"Agreement of Purchase and Sale" (Documents and Discharge)

"Agreement of Purchase and Sale" (Documents and Discharge)

 By Brian Madigan LL.B.

This clause deals with the production of evidence of title, and also discharges of mortgages. In that regard, the second part of this clause really should have been covered under the topic of closing arrangements.

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

"12. DOCUMENTS AND DISCHARGE: Buyer shall not call for the production of any title deed, abstract, survey or other evidence of title to the property except such as are in the possession or control of Seller. If requested by Buyer, Seller will deliver any sketch or survey of the property within Seller's control to Buyer as soon as possible and prior to the Requisition Date. If a discharge of any Charge/Mortgage held by a corporation incorporated pursuant to the Trust And Loan Companies Act (Canada), Chartered Bank, Trust Company, Credit Union, Caisse Populaire or Insurance Company and which is not to be assumed by Buyer on completion, is not available in registrable form on completion, Buyer agrees to accept Seller's lawyer's personal undertaking to obtain, out of the closing funds, a discharge in registrable form and to register same, or cause same to be registered, on title within a reasonable period of time after completion, provided that on or before completion Seller shall provide to Buyer a mortgage statement prepared by the mortgagee setting out the balance required to obtain the discharge, and, where a real-time electronic cleared funds transfer system is not being used, a direction executed by Seller directing payment to the mortgagee of the amount required to obtain the discharge out of the balance due on completion."

We will have to review it line by line, and due to the fact that it contains a good deal of information. I will identify each line, thought, or partial sentence by a letter of the alphabet for later review.

12. DOCUMENTS AND DISCHARGE:

 A) Buyer shall not call for the production of any title deed, abstract, survey or other evidence of title to the property

What are we looking for? We need some evidence that the seller is the legal, registered owner of the property. Most of the information will be in the registry office. However, now that we have an electronic registration system, the originals of many documents are being held in solicitors' offices. You may assume that the land titles registration currently reflects the true state of the title, unless you have evidence to the contrary. And, maybe the seller does! So, the buyer better find out, and make inquiry.

What might the seller have? One might imagine:

• Title deeds
• Abstracts
• Surveys
• Other evidence of title

Well, if you were thinking "abstracts", then you are a way ahead of me, and should be writing, not reading an article like this. Title deeds are basically conveyances. At one time, sellers were in possession of many older deeds. It was also common to deliver the Deed of conveyance as two separate and distinct documents, known as the original which was registered and retained by the registry office and the duplicate original which was given to the buyer.

That was at a time, prior to photocopiers and after the invention of carbon paper. So, it was easy to tell the original from the duplicate original. Later, after photocopiers and computers, the two documents cannot be told apart. The second document looks as good as the first.

If the seller is in possession of any title documents, these must be produced. The conveyance could arise from some other document, and whatever that documents is, if the seller has it, it must be produced.

Abstracts are summaries. These are really solicitor's notes, or conveyancer's notes on the search of title. Rarely, will there be a registrar's abstract of title. Usually, that is reserved for litigation, but from time to time, the land registrar will be requested to produce (for a fee) a certified abstract of title. But, it's here in the agreement, so I suppose if the seller has it, then the seller must produce it.

The next matter on the list is the survey. It's not a defined term. What's a survey? Is a photocopy of a survey, a survey? Technically, only a signed, original survey is a true survey of the property.

However, I don't think that this paragraph really lends itself to a narrow interpretation. If there are surveys, or copies, including adjoining, adjacent and contiguous properties, they should be delivered. The point here is to produce sufficient information so that the buyer has full disclosure. A seller who looks through the document file and picks and chooses what he thinks the buyer might want is really not upholding his end of the bargain.

Then again, this paragraph is somewhat vague.

Other evidence of title can be releases of liens, discharges of mortgages, court orders, Wills, and other documents that might pertain to the property. If the seller has them, then they must be produced.

B) except such as are in the possession or control of Seller.

There are two distinct elements here. If the documents are "in the possession" of the seller, then, of course, the seller must produce them.

Now, the real question open for discussion is the matter of "control". When the seller acquired the property, he likely retained a solicitor, who in turn hired a conveyancer, and possibly a surveyor. In any event, any of these parties might be in possession of relevant documentation. Is the seller in control of these documents? Probably not! The solicitor has them in order to protect himself from being sued. Those documents remain under the solicitor's control. There could be other documents which are truly the property of the seller.

These documents might include the duplicate original conveyance, a copy of a survey and old title documents. On closing these documents were delivered to the solicitor and received by the solicitor as the client's property.

If that is the case, then these documents are under the control of the seller, although not technically in the possession of the seller. If the buyer so requests, these documents must be delivered.

As a matter of convenience some solicitors' offices will store clients' documents in their vaults for safekeeping.

C) If requested by Buyer, Seller will deliver any sketch or survey of the property within Seller's control to Buyer as soon as possible and prior to the Requisition Date.

First, we must have a request. The old wording for this provision was "sketch of survey". The word "of" has been deleted, and the word "or" inserted. This makes a significant difference. Previously, if there was no true survey of the property in the possession of the seller, this obligation could be ignored. Now, the simple requirement is that the document merely qualify as a sketch. It need not be a survey. So, photocopies count. Photocopies of adjacent properties also qualify if they show some part of the property.

The matter of control is the same as the previous provision. The seller will have to make inquiries of his own solicitor.

Given that we have three requisition dates in an agreement, which one applies? The correct answer should be the first date, since the purpose of this information is to assist with title issues.

You will also appreciate that the document is to be delivered prior to the requisition date. What are the consequences, if it is not? One remedy available to the Court is to extend the time limited for submission of requisitions on title. In many cases, if the document were to be delivered after the expiry of the initial requisition date, the court will afford the buyer a reasonable time limit to submit a requisition arising out of new information contained in the document.

D) If a discharge of any Charge/Mortgage held by a corporation incorporated pursuant to the Trust And Loan Companies Act (Canada), Chartered Bank, Trust Company, Credit Union, Caisse Populaire or Insurance Company and

This is the reference to "institutional mortgages". These are to be distinguished from private mortgages. An institutional mortgage is held by a mortgagee whose conduct is regulated by a government or an agency of a government under some Act or Regulation. It could be federal, provincial or territorial legislation. It does not apply to out of country banks etc. nor does it apply to pension funds. These institutional mortgagees are to be treated as private lenders.

E) which is not to be assumed by Buyer on completion,

This provision assumes that the mortgage is to be discharged.

F) is not available in registrable form on completion,

And, further the assumption is that the correct discharge document is not available for the closing.

 G) Buyer agrees to accept Seller's lawyer's personal undertaking to obtain,

This part starts out with the consequence. If the seller's lawyer provides an Undertaking, it must be accepted.

Remember, that there are two kinds of undertakings given by solicitors:

• Undertakings on behalf of clients, and
• Personal undertakings

This undertaking must be "personal" in order for it to qualify under this provision.

 H) out of the closing funds,

This requirement is really a two way street. The solicitor is to use the closing funds to pay off the mortgage. So, now we have a potential problem. What if there is a shortfall on closing. What if the amount to be paid is insufficient to pay of the outstanding mortgage?

First, the seller's lawyer does not have to provide a personal undertaking, and

Second, the buyer doesn't have to accept the undertaking, even if it were provided.

This part of the agreement only deals with situations where the closing funds will exceed the mortgage commitment. Basically, it is designed to permit the seller to use the buyer's money to pay off the mortgage, rather than raise the funds independently, and have the discharge ready for registration on closing.

I) a discharge in registrable form and to register same, or cause same to be registered, on title within a reasonable period of time after completion,

This is the substance of the undertaking. The seller's lawyer will register the correct document within a reasonable period of time. That time period varies from one lender to the next. It can be a week to ten days or as long as three months.

J) provided that on or before completion Seller shall provide

This is the commencement of the specific requirements.

K) to Buyer a mortgage statement prepared by the mortgagee setting out the balance required to obtain the discharge, and,

Institutional mortgagees should be able to provide a mortgage statement fairly quickly.

L) where a real-time electronic cleared funds transfer system is not being used, a direction executed by Seller directing payment to the mortgagee

This part of the statement deals with automatic payments. Usually, that will have been suspended for closing. It could later be reinstated if that transaction does not close. The seller is to provide a direction. The funds payable by the buyer will include a cheque drawn in favour of the institutional mortgagee.

 M) of the amount required to obtain the discharge out of the balance due on completion.

The amount of the cheque will be the exact amount specified by the mortgagee to obtain the discharge.

Comment

This provision has been included to ensure easily transacted closings. A buyer who wanted to terminate a deal would insist that arrangements be made to have the discharge of the institutional mortgage available for registration on closing. That was difficult to do. The seller had to have an independent source of funds or a co-operative buyer. Most of the time, a buyer was co-operative, so the deal would go through.

This provision corrects that apparent imbalance in power.

Nevertheless, the old rules continue to apply to private mortgages, personal mortgages and institutional mortgages held by out of the country mortgagees.

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