"Agreement of Purchase and Sale" (Property Assessment)

"Agreement of Purchase and Sale" (Property Assessment)

By Brian Madigan LL.B.

(Ontario Real Estate Source)

The Property Assessment clause is a new provision in the agreement. Generally, it appears to be well-meaning.

Let's have a look at the standard form agreement of purchase and sale and see what it says in the "Property Assessment" clause:

"19. PROPERTY ASSESSMENT: The Buyer and Seller hereby acknowledge that the Province of Ontario has implemented current value assessment and properties may be re-assessed on an annual basis. The Buyer and Seller agree that no claim will be made against the Buyer or Seller, or any Brokerage or Salesperson, for any changes in property tax as a result of a re-assessment of the property, save and except any property taxes that accrued prior to the completion of this transaction."

Let's have a look at each line, thought, or partial sentence by a letter of the alphabet for later review:

19. PROPERTY ASSESSMENT:

A) The Buyer and Seller hereby acknowledge that

B) the Province of Ontario has implemented current value assessment and

C) properties may be re-assessed on an annual basis.

D) The Buyer and Seller agree that no claim will be made

E) against the Buyer or Seller,

F) or any Brokerage or Salesperson,

G) for any changes in property tax

H) as a result of a re-assessment of the property,

I) save and except any property taxes

J) that accrued prior to the completion of this transaction.

So, now let's have a look at each of the sentences or partial sentences and see what we come up with.

A) The Buyer and Seller hereby acknowledge that

This is simply the commencement of the statement.

B) the Province of Ontario has implemented current value assessment and

The Province took over the valuation of properties from the municipalities. Formerly, the assessed value was difficult to understand and compare to other properties. This made the system cumbersome.

Market value assessment is now the new standard. The Municipal Assessment Corporation (MPAC) will conduct an evaluation of every property in Ontario. An attempt is made to have the values reflect current market conditions. Consequently, the appraised value as determined by MPAC will be the "assessed value" of the property, unless challenged and placed under appeal. The assessed value will remain in place for the calendar year. Early in each new year MPAC will send to each property owner a notice of the assessed value of the property. These values are subject to change either up or down. That decision is made upon the basis of comparative statistics from market sales.

A type of house might increase in value, ie. bungalows compared to two storey structures. A neighbourhood might increase in value due to consumer demand. Both those items would be taken into consideration by MPAC in establishing a value for the property.

Accordingly, it is "market value" that becomes the "assessed value". And, it is the "assessed value" that is used to calculate the municipal taxes. That is, a function of the mill rate established by the municipality times the assessed value.


C) properties may be re-assessed on an annual basis.

Not only may properties be reassessed, it is extremely likely that they will be re-assessed. There is a small increase in values each year, and this is reflected in the MPAC annual assessment.

D) The Buyer and Seller agree that no claim will be made

Both parties are said to be in agreement that there will be no claims.

E) against the Buyer or Seller,

It seems reasonable to specify the other party to the transaction.

F) or any Brokerage or Salesperson,

Now, there are three categories of registrants under the Real Estate and Business Brokers Act, 2002, brokerages, brokers and salespersons. So, this provision seems odd.

First, it relieves the registrants of responsibility, when they are not parties to the agreement.

Second, it omits "brokers". That is probably an oversight, but the Courts are not particularly likely to bend and extend this provision in favour of brokers.

The true agent at law is the Brokerage. The agent's agent is either a broker or sales representative. It is possible however that a broker may still fall within the definition of salesperson.

The Act states "salesperson" means an individual who has the prescribed qualifications to be registered as a salesperson under this Act and who is employed by a brokerage to trade in real estate. In fact a broker does have all the necessary qualifications (and more) to be registered as a salesperson, and is in fact employed and trading in real estate.

G) for any changes in property tax

There may be changes in property tax. In fact, every year, there should be something of an increase.


H) as a result of a re-assessment of the property,

The re-assessment can result from reconsideration or appeals of the initial assessment or a re-evaluation by MPAC.

Note that it is only the re-assessment which is the subject matter of this paragraph.

I) save and except any property taxes

This is the stated and agreed upon exception to the rule.

J) that accrued prior to the completion of this transaction.

This particular matter would then be known. So, let's consider a situation where the owner believes that his taxes are too high. He appeals his assessment. In the meantime, he sells his house, or he lists his house. The matter proceeds through the normal channels and he may institute a further appeal.

All of these matters fall within the exception. He can be sued. If he ultimately wins, then there is no particular reason why the buyer might sue, but if he loses, then, he's at risk.

This brings us back to the reference "not to sue the agent". Maybe that would be a good idea! What did the listing say about taxes? Maybe the new buyer who really has the greatest interest in the property taxes and the assessment should have been provided with an opportunity to participate in the MPAC proceedings?

Did the buyer have this opportunity? Did the listing agent advise that the assessment was under appeal? Did the buyer's agent request that the buyer attend?

Comment

This provision is a relatively new clause for agreements. Only recently has the current value assessment regime been set in place in Ontario. This particular paragraph could be improved. Rather than actually discouraging litigation which is what it purports to do, it really opens up questions and may lead to litigation

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage
905-796-8888
www.OntarioRealEstateSource.com