58 -0600

By Brian Madigan LL.B.

(ownership, occupation, boundaries and disputes)

Property Information Statement ~ Residential

1. (a) I have owned the property for ____________ years.

This is an easy question, and shouldn't get the seller in much trouble. If the seller leased it before he owned it, then that's somewhat more complicating. Clearly, the Form speaks to knowledge, and consequently the seller's entire period of occupancy is relevant, not just the ownership period. The same would be true in respect to a property that the seller had a great deal of knowledge about, for example, the family home or cottage. In seller's present capacity, he may be selling as an owner (either himself, by power of attorney or as an estate trustee), but the Form speaks of knowledge, so if the seller knows something about the property, it's relevant, even if it was decades before acquiring his right to sell.

1. (b) I have occupied the property from _______to________________

This will take into consideration leasehold occupancies and occupancy of a condominium prior to registration. In addition, if the seller occupied premises by way of a tenant, then it should be mentioned here, for the sake of completeness. Remember, this document is also to enable the buyer to ask follow up questions.

So, if there were adverse possession issues or rights-of-way issues, then the buyer or his solicitor may wish to have the former tenant sign an affidavit. And, the best time to do that would be before closing. They may ask the seller to locate the former tenants; the seller is not as likely to be cooperative three or four years from now.

2. Does any other party have an ownership, spousal, or other interest in the property?

This is an interesting question. To answer this correctly, you really should have a law degree. In any event, the seller is likely to know whether there is another name on the title. So, if this property is owned by the seller and his wife, mother, brother, or business partner, this is the time to say so.

Ownership interest is not restricted to registered ownership. The owner on title was the easy question. What about any beneficial owner? What if the seller is conveying by way of an estate? Might any of the beneficiaries have an ownership interest? Sometimes they do! If so, this is the time to say so.

What about the spousal interest? This is someone who has some rights under the Family Law Act. Are you familiar with the Act? Do you know who may have rights? Do you know who may claim to have rights, even if they are unlikely to be upheld by a Court?

First, there's the seller's own spouse provided they are not registered on title and the property qualifies as a matrimonial home. What if seller holds the property in joint tenancy with another person other than the spouse? The joint tenancy in that matrimonial home is deemed to be severed in the event of death. Even if the seller is alive and well, you should be prepared for the contingency that death may occur before closing. A complete answer would require this disclosure.

If the seller fails to mention that, and is sued for some other reason, then on an examination for discovery, the seller is likely to be asked this question, not because it's relevant to the matter under consideration, but rather because it's relevant to the truthfulness, completeness and accuracy of the answers. And, that is a matter which is always relevant.

Further, there is the matter of "other interest"; just what does that mean? It should reasonably include:

· Mortgages and other encumbrances

· Restrictive covenants and other related private deed regulations

· Easements in favour of the municipality and utility companies

· Rights concerning adverse possession and prescriptive rights-of-way

· Encroachments by adjoining properties (below the surface, at the surface and in the air), ie. pipes for drainage, fences and eavestrough

· Liens, for example, construction liens or vendor's liens or other equitable liens

· Local improvement rates (and for that matter municipal taxes)

· Judgments and executions

· Rights by way of prior agreements etc.

3. Is the property subject to first right of refusal, option, lease, rental agreement or other listing?

This probably is unlikely to apply, certainly without the seller knowing it, but there is a strong possibility if the premises are leased that there is a significant right given to someone.

Let's consider a commercial example: that you rent a store and you have a 5 year lease followed by a 5 year option. What the seller may not know is that the large supermarket in the same plaza has an option (contained in their lease, not the seller's) to acquire the space in year 11. So, how would the seller know about this?

The answer is that the seller probably wouldn't know unless he asked the landlord. If you examine this Form, that is exactly what is requested of the seller. Go one step beyond simply looking at the seller's own lease. You could even attach a copy of the seller's lease but that would still not be enough. The seller should find out for sure, because it's the only way he can answer this question accurately.

However, that is generally a matter for commercial SPIS disclosure documents. But, residentially there are ground leases, and mobile home parks where similar issues become quite relevant.

4. If the Seller owns adjoining land, has a consent to sever been obtained within the last 2 years?

This is sort of a funny question! By that I mean "peculiar", there is certainly no humour here. This is serious stuff. What is the question asking? If the seller is selling parcel B, what difference does it make if he also owns parcel C (the adjoining property). Presumably, they were both part of parcel A, before the severance. You cannot sell without a severance. Perhaps, the purchaser wants to know how likely a future severance application might be. That's the only relevant information at this point. However, the Form doesn't come right out and ask that specific question.

In most cases, it won't apply, but if it does, be careful.

The intent of the question might have been to determine whether a consent was obtained, and has now expired, such that the closing might be delayed. However, the parcel would be described as "A", or "B and C", because without an actual conveyance of either "B" or "C", the approval of the severance will expire.

5. Are there any encroachments, registered easements, or rights-of-way?

There are 3 separate questions here. Let's deal with the easy one first.

1) Registered Easements. If you are familiar with the title to his property, assuming that he has easy reference to his solicitor's title opinion, you will be able to determine whether there are any "registered" easements. Please note, the Form did not mention unregistered easements. If there are some, you might be well-advised to offer them here, otherwise someone, sometime, somewhere is going to say that the answer was not "complete".

2) Encroachments. On the assumption that the seller is a qualified Ontario Land Surveyor (OLS) and has measured the lot lines, then the seller probably doesn't know the answer to this question.

Lot lines are imaginary lines. You can't see them. Also, you can't see encroachments over them. To be on the safe side, the seller should simply say "get a survey". Driveways, bushes, trees, fences, eavestrough could all be an inch or two over the line, and no one other than a surveyor would never know.

3) Rights-of-way. This time there is no reference to "registered", so that must mean them all. These rights can be obtained periodically over a 20 year length of time. The seller might not have ever seen the trespasser. But, after 20 years this individual has acquired certain prescriptive rights in the form of a right-of-way over the property. The seller may only have seen this person on a couple of occasions over the last two years (being his actual ownership of the property).

So, how could you be sure? This is a very risky question.

Even if the property is registered in Land Titles which does not permit either adverse possession or prescriptive rights, these rights may have accrued the appropriate time periods and such rights have become vested prior to registration in Land Titles.

The Land Titles system itself qualifies title by such risks. However, the seller does not by completing the answer to this question. It amounts to a representation without any qualification whatsoever.

6 (a) Is there a plan of survey?

This is a difficult question. It looks straightforward but it's more complicated than it appears.

There are many types of surveys. There is a plan for the entire subdivision with all the 500 lots in the subdivision shown upon that survey. It is registered in the Registry or Land Titles office and you can obtain a copy of it for a nominal fee ($10.00). It simply shows an outline of the lot. It is only a property survey.

There is another survey, and it is a Building Location Survey. It shows the location of the building with respect to the location of the lot lines. Frequently, it will be obtained by a builder as soon as the concrete foundations have gone in. The builder needs to determine whether the building is properly situate upon the lot and complies with the setback requirements of the municipality. Often, there will be several houses shown upon this survey.

The true and proper survey is an "up-to-date" building location survey showing the location of the building with respect to the lot lines and disclosing any easements, encroachments and other relevant matters within the vicinity of the property. This survey costs $1,200.00. So, the question is which survey is the proper survey for the purpose of answering this question, the $10.00 survey or the $1,200.00 survey?

The new current survey comes in two parts. There is a plan or illustration and there is a second document called the "report". The report will summarize any encroachments or easements and other significant findings. You need both parts for a survey, not one or the other, but both.

A survey is signed and sealed by the surveyor. A photocopy of a survey is not a survey. A photocopy is simply a photocopy of a piece of paper. So, the seller should not say that he has a survey, if you have only seen a photocopy of a piece of paper.

The actual survey may be in the possession of another party, the mortgagee, a prior mortgagee, the seller's lawyer or a former owner. Be careful submitting this answer, it could cost the seller or you some money.

Date of Survey _______

While this seems like a simple question, there are really two dates for surveys, the date the field notations were made, and the date the survey was signed by the surveyor. Be sure to note the earlier "field note" date if that is going to be relevant.

6.(b) Does the survey show the current location of all buildings, improvements, easements, encroachments and rights-of-way?

How would anyone other than a surveyor know the answer to this question? And, were you looking at a true survey of the property in the first place?

Let's assume that the building hasn't moved. Is the entire building shown? Were there any additions? And, does it simply show the foundation? That is really quite likely. The issue here, is that the building may very well have moved since that date. If there were bay windows, porches, decks, projections of the roof, and eavestrough, then all of these things would bring the building closer to the lot line. Now, the seller may have a setback issue.

An improvement really means any asset to the property. So, that would include fences and driveways, curbs and landscaping including those extending beyond the property lines, such that they may be situate upon municipal property between the lot and the travelled portion of the roadway.

Again, there are issues concerning easements, encroachments and rights-of-way.

On the positive side, the answers to this question may prompt further inquiry by the buyer. The seller's true risk, is if there are no further inquiries.

7. Are there any disputes concerning the boundaries of the property?

If the seller is in the middle of a lawsuit, then obviously he will have to disclose that. But, what if the neighbour commented several years ago that he thought the new fence was on his side of the lot line. And, that was that. Nothing else, just that simple comment several years ago. Is that a dispute? What if his lawyer sent a letter? Again, one letter, several years ago, is that a dispute? What if the neighbour moved, is that a resolution to the problem?

Does the seller feel safe in saying that there are no disputes? What if he has only lived there for a year? How would he know? Perhaps, the neighbour is just renting and when the owner returns from Dubai with a bag of cash, he will want to sue.

Nothing is ever as straightforward as it seems.

Seller Property Information Statement (SPIS) Ontario ~ Part 1

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 08 Dec 2009 09:49:26 -0600

By Brian Madigan LL.B.

This is a somewhat controversial document. It is relatively commonplace is some jurisdictions and among the members of different real estate boards. There is no standard practice in Ontario. Outside of Canada, other real estate boards use similar documents.

I propose to go through the document line by line in order to prompt full and complete consideration of the document and some of the issues that it raises.

It has been said that "this is the best document available in a plaintiff's counsel's toolbox".

The regular print is the actual document. My comments appear in italics.

Seller Property Information Statement ~ Residential

ANSWERS MUST BE COMPLETE AND ACCURATE

There is a word of caution here. How can the answers be complete? How can they be accurate? This would assume that the seller has full and complete knowledge which he is willing to share.

Also note the word "must". There is certainly no room to fudge. So, even a seller who wishes to provide relatively full and frank disclosure is stuck with the requirement of completeness and accuracy. Most lawyers caution against a form with that type of broad requirement.

In most statutory declarations and affidavits, the deponent will make the statements qualified by the phrase "..... to the best of my knowledge and belief".

In fact, that's standard conveyancing practice. The buyer's solicitor will draft an affidavit and send it along to the seller's solicitor for execution and return on closing. If those qualifying words are not already included, then they will be added by the seller's solicitor.

This begs the question: why such a strong statement here? Why would an untrained real estate sales representative feel that they should be advising in respect to the appropriateness of executing such a document?

Unfortunately, many registrants are under the misguided assumption that such a document will reduce their liability! The belief here, is that the liability for such statements will shift from the sales representative to the seller. Obviously, the registrants are not particularly concerned about the seller being on the hook. They have simply been told that this decreases their own liability. And, maybe that's somewhat true in the first instance, but what about their liability for negligently recommending that the seller sign this statement in the first place, or even just fill it in "without complete and accurate answers".

In some instances, registrants would be wise to request prospective sellers to contact their lawyers first. Obtain legal advice. Perhaps it would be wise to make a note to the effect that legal advice was suggested by the registrant.

In some cases, there can be very good reason why the SPIS document should not be completed. The lawyer who acted when the property was purchased may know. Without inquiry, there could be a risk.

This statement is designed in part to protect Sellers by establishing that correct information concerning the property is being provided to buyers.

This is a good statement. It's a noble objective. However, it doesn't always accomplish those objectives. It often encourages sellers to enter into statements that are not completely true and accurate. Once you start to fill out the document, it's very difficult to skip a question, without it appearing to be suspicious. Very often, sellers will start to "guess" at the answers.

It is important for the registrant to ensure that the seller does not start to guess.

All of the information contained herein is provided by the Seller to the brokerage / broker/ salesperson.

This is not really entirely the case. This is not an internal document. It may start out as such, but the primary purpose of the document is to provide a copy to the prospective purchaser.

If the document provided to the buyer, then the seller may end up being sued concerning any incorrect or misleading information.

Any person who is in receipt of and utilizes this Statement acknowledges and agrees that the information is being provided for information purposes only and is not a warranty as to the matters recited hereinafter even if attached to an Agreement of Purchase and Sale.

Well, what does that mean? According to the Courts: absolutely nothing! Buyers see this statement and rely upon it. If it's not attached to the agreement of purchase and sale, then they can't sue in contract. So, what do they do? They sue in tort, based on the negligent misstatement or fraudulent representation . The inclusion of this statement provides a false sense of security.

The risk of error here is thinking that no one can be sued. Indeed, it may not be a Warranty, but it may be a representation. There could be several ways that it may be elevated to the class of a Warranty by the terms of the contract.

Courts have traditionally been very careful when interpreting any kind of a Disclaimer.

The brokerage / broker / salesperson shall not be held responsible for the accuracy of any information contained herein.

Again, another peculiar statement without any real meaning! You would have thought that the Form would also have said "completeness" because that was one of the two first statements that preceded the execution of the document in the first place.

Does this mean that the brokerage/ broker / salesperson are responsible for "completeness", but just not the "accuracy" of the statement? Unfortunately, the form leaves that matter open for interpretation.

Certainly, the intention is well-founded. Registrants are not completing the disclosure statement, the sellers are. The statements contained are intended to be the statements of the sellers.

If sellers complete the disclosure without interference or guidance from the registrant, then they probably do so at their own risk. Registrants should be careful to avoid suggesting appropriate answers. Yet, it is a matter of professional responsibility to offer advice and direction. And, with "advice and direction" comes the risk of being liable. This disclaimer in and of itself won't prevent lawsuits, only the good practice of a registrant fulfilling the responsibilities imposed by the Act will be sufficient to avoid liability.

BUYERS MUST STILL MAKE THEIR OWN ENQUIRIES

Buyers must still make their own enquiries notwithstanding the information contained on this statement.

Who says? Well, they don't, they can just rely on this statement and sue the seller afterwards, if anything goes wrong. And, if there's a really strong suspicion about a problem, why would the buyer want to find out about it now? If he is going to buy the property anyway, then he might just keep quite and act surprised and appalled after the closing.

You will see from the cases that some Courts have interpreted the document as it was intended (so as to limit liability) and others have not.

Each question and answer must be considered and where necessary, keeping in mind that the Seller's knowledge of the property may be inaccurate or incomplete, additional information can be requested from the Seller or from an independent source such as the municipality.

This is an interesting qualification. It may be helpful to the honest and straightforward seller who is trying his best. Courts may feel at times that this relieves such a seller of liability. And, in such instances, the sympathy would be with the seller. Courts will lean in favour of a truthful seller. Then again, in any lawsuit, the seller's broker and sales representative may also be sued, so it would be open to the Court to conclude that the sales representative was liable for negligently having the seller answer the question. In such cases, the brokerage would be vicariously liable for the negligence of the sales representative. There does not appear to be a clearly predictable result.

Buyers can hire an independent inspector to examine the property to determine whether defects exist and to provide an estimate of the cost of repairing problems that have been identified.

That's the way the law is supposed to be in the first place. Buyer beware! This is still the law in Canada and it makes good sense. The buyer can hire an expert to look at the property being purchased.

The building is "second hand". How would the seller necessarily know about the problems? Things deteriorate. By 10 years, the owner will need a new air conditioning system, and by 25, will need a new roof. So, an owner really doesn't need to tell anyone about that, but what about accelerated deterioration due to a variety of factors? Registrants should suggest that the parties retain a home inspector to look at it, and advise that the air conditioner is no longer new, and the 15 year old roof will require major repair before closing.

In some cases, where there is an expectation of a problem, sellers might be well advised to obtain their own home inspection report and provide a copy of it to the buyers. Otherwise, this is a matter for the buyers and their home inspectors.

Once you are armed with this information, you can negotiate your deal. Why wait until later? Let this become part of the negotiation process. If the parties can demonstrate that it was part of the negotiating, then Courts are much more likely to uphold that part of the agreement.

I'm not against buyers and sellers having full knowledge, that makes sense, I just don't like one party to seek to take advantage of another later on.

So, leave the rule the same as it's always been: buyer beware. If you are acting for a buyer, you know what you have to do to protect your client. And, of course, by protecting your client, you are also protecting yourself.

This statement does not provide information on psychological stigmas that may be associated with a property.

Well, that's what is says. But, just wait for increased liability claims to follow later. Is this statement complete, if something that would affect the material value of the property were omitted? Under the Real Estate and Business Brokers Act, a registrant has a duty to disclose them. So, do you think that there might be an attempt by some registrants to comment on such items in the document?

I have seen several such statements, and in all cases, the registrant was unaware of this particular paragraph. This could be problematic for the registrant who chooses to disclose a little too much.

For the purposes of this Seller Property Information Statement, a "Seller" includes a landlord or a prospective landlord and a "buyer" includes a tenant, or a prospective tenant.

You would also expect that seller should include a prospective seller, and buyer should include a prospective buyer, but it doesn't say anything. Nevertheless, such an extended definition might reasonably be inferred.

PROPERTY:
SELLER:
SELLER TO INITIAL EACH APPLICABLE BOX
GENERAL: YES NO UNKNOWN NOT APPLICABLE

Those are the choices. Why not just go with "unknown" if there is any lack of certainty? Actually, it may the best and most accurate response in many cases.

Two Versions of Disputed Contract

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 07 Dec 2009 11:08:26 -0600

Two Versions of Disputed Contract

By Brian Madigan LL.B.

There were actually two separate versions of a contract between Rogers and Aliant, one in English and the other in French.

The CRTC ruled in favour of Aliant several years ago, applying the rules of English grammar. A comma made all the difference when it came to deciding when a contract could be terminated.

Basically, the notice clause and the time period ran together. Could you terminate on one year's notice at anytime, or would you have to wait for the first five year period to expire?

However, the case was appealed. In fact, there were two versions of the same contract, one in English and one in French.

The CRTC examined the French version of the contract because the commission had approved the rates and regulations in both English and French in 2000:

"The Commission considers that, between the two versions, it is appropriate to prefer the French language version as it has only one possible interpretation, and that interpretation is consistent with one of the two possible interpretations of the English language version."

So, on appeal Rogers was successful. The French version was clear, the English version was not. Therefore, the CRTC assumed that the intent of the contract was clear as between the parties and utilized the French version to determine the result.
Punctuation in contracts still counts!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty Brokerage, 905-796-8888
www.OntarioRealEstateSource.com

Paying attention to Punctuation in Real Estate

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 07 Dec 2009 10:43:36 -0600

Paying Attention to Punctuation in Real Estate

By Brian Madigan LL.B.

If you were to audit a first year university course the day before an exam, one of the first questions you'd hear would be "does spelling count", closely followed by "what about punctuation"? Sadly, the too frequent response is "don't worry about it", and that probably applies to just about every course other than English grammar.

So, maybe we really shouldn't worry about it.

Let's look at two clauses:

First Paragraph) This agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party.

Second paragraph) This agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms unless and until terminated by one year prior notice in writing by either party.

Did you notice the difference? It's hard to spot. Read it again, carefully. In the second paragraph, there is no comma following the word terms in the third line. So, does this make any difference to anybody.

Well, that comma is worth $ 2.3 million.

It doesn't look any different than any other comma, but that's its value. The question boils down to this: when can you terminate using the one year notice?

There are two possibilities:

1) with the comma. Anytime, but you must give one year's notice.

2) without the comma. Anytime after the first five years, again subject to one year's notice.

This type of wording is really quite common and can be found in many commercial leases. Recently, Rogers leased some poles from Aliant for their cables. After a short while, Aliant wanted to raise the price for the rental. So, the question was: how soon could they terminate the lease and start charging the new higher price?

The CRTC applied the normal English rules of grammar to determine the meaning. The additional comma created a parenthetical clause within the sentence and the termination provisions accordingly apply to both the initial five years as well as any subsequent renewal terms. Rogers claims that this will cost an additional $ 2.3 million and was considering appealing the case to the Federal Court of Canada.

Maybe they should just have someone study English grammar! However, to be fair, the clause was taken from precedents in the industry that were in common usage.

The moral of the story: spelling and punctuation counts!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty Brokerage, 905-796-8888
www.OntarioRealEstateSource.com

The High Cost of Justice

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 06 Dec 2009 10:08:44 -0600

The High Cost of Justice

By Brian Madigan LL.B.

Recently, a non-competition clause was under discussion. An insurance agent left the company and went to another. The first employer was annoyed and decided to sue.

The case occupied about 14 days of Court time. The trial was 12 days, the appeal was one day, and a discussion about costs was one further day.

The Court awarded costs to the successful party at about $550,000. Naturally, there was more time spent on the case than just those days, but 14 days of Court time was assessed at about $40,000 per day.

It's obviously not "cheap", to have your day in Court. And, if you are suing over a matter of principle, why not suck it up, and buy yourself a nice waterfront condo in Florida instead!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Am I Writing Absolute Gibberish on the Internet?

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Fri, 04 Dec 2009 08:30:45 -0600

Am I Writing Absolute Gibberish on the Internet?

By Brian Madigan LL.B.

From time to time, I will check to see how some of my articles are doing in a Google search.

I came across an article posted on a "relationships site" apparently attributed to me. I thought that to be a strange location. I do permit "reblogging", so I looked it up.

Basically, it's an article that I published a few days ago called "the Accidental Client".

Here's the version I found. It's absolute, non-sensical gibberish! The words, sentences and paragraphs do not convey any meaning in the English language.

I have no idea what this is, or what the purpose would be to change it into "crazy-talk".

If you have any ideas, let me know?

Reproduced below is a "copy" of the blog attributed to me.

"Ontario Real Estate: The Accidental Client

By Brian Madigan LL.B. The Ontario Real Estate Association (OREA) has recently commented upon the differentiation between clients and customers. Here is an cite:Client or Customer"Many trusted copiousness salespeople and brokers have the audacity that if the mortal physically they are working with is not a advocate then the obligations to that mortal physically in large-hearted limited division in die insensible.

While there is no fiduciary job owed to a advocate there are undisturbed conscientious, high-minded and contractual expectations, such as:" acting completely,unqualifiedly and with veracity " demonstrating well-thought-out data, know-how, finding, and competence " disclosing any chance that would stir a well-thought-out persons ruling to purchasing or dispose of an enlist in trusted copiousness " not knowingly making an wrong-headed assertion in services. Alternately, some incorrectly beg that they lightly a paronomasia on fiduciary responsibilities to their advocate. As suitably as other obligations to customers declare insensible in REBBA 2002 and the REBBA Code of Ethics. For commercial REALTORS®, a high-minded event of this persuasiveness be where someone has requested you helpers him in finding sample period.

An place of adjustment between customers and clients and unified that poses capacity white-hot moisten is providing advice and not insinuation. During the approach this idiosyncratic refuses to list into a advocate relationship with you. When asked what they hankering to extend as a farm out, this mortal physically asks your insinuation as to what would be an usurp amount. As a development, when right period is inexorably establish, and an Offer to Lease is being handy, white-hot moisten may get hold of up. If you be affected to this impossible on contribution a photograph, you lightly a paronomasia on begun to prescribe for him as a advocate. If the consumer chooses to be a advocate then your gifts to helpers is least. The consumer comes to the trusted copiousness peach on assistant or negotiations since their finding.

If you beg exact amounts in this plot, you are contribution insinuation and that then translates into a advocate relationship."COMMENTYou transfer criticism how "tricky" the post has evolve into. In that attention to, this is also completely factual, since Courts lightly a paronomasia on repetitiously "upgraded" the relationship in declaration to apply burden. Is the likely a advocate or advocate? The note correctly indicates that the mid-sized relationship may beg itself to completely connotation or debate. The white-hot moisten is the recrudescence to a simple-hearted impossible.

There is no perspicacity why a likely sine qua non to to be a advocate in declaration to get hold of "advice". How much to extend? Surely, that recrudescence stranded can't post the undamaged relationship in jeopardy? Or, of path, if it does, it was presumably in jeopardy already. Why can't they deal since advocate rank and insinuation at the that having been said previously? Now, in equivalent situations, lawyers and doctors lightly a paronomasia on clients and patients. They don't lightly a paronomasia on customers.

Both are "agents" and enthral to the everyday and rare rules of mid-sized. Lawyers don't lightly a paronomasia on a listing since "second standard clients", and doctors don't lightly a paronomasia on a listing since "second standard patients". There are two categories:1) clients, to whom fiduciary admissible obligations are owed on perspicacity of mid-sized, and2) customers, to whom other, lesser obligations are owed, but without fiduciary admissible obligations since there is no mid-sized relationship.

That being said, the trusted copiousness toil does. This all seems surely indicative of. The trusted copiousness community is impartial an "industry" and not a "profession" until it adopts unified declare of rules since everybody. Both the medical community and the admissible community seascape themselves as being limited division in of a "profession".

The two classes of citizens impartial doesn't folk!One sine qua non be ultra heedful since the Courts are apt to apply burden. Brian Madigan LL.B., Broker is an inventor and commentator on trusted copiousness matters, Royal LePage Innovators Realty905-796-8888www.OntarioRealEstateSource.com
Posted by
Brian Madigan LL.B. So, rejoinder unified impossible, and with it you're accountable! That doesn't assertive much feel something in one's bones, nor do the quintessential two classes in the basic post."

So, that was it. There wasn't one sentence that made any sense!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

ORES Real Estate Index for November 2009

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Fri, 04 Dec 2009 07:51:11 -0600

ORES Real Estate Index for November 2009

By Brian Madigan LL.B.

Here is the "ORES REAL ESTATE INDEX" which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index.

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.

For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the four year average used as a standard benchmark comparison in the mutual fund industry. Actually, it runs for 59 months or four years and eleven months.

As of 30 November 2009, [the last two months] and (the highs):

Real Estate

129.50.....[131.08/125.91] (131.08) GTA single family homes (average prices)
125.03.....[126.68/126.21] (126.68) All condos in GTA (average prices)
123.40.....[132.27/131.70] (132.27) Downtown Toronto Central Condos
122.12.....[120.85/120.36] (120.85) East condos
121.57.....[120.72/119.17] (130.60) North condos
134.64.....[129.69/129.17] (134.64) West condos

Other market comparisons

274.87.....[243.13/232.79] (274.87) gold (price per ounce)
175.59.....[175.25/160.28] (320.88) oil (price per barrel)
129.50.....[131.08/125.91] (131.08) ORES Index single family homes
124.37.....[118.54/123.80] (158.90) TSX index
108.83.....[108.92/108.92] (109.31) CPI index
103.99.....[99.16/102.91] (130.99) NASDAQ index
98.62.....[92.59/90.65] (132.47) Dow Jones index
92.75.....[87.72/89.49] (131.16) S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of November, the index stood at 129.50. That's a 29.50% increase in 59 months. That means the increase is 0.5% monthly, or it could also be expressed as 6.0% annually. The performance here is shown without annual compounding for the sake of simplicity.

The same index was 131.08 at the end of October and 125.91 at the end of September. The next number, in square brackets is the all-time high since 1 January 2005. That number is 131.08, which was the October figure and is in fact the all time high.

The other statistics are reported in a similar fashion for the ease of comparison.

Observations (on the Index)

As we use index, there are several notable comments:

· Commodity prices are just commodity prices

· There is no other "extra return" for commodities

· The same is true for the CPI

· The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 108.83 (It is actually down from 108.92 in the previous month)

· For a realistic performance goal, you should aim for CPI plus 3.5% annually

· Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices

· The stock market Indexes only measure the survivors. So, this year both GM and Chrysler would have been dropped due to the bankruptcies

· If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes

· Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

· Actually, I should have mentioned that if you held gold bullion, you could sit in a room, count it, and enjoy that experience too. I'm not quite sure how to measure that. You'll have to ask King Midas or Goldfinger!

Comparative Observations Using the New Index

· Gold was the best performer, and there was a significant increase this month

· Oil was the most volatile, (yes it dropped in half over our measurement period)

· Real estate was the most stable, with single family homes generally outperforming condos

· Downtown condos lost some ground this month. They are substantially off their earlier highs achieved just before the commencement of this Index

· Our own stock market posted reasonable gains, and is close to single family homes

· Two of the three US stock market indicators show negative numbers, with the NASDAQ just returning to positive territory

Conclusion

For steady, predictable, measured gains pick real estate. It's a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it's never "wiped out" completely, like GM or Chrysler stock. So, unless you're sitting on the edge of a tsunami, you'll still own something when the storm is over.

For a benchmark of success, there's 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt) that would have been happy with that return.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Some Toxic Waste is Just Too Old

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Thu, 03 Dec 2009 19:32:29 -0600

Some Toxic Waste is Just Too Old

By Brian Madigan LL.B.

A dairy farmer sued the Ontario Government for damages as a result of toxic "road waste" having been buried on his dairy farm.

The Ontario Court of Appeal dismissed his $1.7 million claim indicating that the risk of the buried waste would have been unknown at the time it was buried. By all accounts the asphalt and other road debris were buried on the farm in the early 1960's.

It was clear that harmful chemicals leached into the soil, migrated towards the wells on the property and contaminated the water that was used by the cattle on the farm.

A previous owner of the farm had permitted the Province to deposit old asphalt and other road debris when a local highway was reconstructed in the 1960's.

The Court concluded that the proper test of negligence on the part of the Province was the state of the knowledge at the time, that is, during the 1960's. The mere fact that the asphalt would not have been buried today is irrelevant. Today's knowledge, standards and practices would be the incorrect test for negligence.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

The Right to Defend Your Property and the Right to Self-Defence

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Thu, 03 Dec 2009 17:27:48 -0600

The Right to Defend Your Property and the Right to Self-Defence

By Brian Madigan LL.B.

An Ontario Court recently had to consider this issue. A young man was involved in an altercation on his property and was subsequently charged with assault.

As part of his defence was the claim that he was entitled to the use of reasonable force to defend his property, that is, prevent a trespass of his property.

A dispute was ongoing for years. This property was located in Balm Beach on the shores of Georgian Bay. The beach was open for many years and the public walked along the beachfront from property to property alongside the shores. A few years ago, the owners, being the accused's parents, erected a wooden fence which was placed along the boundary line and extended out to the water's edge. This prevented the public from walking across the property. Of course, they could walk by if they went out into the water.

The right to erect the fence was an issue that went to court and the Superior Court of Ontario ruled that the fence was indeed appropriately erected and it could stay in place.

This really didn't stop the neighbours. The fence had been torched. Someone had taken a chainsaw to it. It bore graffiti and other damage.

In acquitting the accused of the assault charge, the Judge confirmed that the accused:

1) had the right to confront a trespasser,
2) had the right to arrest under the Trespass Act, and
3) had the right to use reasonable force.

By way of comment, the Judge stated that the neighbours had three options:

1) accept the status quo,
2) make an application to Court,
3) purchase the property.

It should be noted that there had been a previous Court challenge that resulted in an unfavourable verdict.

The Judge further stated that the value of all properties in the neighbourhood would be negatively effected if the lawlessness continued.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Agent's Obligation to Disclose Agency and Non-Agency Options

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 01 Dec 2009 20:01:15 -0600

Agent's Obligation to Disclose the Relationship to the Prospect

By Brian Madigan LL.B.

The Ontario Real Estate Association (OREA) has recently commented upon the obligation to disclose the relationship whether it be client or customer with a prospect.

Here's an excerpt:

Disclose, disclose, disclose

"Section 10 of the Code is clear on the requirement to provide the buyer or seller with certain information regarding their potential relationship. It requires all REALTORS®, including Commercial REALTORS®, to disclose in writing the nature of the services you are providing, and encourages you to make that disclosure as early as possible in the relationship. It also encourages you to get acknowledgement, in writing, of that disclosure.

In a commercial scenario, consider an individual who has contacted you to help him or her find office space to lease, or for that matter, a commercial or investment property for purchase. Under the provisions of Section 10 it is mandatory to ensure that the individual understand the ramifications of entering into a business relationship with you. In order to accommodate the requirements as set out in the Code it is necessary to develop a system whereby you are disclosing all the different relationships possible.

It's also important to understand that the conduct of a salesperson or broker is sufficient to create an agency relationship. The definition of agency recognizes that fact. The consumer brochures entitled "Working with a REALTOR®" and "Working with a Commercial REALTOR®" identify the various arrangements possible. The last page of the brochure allows for written acknowledgement of the disclosure.

Unlike a residential real estate transaction where you are usually dealing with a buyer and a seller, a commercial transaction may include a buyer, a seller, a landlord and/or a tenant. It's important to set out the procedure for working with a client under the requirements of the REBBA Code of Ethics, and the laws of agency while still maintaining a practical approach.

The process begins with a meeting and discussion with a prospective seller, buyer, landlord or tenant. As soon as possible, it is necessary to establish the relationship in writing. If your prospect is a seller then you require a representation agreement (e.g. listing). If the prospect is a buyer or tenant who wishes to be a client, a representation agreement is also required. If you are representing the buyer and you do not want to enter into a representation agreement with the seller, (i.e. the seller is to be a customer) then a Seller Customer Service Agreement would be the way to go. Finally, if the prospective buyer or tenant wishes to be a customer, then a Buyer Customer Service Agreement is required."

COMMENT

You will notice that the commentary published by OREA was in large measure directed to commercial real estate agents. That's because they are the most likely to overlook the proper documentation.

I'm not quite sure what OREA means when it refers to "disclosing all the different relationships possible" and "identify the various arrangements possible".

There are two categories that must be identified:

1) clients, to whom fiduciary legal obligations are owed by reason of agency, and

2) customers, to whom other, lesser obligations are owed, but without fiduciary legal obligations since there is no agency relationship.

If you are offering both of these categories as options for the prospect, then the prospect should select one of them. If you are only offering customer status, you should draw to the attention of the prospect that another agent might offer client status.

The "Working with a Realtor" forms for residential and commercial purposes offer an inadequate explanation in my view of the agency and non-agency options. While the documents might at least serve as some evidence that the matter was discussed with the prospect, it falls short of the "informed consent" necessary to convince a Court that you provided an adequate explanation in all of the circumstances.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

The Accidental Client

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 01 Dec 2009 19:09:37 -0600

The Accidental Client

By Brian Madigan LL.B.

The Ontario Real Estate Association (OREA) has recently commented upon the distinction between clients and customers. Here is an excerpt:

Client or Customer

"Many real estate salespeople and brokers assume that if the person they are working with is not a client then the obligations to that person in large part disappear. Alternately, some incorrectly suggest that they have fiduciary responsibilities to their customer. While there is no fiduciary responsibility owed to a customer there are still professional, ethical and contractual expectations, such as:

· acting fairly, honestly and with integrity

· demonstrating reasonable knowledge, skill, judgement, and competence

· disclosing any fact that would affect a reasonable persons decision to buy or sell an interest in real estate

· not knowingly making an inaccurate representation about services.
As well as other obligations to customers set out in REBBA 2002 and the REBBA Code of Ethics.

An area of difference between customers and clients and one that poses potential difficulty is providing information and not advice. For commercial REALTORS®, a good example of this might be where someone has requested you assist him in finding office space. During the process this individual refuses to enter into a client relationship with you. As a result, when suitable space is finally found, and an Offer to Lease is being prepared, difficulty may arise. When asked what they wish to offer as a rent, this person asks your advice as to what would be an appropriate amount. If you respond to this question by offering a figure, you have begun to treat him as a client.

The consumer comes to the real estate salesperson or broker for their expertise. If the consumer chooses to be a customer then your ability to assist is limited. If you suggest specific amounts in this scenario, you are offering advice and that then translates into a client relationship."

COMMENT

You will notice how "tricky" the situation has become. Is the prospect a client or customer? The note correctly indicates that the agency relationship may occur through implication or discussion. In that regard, this is also quite true, since Courts have frequently "upgraded" the relationship in order to impose liability.

The difficulty is the reply to a simple question. How much to offer? Surely, that reply alone can't place the entire relationship in jeopardy? Or, of course, if it does, it was probably in jeopardy already. There is no reason why a prospect must agree to be a client in order to get "advice". Why can't they bargain for customer status and advice at the same time?

Now, in similar situations, lawyers and doctors have clients and patients. Both are "agents" and subject to the usual and ordinary rules of agency. They don't have customers. Lawyers don't have a category for "second class clients", and doctors don't have a category for "second class patients". That being said, the real estate industry does. There are two categories:

1) clients, to whom fiduciary legal obligations are owed by reason of agency, and

2) customers, to whom other, lesser obligations are owed, but without fiduciary legal obligations since there is no agency relationship.

This all seems very peculiar. Both the medical community and the legal community view themselves as being part of a "profession". The real estate community is just an "industry" and not a "profession" until it adopts one set of rules for everybody. The two classes of citizens just doesn't fly!

One must be ultra cautious since the Courts are apt to impose liability. So, answer one question, and now you're liable! That doesn't make much sense, nor do the basic two classes in the first place.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Error by Fiduciary ~ Not Always Fiduciary Breach

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 01 Dec 2009 15:27:21 -0600

Error by Fiduciary ~ Not Always Fiduciary Breach

By Brian Madigan LL.B.

Fiduciary duties have long been subject to discussion by the Courts. More recently, it would appear that just about any error made in a transaction where a fiduciary is involved is alleged to have been a breach of fiduciary duties.

The Court of Appeal in England has clarified the law on this point. In Bristol and West Building Society v. Mothew, the Court ruled that not every breach by a fiduciary was necessarily a breach of a fiduciary duty. This is important because the test for liability, that is, the threshold is lower in the case of fiduciary duties.

The case involved an action for damages against the defendant law firm. The lawyers acted for both the mortgagors and the mortgagees in the same transaction. Inherently, that is a conflict of interest. The mortgagee required confirmation that the borrowers were indeed the source of the balance of the funds. This turned out not to be the case.

The solicitors were in error. In fact, part of the funds were being advanced by another party and were to be secured by a loan.

Subsequently, the buyers defaulted and there were insufficient funds to pay the first mortgage, The solicitors were sued for breach of trust.

The Court of Appeal stated:

· The term fiduciary is flung around now as if it applied to all breaches of duty by solicitors, directors of companies and so forth

· A lawyer can commit a breach of the special fiduciary duty by entering into a contract with the client without full disclosure

· Simple carelessness is perversion of words (not being a fiduciary breach)

· Breach of fiduciary duty connotes disloyalty or infidelity

· Mere incompetence is not enough

· A servant who loyally does his incompetent best for his master is not unfaithful and is not guilty of breach of fiduciary duty.

If there has been a failure to disclose by a fiduciary, the Court will carefully examine the circumstances, but an inadvertent oversight is not a demonstration of a lack of fidelity.

A trustee, or other person who is charged with fiduciary responsibilities and obligations, may still be liable for ordinary errors, and ordinary negligence, and as such the procedural rules that apply to simple contracts and negligence will apply in those situations. This will simplify the case for the trustee or person who holds the position of a fiduciary. From the perspective of the clients, the cases will be somewhat more difficult to prove. There is no reverse onus in these circumstances.

This is helpful news for real estate agents who are frequently involved in conflicts of interest.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Oklahoma Offer in Real Estate Explanation

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 30 Nov 2009 19:07:00 -0600

Oklahoma Offer in Real Estate Explanation

By Brian Madigan LL.B.

What is an Oklahoma Offer!

Actually, it's a simple form of real estate fraud. There are variations depending upon how many parties are involved and who is the intended victim.

So, let's look at two examples, in the first the victim is the vendor and in the second, the mortgage company is the intended victim.

Vendor as Victim

In this case, the purchaser and his agent seek to defraud the vendor.

An Oklahoma Offer may be defined briefly as any Offer whereby the vendor takes back a mortgage that is unsecured by the value of the property.

Let's assume Bill wants to purchase Dominic's house which is valued at $250,000. The problem is that Bill doesn't have any money.

Bill intends a first going on at $200,000 and expects Dominic to take back a $50,000 second. The problem is that the vendor doesn't really realize how large the first is going to be.

The usual and correct words in an Offer should be "the purchaser agrees to arrange a first mortgage of not more than $200,000".

However, in the Oklahoma Offer it says "the purchaser agrees to arrange a first mortgage of not less than $200,000".

The trick is to catch the unsuspecting vendor who is not paying attention. Here, the purchaser might arrange a $225,000 first. The vendor, Dominic takes back a $50,000 second, but really needs the property to be worth $275,000 if his mortgage is to be secured.

In all situations, the first and the second will add up to more than the value of the property.

So, if the purchaser defaults, the first mortgagee is OK, but the vendor, Dominic (second mortgagee) is not.

Mortgage Company as Victim

This next situation is a slight variation on the same scheme. This time, Bill needs to work along with Dominic. They agree to say that the sale price is higher than the actual sale price. So, the mortgage company will lend more money at favourable rates. In the case of a standard first mortgage, the mortgage would not exceed 75% of the value of the property. Or, they might try to simply circumvent the CMHC high ratio insurance fees. In any event, the intended victim would be the mortgage company.

The Criminal Code

Section 362 of the Criminal Code makes it an offence punishable by up to 10 years in prison to obtain credit by a false pretence or fraud. A mortgage is considered as credit under the Criminal Code. Anyone who knowingly assists in the misrepresentation is a party to the offence and subject to the same penalty.

So, in the latter case, both Bill and Dominic (and their agents) would be liable.
In the first case, just Bill and his agent would be liable. Dominic was just an innocent party.

The Reality

In my experience, the Oklahoma Offer is a thing of the past. I have been involved in thousands of real estate transactions and the last actual Oklahoma Offer (subject to litigation in the late 1970's) was negotiated between the parties in 1972. Since then, too many professional are aware of the scam, and none of these deals actually close.

The second variation, perhaps better known as an Oklahoma swindle is plain and simple mortgage fraud. And, it is as common today as it ever was. However, sophisticated mortgagees are increasingly using their own (and reliable) appraisal firms. This approach catches most cases ahead of time.

The first situation is more important for real estate students and agents since it is always in the real estate courses, even if it doesn't occur frequently in practice.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty Inc. 905-796-8888
www.OntarioRealEstateSource.com

Canada's Recession is Over

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 30 Nov 2009 18:23:51 -0600

Canada's Recession is Over

By Brian Madigan LL.B.

Officially, Canada's recession is over. Canada's economy as measured by its gross domestic product actually grew in the third quarter of 2009.

Now, it only takes two consecutive downward quarters to start a recession, but only one upward quarter to break the trend.

Statistics Canada confirmed the September GDP figure, which showed an increase of 0.4 per cent. For Canada, this was the first quarterly gain since the third quarter of 2008.

Here are the figures:

Third quarter 2009

% change from previous quarter

+0.1

% change annualized

+0.4

% change year-over-year

-3.2

So, all in all, the economy is still down from this time last year. And, the increase was 1/10th of one per cent, which certainly isn't that great an endorsement. If you assume that it will stay the same, then you have 0.4% annually. But, that figure is guesswork. It's just a pure mathematical projection. It didn't really happen.

The United States has already reported a 2.8% increase in GDP in its third quarter.

The Bank of Canada had expected a 2% annualized increase by now, so the economic recovery is somewhat slower than anticipated.

The result is that in all likelihood, interest rates will remain the same, and the Bank of Canada will continue its prime rate at 0.25% until 30 June 2010 as promised.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Chimneys and Maintenance

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 29 Nov 2009 11:02:38 -0600

Chimneys and Maintenance

By Brian Madigan LL.B.

It's that time on year again, and I wanted to provide you with some information about chimneys. This information comes courtesy of a friend of mine, Jim Walker a home inspector in the Greater Toronto area:

What's the difference between a masonry chimney and a brick chimney?
There is no difference in everyday usage.
How are masonry units (bricks) held together?
Damp mortar is placed between the bricks. As the mortar dries it forms a very powerful bond between the masonry units. When the mortar becomes loose or is missing the bricks aren't held together as intended. Replace the mortar.

Why is a chimney cap so important?
The answer, as always, is moisture. Moisture (water) is the enemy. Keep uncontrolled moisture out of homes and they will last much longer. A good cap is 4" (100mm) thick, extends 2" (50mm) beyond the face of the masonry and is sloped. A really good cap has a pliable seal around the flue liner where it comes through the cap.

How tall does a chimney have to be?
Think ‘3-2-10'. The chimney has to be at least 3 feet tall. And it has to be 2 feet taller than anything else within 10 feet. Shorter chimneys may not provide enough vertical air motion to take the gases up and out. Chimneys are usually too short because a mason was in a hurry!

I see some white stuff on the side of the chimney. What is that?

It's called efflorescence and it's a salt deposit. Moisture has penetrated the masonry from somewhere, has dissolved salts in the brick and the white salts have been left as the moisture evaporated. The important point here is that moisture is getting into the brick. It may come from a crack in the flue liner or from water that can't escape any other way. It's a symptom and one which should be investigated. By the way, there are about 28 things to check when inspecting a masonry chimney."

Jim is an excellent Home Inspector with lots of experience. He's prompt, cautious and diligent and a member of the National Assoc. of Certified Home Inspectors. If you would like to contact Jim Walker for an inspection or would be interested in knowing those 28 different items, you may reach him at 416-951-4677, James Walker Home Inspections Ltd., or email him: jwhi@sympatico.ca; or you may wish to visit his website: www.jwhi.ca

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Should You Buy Real Estate Now or wait?

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 29 Nov 2009 10:58:43 -0600

Should You Buy Real Estate Now or Wait?

By Brian Madigan LL.B.

Don't wait to buy real estate; buy real estate and wait!

That is a much better strategy. It is the long term that is important. Look to the next 10 years. Don't look at the situation, month to month. If you do you will always find enough reasons to justify waiting a few more months.

Then you will reach a certain point when you conclude that the market has passed you buy.

So, better safe than sorry, be active, be diligent and be ready to invest!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Maintain Excellent Financial Books and Records

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 29 Nov 2009 10:56:28 -0600

Maintain Excellent Financial Books

By Brian Madigan LL.B.

If you are in business you should keep good financial records. It just makes sense, but so many small businesses neglect this tedious and somewhat time-consuming task. Careful records take time. And, if you don't really have the time yourself then you should retain a bookkeeper and an accountant.

Why? It will simply pay big dividends in the future. I'm not really talking about all the tax deductions that you don't miss because you have proper receipts, or even the warranty claims that you can present because (again) you have receipts. What I'm talking about is much more significant.

It's the sale of the business, the accumulated wealth of your lifetime of work. Is there any value to it? What is your business really worth? Who will buy it? And, most importantly, what will they pay for it.

In most industries, there is some kind of a "rule of thumb". Businesses are worth a certain multiple of their net profits. Oftentimes, this ranges from three to seven times the net profits. But, how are you going to prove your "net profits" if you don't have good financial records. They need to demonstrate some stability. Basically, that means at least three solid years. Also, they should illustrate increasing profits. The more you pay in income tax the better. If you're generating profits and paying income tax and GST, then this must be a worthwhile business.

The Real Estate and Business Brokers Act calls for the production of financial statements in all cases. However, there is a specific exception under the Act. If the purchaser agrees, the vendor can simply provide a list of assets (equipment and chattels) included, and another that sets out what is excluded, as well as particulars of the possession or occupation of the business premises. Far too many vendors take advantage of this opportunity. The problem is that they often only receive a tenth of the true value of the businesses (or even less).

If you are planning to sell your business in the next three years, the first item on the agenda should be to retain an accountant. The second item should be to drive the net profits as high as possible and in fact pay a significant amount of income tax.

A business generating $100,000/year in profits from an industry that sells for seven times earnings would be worth $700,000. Without proper financial records, this same business will likely sell for less than one year's profits or the value of its assets (chattels and equipment). The difference is substantial in all cases. Purchasers will pay for good businesses with well-documented financial statements.

So, keep excellent records, if not for yourself, for your purchaser!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Joint Tenancy and the Resulting Trust

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sat, 28 Nov 2009 18:58:09 -0600

Joint Tenancy and the Resulting Trust

By Brian Madigan LL.B.

While there are some advantages to joint tenancy, there are also some problems. The primary advantage is the ease of administration of a deceased's estate. It is simple and uncomplicated, nothing more than the registration of a death certificate is required to effect the transfer.

However, with joint tenancy there are two presumptions that need to be considered:

1) the presumption of a resulting trust, and
2) the presumption of advancement.

Resulting Trust

If one party transfers property to another gratuitously, then the law will assume that the transfer was intended as a trust and not as a gift. The person holding title would now do so, for the benefit of the transferor as Trustee and not for themselves on their own account. So, the transfer was for "legal title" only and not "beneficial title". This is only a presumption. It can be satisfied if the contrary intention can be proved. The obligation would be upon the recipient to satisfy a Court that there was truly a "gift".

Advancement

There is another common law doctrine that needs to be considered. In fact, it conflicts with the resulting trust doctrine, or perhaps it could be considered as an amendment or qualification. It is the doctrine of the "presumption of advancement". It was developed several hundred years ago to support gifts made by fathers to their children. It was presumed that the father would have a legal obligation to support the child and would therefore have intended the transfer as an outright gift. So, the principle of advancement could be used to defeat the principle of the resulting trust in such circumstances.

As time went by this doctrine was extended to include wives and others who were dependent upon the grantor.

Modern legal jurisdictions all recognize that this doctrine is antiquated. In some cases, it has been abolished, reduced or modified by the Courts or by legislators.

The problem is that in Ontario, it's still here.

So, let's look at a rather common situation. An elderly parent holds title to the family house. The children have all grown up and moved out. Eventually, it seems reasonable to undertake some sort of estate planning. This usually involves a Will, Powers of Attorney, beneficiary nominations, and possibly the transfer of the family home. So, someone comes up with the bright idea that the title should be conveyed to the parent and one of the children in "joint tenancy". This will eliminate probate fees on the value of the house and might eliminate the need for probate altogether.

Let's assume that Joe (the father) conveys the title to Maureen, his daughter in joint tenancy. But, Joe has two other children, Robert who is a workaholic and Jennifer who lives in the United States. There is no question that Maureen is the one who is called upon to look after dad's daily needs, groceries, housekeeping, trips to the doctors etc.

This can't go on forever, and it doesn't. Joe dies. So, who gets the property?

Maureen claims it's hers. It was in joint tenancy. Robert and Jennifer say it should be split three ways. They claim the doctrine of resulting trust should apply. Maureen is presumed to be a Trustee and dad the beneficiary. Maureen counters with the doctrine of the presumption of advancement. She is a child of Joe, and he must have intended to provide her with an additional benefit. After all, she was "the one" caring for him. And, so it goes. In fact, basically all the way to the Supreme Court of Canada.

All these issues are presently before the highest Court in Canada for consideration and resolution. The Court has reserved judgment in Pecore vs. Pecore, and Brooks, Estate Trustee vs. Saylor.

In the meantime, while we are awaiting a decision, there is some guidance from the Ontario Court of Appeal. That Court said that you have to look at the whole of the evidence. Look at the bank accounts, look at other relevant factors and make a determination about Joe's true intention as demonstrated by his behaviour. Only, if you can't figure it out, apply the two legal doctrines. That seems to make sense. But, let's wait to see what the Supreme Court of Canada says before we draw any unnecessary conclusions.

One word of advice while we're waiting: document dad's intentions!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Is Joint Tenancy a Poor Man's Will?

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sat, 28 Nov 2009 17:19:12 -0600

Is Joint Tenancy a Poor Man's Will?

By Brian Madigan LL.B.

Question: I am concerned about my mother. Ten years ago, she married a man who now seems to be in ill health. He has operated his own business for over thirty years. Their only real asset is the house. He refuses to make a Will and claims that my mother is protected because the house is in joint tenancy. Is this true?

Answer: No, joint tenancy is not really the answer and it offers no protection for your mother concerning his interest in the house. This arrangement is sometimes referred to as a "poor man's will".

When property is held in joint tenancy between a husband and wife, the property is immediately vested in the wife at the time of death. However, this just means the husband's half; she already owns her own half.

The only step necessary to effect a legal transfer, is to register a death certificate issued under the Vital Statistics Act (this will take 30 days) or Funeral Director's certificate (this should be available immediately). Upon registration, your mother will be able to convey the entire property (by her signature alone) to a third party.

Is there any reason why your mother might not get her husband's share of the house? Yes, there are many reasons, however the most important might be that is his only asset, and all of his debts have to be paid out of it.

Essentially, there are four types of debts that have to be considered:

1) executions (these are past judgments filed against the husband),

2) outstanding taxes,

3) obligations arising under the Family Law Act and the Succession Law Reform Act, and

4) outstanding but unresolved statutory, contractual and tort liabilities.

Outstanding taxes are a real issue and could be quite significant. Since the husband was self-employed, there might have been a sizable tax deferral amounting perhaps to 2 ½ years income tax. Now, that has to be paid! Was he collecting GST or PST? It all has to be paid when he dies! Any deferred capital gains? Well, it can't be deferred any longer. Was this property his principal residence for tax purposes? If not, it's taxable.

What about the Family Law Act? Fortunately, it looks like your mother as surviving spouse is covered. But, that's only part of the story. What if there were a first wife, two children of the first marriage, an out-of-wedlock child, a disabled brother, and an elderly mother. The bad news is that they can all claim under the Family Law Act. Their claims will be quantified (that is converted into money) and treated as if they were debts against the husband's one half of the house prior to death.

To make matters worse, this self- employed gentleman operated a business as a sole proprietor. Now, all debts of the business also effect his share of the house.

Let's assume that he had the good sense to incorporate his business. Still, he is personally liable for 6 month's worth of wages to his employees as a Director of his company. And, your mother might be liable for this same amount too, if she too was a Director.

There are legal procedures available to enforce these liabilities as against the single asset of the estate being his one half share of the house held in joint tenancy. After satisfaction of all the debts, the surviving spouse is entitled to the remainder of the husband's equity in his share of the house.

This gentleman should see a lawyer in order to effect a proper estate plan. His belief although well-intentioned is not sufficient.

Brian Madigan is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Everyone Has a Will

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sat, 28 Nov 2009 17:00:14 -0600

Everyone Has a Will

By Brian Madigan LL.B.

Everyone has a Will. The problem is that most people don't know where it is. They have never seen it, they never signed it and they don't know what it says.

The Ontario Government has written out a generic Will for everyone. It's set out in the Succession Law Reform Act. So for those of you who have never taken the time to sign one of your own, let's have a look at what it says when it comes to dividing up your property:

1) the first $ 200,000 to my spouse,

2) the balance, ALL to my spouse, (except if I have a child),

3) one child, then ½ to my child and ½ to my spouse, (except if I have more than one child)

4) 2/3 to my children to be shared equally, and 1/3 to my spouse,

5) all to my parents (if I have no spouse and no children),

6) all to my brothers and sisters (if no one in 5),

7) all to my nieces and nephews (if no one in 6),

8) all to my next of kin (if no one in 7), and

9) all my estate to the Province of Ontario (if no one in 8).

There are a couple of additional rules that you need to know. Children may represent their deceased parents as long as the parent was a child, brother or sister of the person who died intestate. Half blood is the same as whole blood. Adopted children are included, as are unknown and undetermined relatives (as long as the connection can be proved by DNA). There is no such thing as "in-laws" or "godchildren". These people are just strangers, and if there is an intention to include them, they must be mentioned in a Will.

You will also appreciate that it may be difficult to determine just precisely who is included in the term "next-of-kin".

All in all, the generic Will seems to be reasonably fair. The only real problem is that nobody really ever likes it completely. Everyone wants to change it, even just a little bit.

Also, there is nothing in there about any kind of tax planning or particular financial management opportunities. And, there is nothing about the guardianship of your children. So, if you have children, don't just leave them up for grabs, sit down and write out your intentions when it comes to guardianship.

After children, the next important issue might be your house. It's not necessarily going to your spouse! Who gets it? Is that fine with you? What about your parents' home? As time marches on, preparing your own Will might be something to think about.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEsateSource.com

Solicitor's Opinion: The Gold Standard

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Wed, 25 Nov 2009 21:41:55 -0600

Solicitor's Opinion: The Gold Standard

By Brian Madigan LL.B.

When it comes to conveyancing practice, the solicitor's opinion is the gold standard, not a title insurance policy.

Let's have a look at the policy and determine where it fits in.

First, it is an insurance policy. Historically, insurance has been against the law because it is akin to gambling, or drawing lots. Many ancient societies, and many modern ones too have made gambling a crime.

In the 17th century, the basic principles of insurance were accepted. In fact, they generally seemed to be beneficial to society. If someone's house burnt down, the cost of replacement was borne by the neighbours. The neighbours arrived to put out the fire, probably too late, cleared the debris the following day, and housed the victims until their house could be rebuilt. Pools of capital were formed to help, in the case of need. Gradually, this organized pool of capital funds led to insurance companies.

Insurance contracts were developed, and there had to be a specific exemption from the existing statutes governing crimes and gaming.

Remember that gaming was gambling, "playing the odds" as it were, which had led to fraud over the centuries. Trickery and slight of hand were illegal, as were bets and taking odds. Consequently, even in the modern society of 17th century England, insurance companies had a great deal of difficulty being accepted as legitimate. As part of their marketing, advertising and promotion campaign for "acceptability" they would often host or sponsor local fire brigades, the forerunners of fire departments. In effect, charity and altruism were the cover for their otherwise illegal activities. In some cases, that's still true today!

So, what is a title insurance policy? It is a not really a guarantee of title, which it is often thought to be. It is a simple insurance contract. If something goes wrong, the company will help with the loss. They don't say, there will be no loss, they only say that they will help you out if there is one.

If you are looking for a guarantee, then look to the solicitor's opinion. That's basically as close as you're going to get.

Let's look at the issue of unpaid taxes, unpaid utilities and unpaid executions.

A lawyer will conduct a search in respect to these items. There will be a clear answer, one way or the other. They are paid, or they're not paid. It is a simple matter, and a fact that can be determined.

A title insurance company on the other hand will "play the odds". Most of the time, the taxes are paid, there are no utility arrears and there are no executions effecting the title. Looking at the particular transaction at hand they see that:

1) the vendor said there were no such arrears, and

2) the vendor agreed to pay, should there be any such arrears.

So, they "take a chance". They say that they will assume the risk when it comes to taxes, utilities and executions. However, the buyer will have to buy a policy and pay the premium.

In order to induce the buyer to opt for this "solution", the insurer will state that no taxes need be checked, no utilities need be checked and no executions need be checked.

This results in a saving of fees paid to the municipality, the utility companies and the Sheriff to check their records. It also results in a saving of legal fees that would otherwise have been charged.

The solicitor's opinion provides the true and correct answer. The insurance is just a "guess". If the insurance company guesses incorrectly, then it will pay. If it turns out that there are arrears of taxes, utilities or an unpaid execution, then they can still insist that the vendor pay. The insurer has the right of subrogation and will sue the vendor if necessary.

Now, the real problems arise when it comes to title, searching title, easements, encroachments, restrictive covenants, title defects, and the extent of title as determined by a survey.

Again, we have the same fairly cavalier approach by the title insurance companies. The insurance principle is based upon spreading known, measurable and predictable risks among a great many people. Quantity is of course more important than quality. High volumes lower overall risks. High volumes lower premiums.

No one here is seeking excellence. There is no reward for being correct or accurate. The reward will only exist with the "law of large numbers". If you do enough deals, and given that most will take place without problems, the few problems that do arise can be paid out of the savings by participating in the gamble in the first place.

However, if you are a developer, you need the correct, accurate answer. You're not looking for guesswork. You're not trying to save little bits of money at the front end. Also, there's an upper end limit on the title policy claim.

If you are a developer and you find out you can't build a 50 storey condo, and you thought you could, you're going to be very upset.

In these cases, spend a little extra money upfront. You don't need to gamble. Go for the gold standard and obtain a solicitor's opinion!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Lawyers' Opposition to Title Insurance

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 24 Nov 2009 19:19:33 -0600

Lawyers' Opposition to Title Insurance

By Brian Madigan LL.B.

For years, lawyers were strongly opposed to title insurance. In common law jurisdictions, the normal conveyancing practice was to obtain a title opinion.

Sure, you could buy a property yourself and accept all associated risks, but, if you wanted a mortgage, you had to obtain a title opinion from a solicitor. That was standard mortgage practice.

That basically left most buyers without a choice: a title opinion or nothing. In addition, the solicitor would provide a number of ancillary services in connection with the transaction.

Gradually, in the United States title insurance replaced legal opinions, and title companies replaced lawyers in the conveyancing transaction. The two went hand in hand.

In the mid 1990's the issue became quite topical in Ontario. The lawyers banded together to prevent title insurance from getting much of a foothold. Numerous arguments were presented pointing out the shortcomings of the insurance model generally, and title insurance policies in particular.

Eventually, the Law Society of Upper Canada, the governing body for solicitors developed its own title insurance policy. With the endorsement of the Law Society, title insurance became popular. Additionally, if you bought the policy, you did not need not sue your own lawyer. That is always problematic at the best of times, and who wants to sue their own lawyer?

This seemed to be the missing ingredient. Lawyers rapidly adopted the new system, since they were effectively "protected" as well.

Furthermore, they were still involved in the conveyancing transaction, and in large measure this kept the title companies at bay.

By 1997, title insurance had become the norm. It was acceptable mortage practice. Policies are now sold through "agents", being the lawyers themselves. Policies are available from a number of different insurers, and policy provisions vary from company to company. While there is a standard automobile policy, there is no standard title insurance policy. It is important to cover the risks that you want covered and secure the appropriate conditions.

There are still a few holdouts in the legal community, however, they are now few and far between.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Illegal Basement Apartments in Ontario

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 23 Nov 2009 20:24:59 -0600

Illegal Basement Apartments in Ontario

By Brian Madigan LL.B.

So, you would like to have someone help you with your mortgage payments? Who wouldn't! That seems reasonable. But, be aware of the risky proposition of renting out an illegal basement apartment.

There are literally thousands of houses available in the area right now with basement apartments, so finding one should not be that difficult. Right? No, absolutely wrong! In fact, most are illegal, so your chances of finding a legal unit is just like finding the proverbial needle in a haystack.

What difference does it make? If you rent an illegal apartment to a tenant and the municipality requires you to close it down, you will have some problems. You have to terminate the tenancy. This is your fault, and you will be liable for the Tenant's moving costs, out-of-pocket expenses and the difference between what they paid to rent your unit, and what it will cost them to rent another (this time, legal) apartment. You may be charged by the municipality under the by-law and be obligated to defend yourself in Court. You will be ordered by the Court to complete the necessary repairs in order to convert the property back to a single-family dwelling.

Why does the municipality care? In an area where the municipality has expected 5,000 residents to live, there will be an infrastructure to accommodate 5,000 residents of various ages, including roads, schools, parks, and parking spaces on the street. If suddenly, that neighbourhood grows in size to 9,000 residents through a proliferation of basement apartments there will be a serious impact upon the community.

Just what is a basement apartment? The necessary features include:

1) a distinct and separate, self-contained living unit,

2) a kitchen, or a place to prepare meals,

3) a bedroom or sleeping accommodation, and

4) a bathroom.

Certainly, if it has all four features, then it is an accessory apartment. However, in many circumstances these features may be combined, and it will still be caught by the accessory apartment rules.

Why all the confusion with basement apartments and what makes them legal? In 1994, the NDP Government, then in power, passed legislation to provide that additional units (called accessory apartments) in houses were permitted as a matter of right. As a result, anyone anywhere in Ontario could create a second unit in their house. It didn't matter what the local by-laws said; this legislation prevailed. About two years later, this Act was repealed by the Conservative government.

Municipalities were again given the right to decide where these accessory apartments could be located. However, one of the most important provisions stated that all apartments that were created under the old legislation were still legal as long as they met the requirements of the Fire Code. And later, there was another change in the law to the effect that the second unit was legal only if it complied with the appropriate zoning by-law. So, the laws concerning this matter are quite complex. The application to particular circumstances is difficult, and it is almost next to impossible to determine the legal status of a second unit at the appropriate times.

Certain municipalities have introduced or plan to introduce a registration system which will record the legal status of all accessory apartments. Obviously, you should check the status if a registration system exists.

Nevertheless, you should beware of purchasing a house with an accessory apartment. Be particularly cautious when you see the words "owner does not warrant retrofit status". This probably means that it is simply illegal. If it were legal, they would say so!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
www.OntarioRealEstateSource.com