Standard Clauses & Phrases. To Assist in the Writing of Residential Purchase Contracts

Transcription

1 Standard Clauses & Phrases To Assist in the Writing of Residential Purchase Contracts

2 ACKNOWLEDGMENTS The Alberta Real Estate Association (AREA) wishes to thank the Ontario, British Columbia and Saskatchewan Real Estate Associations for sharing their materials on standard clauses and phrases. AREA also wishes to acknowledge the efforts of AREA WEBForms subcommittee members Bill Kirk and Alan Tennant (both Calgary Board members), and Bill Fowler, CREB s Rural Supervisor, who provided input for earlier versions of this booklet. Legal review was undertaken by Lou Pesta, Q.C., Walsh Wilkins Creighton LLP. The Alberta Real Estate Association has created these standard phrases and clauses to assist its members in drafting clauses to meet the needs of buyers and sellers in the preparation and negotiation of the Residential Real Estate Purchase Contract. At no time are these clauses and phrases to be thought of as required wording, but they are to be used as examples of acceptable phrases and clauses. AREA accepts no liability for the usage of these clauses and phrases and is not responsible in any way for the adequacy, sufficiency, accuracy or suitability of any of the clauses and phrases. Each transaction is unique and real estate agents and brokers are encouraged to seek professional advice when they are in doubt regarding the appropriate wording. Please Note: Additional clauses and phrases may be found in the booklets for commercial, commercial leasing and acreage/agricultural contracts. Visit the Forms section on the REALTOR side of Copyright 1999 Revised 2001, 2004, 2005, 2006, 2008, 2012 The Alberta Real Estate Association

3 TABLE OF CONTENTS Page 1. DEPOSIT CLAUSES 1.1 Initial Deposit Deposited Within Three Business Days of Acceptance Additional Deposits 1 (a) Given After Removal of Condition 1 (b) Deposited Within Three Business Days of Receipt Interest to Accrue to Specific Party Failure to Pay Deposit Paid Directly to Seller 2 2. SELLER S WARRANTIES 2.1 Building/Property Does Not Have an Existing Condition Insurance Claim Warranty 3 3. ADDITIONAL TERMS 3.1 Seller to Pay Discount to 'Buy Down' Interest Rate for the Buyer Wood Stove/Fireplace Fire Insurance Acknowledgment by Buyer Partially Completed, Defects or Repairs Provision of Title Insurance 4 (a) Seller to Provide Title Insurance in Lieu of an RPR 4 (b) Seller to Supplement Existing Real Property Report Modification of Clause 4.11/Real Property Report Alarm System Clauses 5 (a) Alarm System to be Removed 5 (b) Alarm System to be Kept But Not Monitored 5 (c) Buyer to Assume Monitoring Charges for Alarm System Removal of Rented Water Softener by Seller 5 4. ADDITIONAL CONDITIONS 4.1 Goods and Services Tax Subject to Professional Advice Back-Up Purchase Contract 6

4 Page 4.3 Buying from an Estate Financial Obligations May Exceed the Sale Price Third Party Conditions Subject to Property Inspection 7 (a) When Acting on Behalf of the Buyer (Buyer Emphasis) 7 (b) When Acting on Behalf of the Seller (Seller Emphasis) 7 (c) When Acting on Behalf of Both Parties (Neutral) Subject to Wood Burner/Fireplace Insurance Confirmation Subject to Inspection/Testing/Government Approval Subject to Legal Advice 8 (a) Approval of the Seller s Lawyer Required 8 (b) Approval of the Buyer s Lawyer Required Subject to Title Search Subject to Obtaining Home Insurance Confirmation of Zoning Clause Changes of Zoning Clause Assumption of Mortgage 9 5. DISCLOSURE 5.1 Industry Member Buying Property Industry Member Selling Property 10

5 STANDARD CLAUSES & PHRASES Note: It is mandatory that all conditions have a completion date. 1. DEPOSIT CLAUSES 1.1 Initial Deposit Deposited Within Three Business Days of Acceptance Section 25(1)(b) of the Real Estate Act stipulates that deposit money being held by a real estate brokerage must be placed into a trust account. Section 22 of the Ministerial Regulation [AR124/2008 s6] now states that deposit monies must be placed in trust within three business days after receipt of the money. In the case of money accompanying an offer to purchase, it must be deposited within three days of acceptance of the offer (final signing). If the initial deposit will be deposited more than three business days from final signing, then the following phrase should be inserted in clause 3.1, in addition to the name of the brokerage where the funds will be held in trust: Initial Deposit to be placed in trust with (name of brokerage) on or before (day, month, year). Clause 3.2 should be amended as follows and initialed by all the parties: The Initial Deposit shall be deposited no later than the third Business Day following the day that Final Signing occurred (as per clause 15.1) it is received by the brokerage in 3.1 above. Additional Deposits shall be deposited no later than the third Business Day following the day the Additional Deposit is received by the brokerage. 1.2 Additional Deposits (a) Given After Removal of Condition Clause 3.3 provides space for instructions regarding additional deposits. For example, if the additional deposit is to be given after the removal of a condition, wording in clause 3.3 could say: Any Additional Deposits shall be delivered as follows: upon removal of all conditions. OR on or before (day, month, year). (b) Deposited Within Three Days of Receipt As per clause 3.2, the brokerage must deposit the Additional Deposits within three days of receipt. 1

6 1.3 Interest to Accrue to Specific Party If the deposit is to be placed in an interest bearing account with interest accruing to a specific party, then this would be written into clause 3.4: The Buyer and Seller hereby direct the brokerage holding the Deposit to place it in an interest bearing account, with any accrued interest on the Deposit to be paid to the Buyer/Seller on completion or termination of this Contract. The brokerage paying interest to a specific party is required to have the social insurance number of that party before paying interest on deposits. 1.4 Failure to Pay Deposit This phrase could be inserted in clause 7.6 of the Purchase Contract. If the Buyer fails to pay the Deposit as required in this Contract, the Seller may, at its option, terminate the Contract. This clause could protect the seller if the buyer has asked for a longer period of time in which to provide the deposit. 1.5 Paid Directly to the Seller In some circumstances, the parties may agree to pay a deposit directly to the seller. Usually this request happens when the seller is a builder. In these circumstances, the buyer should obtain legal advice, and the following clause should be inserted in 8.1(e): This Contract is subject to the Buyer obtaining legal advice on the Deposits, at the Buyer's expense. Such review is to be acceptable to the Buyer. If it were the seller who wanted legal advice, then the clause would state Seller instead of Buyer and would be inserted in SELLER S WARRANTIES Seller s warranty clauses fall under terms of the contract and would be best inserted in clause Building/Property Does Not Have an Existing Condition The Seller warrants that, to the best of its knowledge, the Building/Property does not have (describe the condition). 2

7 2.2 Insurance Claim Warranty This clause is to be used in circumstances where the seller may have received insurance money but not made the appropriate repairs. The Seller warrants that it has not received any insurance settlements where the work on the Property has not been completed. A property inspection could be requested for the buyer's protection. 3. ADDITIONAL TERMS 3.1 Seller to Pay Discount to 'Buy Down' Interest Rate for the Buyer This is used in periods of high interest when the buyer wants a more attractive mortgage rate, or when the buyer cannot qualify at today s rate but could qualify at a lesser rate. Always check with the mortgage insurer for their rules regarding the term required for the buyer to qualify at the lesser rate. The seller would be willing to reduce its net proceeds by paying a sum to the mortgagee/mortgage broker to accomplish this, thereby giving that 'market rate' to the lender. The loan amount is inserted into clause 2.2 and the buy down rate is inserted in the second bullet of clause 8.1(a) where it states, interest rate not to exceed percent. Then in clause 7.6, additional terms, insert the following wording: The Seller will pay a discount to the on the mortgage arranged by the Buyer, sufficient to yield the mortgagee an interest rate of % per annum, calculated semiannually not in advance, for a term of years. The amount of the discount and buy down may not exceed $ in total and will be deducted from the proceeds of sale due to the Seller on completion. 3.2 Wood Stove/Fireplace Fire Insurance Acknowledgment by Buyer The Buyer acknowledges that the (wood stove/ fireplace) installed on the Property may not be approved for legal use and may render any fire insurance void. 3.3 Partially Completed, Defects or Repairs These terms would be inserted into clause

8 The Seller, at its expense, will complete and/or repair the items specified on the attached addendum and valued at $. The addendum forms a part of this Contract. The quality of workmanship and materials will be equal to or better than that of the surrounding construction. The Buyer will hold back from the sale proceeds the amount specified in the above clause until all the deficiencies specified in the addendum are completed, and will place this holdback in the Buyer s lawyer s trust account. Deficiencies are to be completed before 9 p.m. on (day, month, year). If the work is not completed, the total funds held back will be returned immediately to the Buyer. 3.4 Provision of Title Insurance (a) Seller to Provide Title Insurance in Lieu of an RPR This term could be added to additional terms (clause 7.6). In lieu of a current Real Property Report and compliance, the Seller will contribute up to $ towards the cost of a Title Insurance Policy to be secured by the Buyer. The first sentence of clause 4.11 should then be crossed out and initialled by both the seller and the buyer. (b) Seller to Supplement Existing Real Property Report If the buyer requests that the seller supplement an existing real property report with the addition of title insurance, then the following phrase should be added to the additional terms in clause 7.6: To supplement the existing Real Property Report, the Seller will contribute up to $ towards the cost of a Title Insurance Policy to be secured by the Buyer. 3.5 Modification of Clause 4.11/Real Property Report These clauses are to be used when the seller doesn t want to update or provide a new real property report. The Seller will provide an existing real property report and an affidavit confirming that there have been no changes made to the Property since the existing real property report. OR The Seller will provide to the Buyer a survey certificate in lieu of a real property report and an affidavit confirming that there have been no changes made to the Property. 4

9 3.6 Alarm System Clauses (a) Alarm System to be Removed The Seller agrees, at the Seller s expense, to buy out the monitoring and/or sales agreement for the alarm system with the result being the removal of the system completely by the Completion Day. The Seller will take steps to repair any holes in the walls or other damages caused by the removal of the alarm system. (b) Alarm System to be Kept But Not Monitored The Seller agrees, at the Seller s expense, to buy out the monitoring and/or sales agreement for the alarm system with the result being that the alarm system is intact and operational on Completion Day but not monitored. (c) Buyer to Assume Monitoring Charges for Alarm System The Buyer agrees to assume monitoring charges on the existing alarm system contract. 3.7 Removal of Rented Water Softener by Seller The Seller agrees to remove the rented water softener and cap the pipes at its expense prior to possession. 4. ADDITIONAL CONDITIONS 4.1 Goods and Services Tax Subject to Professional Advice Licensees are responsible for the accuracy of any advice they may provide concerning the application of GST to real estate transactions. You should advise both the buyer and the seller that if they have any questions regarding GST liability, exemptions, or their right to apply for a rebate, they should contact a lawyer, accountant, or the nearest Canada Revenue Agency (CRA) office. Remember that the Purchase Price on the January 2006 Residential Purchase Contract includes any applicable GST, unless otherwise agreed in writing. The following condition reflects how to deal with a GST concern. Subject to the Buyer/Seller receiving and approving information or professional advice concerning its GST liability, GST exemptions, or GST rebates. 5

10 4.2 Back-Up Purchase Contract This clause is for use in situations where the seller has already accepted a previous conditional offer on the same property, but the buyer has not yet communicated notice. It is to ensure that the previous buyer and the seller have actually signed all the necessary release forms acknowledging that the previous sale has been terminated before the seller removes the conditions on this contract. This clause would go into Seller s Conditions (clause 8.2). This is a back-up contract only and is subject to the Seller being released by a previous Buyer from all obligations under the previously accepted Purchase Contract #. 4.3 Buying from an Estate This is a condition precedent for Seller s Conditions (clause 8.2). Subject to the Seller receiving the following by (date): 1. Copy of letters of probate. 2. Assurance from the lawyer for the estate that everyone entitled to claim has waived or released their claim against the Property. 4.4 Financial Obligations May Exceed the Sale Price Where the sale price appears to be insufficient to cover financial encumbrances and real estate commissions, the seller can be protected by the use of the following clause in Additional Buyer s Conditions [clause 8.1(e)]. Subject to the Seller verifying its ability to proceed with the sale. Real estate agents and brokers should protect their commissions, under these circumstances, by registering a caveat on the title. 4.5 Third Party Conditions This clause may be used where fulfilling a condition is dependent of the approval or opinion of a third party. These are often called 'escape clauses' or 'whim and fancy clauses' because the third party can simply withhold approval and allow the buyer to walk away from the contract without removing the condition 6

11 Because this clause is slanted in favour of the buyer, the time for removal of this kind of condition should be kept as short as possible for the seller s protection, and you should advise all parties to the contract that the contract is unenforceable until all the conditions are removed. Subject to approval of this Contract by (name of relative/trusted friend). Before 9 p.m. on (day, month, year) (the "Condition Day"). 4.6 Subject to Property Inspection The following is suggested wording if you are not using the recommended Property Inspection Schedule mentioned in clause 8.1(b). The choice of clause will depend on whether you are acting for the buyer, the seller or both. (a) When Acting on Behalf of the Buyer (Buyer Emphasis) Subject to the Buyer being satisfied with a property inspection to be performed, at the Buyer's expense, by a professional or otherwise qualified inspector. (b) When Acting on Behalf of the Seller (Seller Emphasis) Subject to the Buyer confirming, by means of a property inspection performed at the Buyer's expense by a professional or otherwise qualified inspector, the absence of fundamental defects (structural, mechanical, electrical or other unusual major expense) in the Property. The Buyer acknowledges that the house is years or more old and that items of deferred maintenance or normal depreciation related to the age of the house do not constitute grounds for termination of the Contract. If the Buyer believes that a defect identified in the building inspection is fundamental, the Buyer will deliver a copy of the inspector s report to the Seller prior to the expiry of the condition and allow the Seller a reasonable length of time to rectify the defect. (c) When Acting on Behalf of Both Parties (Neutral) Subject to the Buyer confirming, by means of a property inspection performed at the Buyer's expense by a professional or otherwise qualified inspector, the absence of defects (structural, mechanical, electrical or other unusual major expense) in the Property that would exceed the sum of $ in total to rectify. 7

12 4.7 Subject to Wood Burner/Fireplace Insurance Confirmation This should be put in Additional Buyer s Conditions [clause 8.1(e)]. Subject to the Buyer obtaining confirmation from its insurance agent that the (wood stove/fireplace) installed on the Property will not void its fire insurance coverage. 4.8 Subject to Inspection/Testing/Government Approval This clause can be used in a wide variety of situations where there is a risk of some latent defect. Examples include but are not limited to: potability of water drainage quantity of water soil quality adequacy of sewage disposal/treatment environmental concerns suitability of site topography asbestos urea formaldehyde foam insulation Subject to the Buyer receiving and being satisfied with a site inspection and report from, concerning (describe the concern). The Seller will allow access to the Property for this purpose on reasonable notice. Before 9 p.m. on (day, month, year) (the "Condition Day ). This would be added to clause 8.1(e), Additional Buyer's Conditions. 4.9 Subject to Legal Advice (a) Approval of the Seller s Lawyer Required Subject to the Seller s lawyer s approval of the Contract. (b) Approval of the Buyer s Lawyer Required Subject to the Buyer s lawyer s approval of the Contract. 8

13 4.10 Subject to Title Search This is to be used if, for some reason, there is no title search available. Subject to the Buyer receiving, perusing, and being satisfied with a title search of the Property Subject to Obtaining Home Insurance This condition could be included if there is any doubt regarding the buyer being able to obtain home insurance. Due to the nature of this clause, a short time period should be selected for this condition. Subject to the Buyer obtaining insurance on the building against risk of fire, at a cost acceptable to the Buyer. The Seller agrees to cooperate in providing reasonable access to the Property, if necessary, for any inspection of the Property required for the fulfillment of this condition Confirmation of Zoning Clause Subject to the Buyer confirming that the zoning is (desired zoning) Changes of Zoning Clause Subject to the Buyer, at his expense, obtaining final approval of zoning changes from to. The Seller will cooperate with the Buyer in the zoning application process Assumption of Mortgage If this Contract contemplates an assumption of mortgage, then it is subject to the issuance by the lender of an assumption statement for the transaction. 9

14 5. DISCLOSURE 5.1 Industry Member Buying Property The Seller is aware that the Buyer is licensed under the Real Estate Act (Alberta) or is associated directly or indirectly with an industry member as a shareholder, director, officer, partner or family member. The Seller acknowledges receipt of this disclosure statement in accordance with Section 62 of the Rules of the Real Estate Act (Alberta). Initials of Seller 5.2 Industry Member Selling Property The Buyer is aware that the Seller is licensed under the Real Estate Act (Alberta) or is associated directly or indirectly with an industry member as a shareholder, director, officer, partner or family member. The Buyer acknowledges receipt of this disclosure statement in accordance with Section 62 of the Rules of the Real Estate Act (Alberta). Initials of Buyer 10