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Promises, promises: the Agreement of Purchase and Sale

Margaret Kerr & JoAnn Kurtz

You've found the house of your dreams (or at least something with four walls and a roof that's not a total nightmare). You've made your offer to purchase, and the vendor has accepted the offer, the offer has become a contract called an Agreement of Purchase and Sale. Purchaser and vendor now have legal obligations under the contract.

If you've ever seen a standard Agreement of Purchase and Sale form, you know that the whole darned thing is small print! In this article we're focusing on some of the promises that the vendor and purchaser make to each other. These promises are binding in law, and if the vendor or purchaser makes a promise and doesn't keep it, the other may be able to get out of the deal, or sue.

Seller/Vendor Promises

  • That the title to the property is good – that the vendor is the legal owner of the land and has the right to sell it, and that there are no claims against the property that the vendor has not mentioned in the agreement. However, the vendor doesn't have to specifically identify such claims as: rights of the municipality over the property, rights of utilities to run lines across the property, or restrictive covenants (agreements among the local homeowners covering matters like appearance of the houses).
  • To advise the purchaser of any survey of the property that he already has. He doesn't have to have a survey done unless he specifically promises to provide an up-to-date survey and it turns out that the only survey he already has doesn't show the property exactly as it is now (for example, if the survey he has was done before the extension was built, or before the fence or deck was added). A survey may cost $1,000, so a vendor isn't likely to promise to give the purchaser an up-to-date survey unless he actually has one.
  • That to the best of her knowledge there is no formaldehyde foam insulation on the property.
  • If the vendor is married and the vendor's spouse is not a Co-owner of the property and has not signed the spousal consent of the agreement, the vendor promises that the spouse's consent is not necessary. Under the Ontario Family Law Act, a married vendor can't sell a matrimonial home (a property where the husband and wife usually live – such as a house or a cottage) without the consent in writing of his or her spouse. If the vendor sells without consent, the spouse can have the sale set aside by a court.

Purchaser Promises

Actually, the purchaser doesn't have a whole lot of obligations – the major obligation is to pay a big whack of money on the day of closing. For this heart-stoppingly large sum the purchaser gets the land, the house itself, and any structure permanently attached to the land such as a garage, a fence, a deck, or an inground swimming pool. The purchaser also gets all the fixtures – things that are attached to the house and can't be removed without damaging either the thing or the house (like hardwood floors, countertops, built-in bookshelves) – unless the vendor specifically excluded certain fixtures she wanted to take away and the purchaser agreed. The purchase price does not include any chattels – the vendor's personal property that can easily be removed (like furniture, rugs, curtains, built-in dishwasher) – unless the purchaser specifically asked for certain chattels to be included in the purchase price and the vendor agreed. (Chattels are subject to PST, payable by the purchaser on closing.)

The purchaser also has an obligation to pay GST if the sale is subject to GST. Ack! Seven per cent... hundreds of thousands of dollars... could that pain in your chest be a heart attack? Relax! The purchase of a resale home is not subjected to GST. The tax is only payable on newly-constructed homes, and it's usually included in the purchase price so it's hardly noticeable.

Another clause in the Agreement obliges the purchaser to adjust the purchase price. Translation: on closing the purchaser must pay the vendor back for any prepayments made that will benefit the purchaser as the new owner of the house. The purchaser may have to pay back part of the water charges or year's property taxes that the vendor pre-paid; or, if the house is heated by fuel oil, the purchaser will have to pay back the vendor for filling the tank immediately before the closing.

On the other hand, if the vendor failed to make payments that will become the purchaser's responsibility as owner (for example, if property taxes are in arrears), those amounts will be deducted from the purchaser's payment on closing.

The purchaser also has to pay to register the transfer/deed (prepared by the vendor) on closing and to pay Land Transfer Tax at the same time. And if he's giving a mortgage back to the Vendor, the purchaser has to pay for the preparation of the required documents.

There are slightly different standard forms of the Agreement of Purchase and Sale, and some give the Purchaser other obligations as well, such as taking over the rental contract for rented equipment (usually a hot water heater) on the property.

The data included on this website is deemed to be reliable, but is not guaranteed to be accurate by the Toronto Real Estate Board.

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