What is an Agreement of Purchase and Sale?

A Purchase and Sale contract is a written and binding contract which relates to the buying and selling of real property. The standard form of this written contract, which is generally used in Ontario is the Ontario Real Estate Association’s (OREA) Agreement of Purchase and Sale (standard form). It is used by almost all realtors and Property Law lawyers. The OREA standard form for purchase and sale is used by Purchasers and sellers to list their terms and conditions which must be satisfied in order for the deal to be closed. Terms and conditions can include; home inspection, fixtures, chattels, financing, title, status certificate (for condominiums) etc. In real estate law unlike many other areas, as per the Ontario Statute of Frauds all contracts and agreements relating to or dealing with real property i.e real estate must be in writing to be valid and therefore enforceable. A contract or agreement relating to purchase or sale of real estate begins (generally) by the Purchaser making an offer; the seller may refuse at this point but in the instance that he or she accepts the offer, the agreement can only be terminated by mutual agreement or in compliance with the terms and conditions of the contract or agreement. However, there can be instances of foul play which would allow for either party to unilaterally terminate the contractual agreement. These instances may include, fraud, misrepresentation, undue influence, duress etc.

The Information Section:

In this Section of the OREA standard form, the following information needs to be provided;

  • The full legal names of the parties;
  • The date they entered into the agreement;
  • A full legal description of the property which includes;
  • A description of the land, which can be done in the following number of ways;
  • By Fractional Designation: Utilizes rectangular surveying to accurately describe the land in sections.
  • By the Metes and Bounds method uses reference points of streets, hills, rivers etc. to identify the property in question at all points North, South, East and West.
  • By a Lot and Block Survey: this method divides the land into lots and blocks in order to correctly identify the property.
  • The Quantity of Land;
  • A Street Address; (not always required; if accurately available; in the case of wrong address it will need to be waived)
  • The Purchase Price;
  • The deposit made by the Purchaser;

Purchase Price:

The Purchase price of a home depends on a number of factors. It can be fairly difficult for a lay person to calculate the fair marker value of a home. In order to determine the price, the services of Realtor and/or Real Estate lawyer is recommended. They will advise the purchaser or seller of real-estate to place a monetary value on the property based upon:

  • The location;
  • The size of the property;
  • The age of the property;
  • The condition of the fixtures and chattels of the property;
  • The features and amenities of the property;
  • Any upgrades to the property (pool, floors, refurbishments etc.)
  • The price of comparable properties sold in the locality;
  • The proximity to services like schools, hospitals, shopping malls, police stations, public transport, community centres etc.;
  • The market condition;
  • Potential future increase or decrease in value;
  • Any Easements, covenants or restrictions on the property;
  • Any Municipal by-laws effecting the property;
  • Accessibility to Highways;
  • Rent prospects and eligibility;
  • The Duration the property has been on the market; etc.

Additionally, it is important to note that on the purchase of newly built home, or a home being purchased for the first-time a (currently) 5% (of the purchase price) GST charge is payable to the builder.  This GST charge is not payable on the purchase of a re-sale home or property. Additionally, relevant to those selling their second property; the sale of any home or property not considered to be a principle residence is subject to a Capital Gains Tax. This is calculated on the increase in value of the Property. Nevertheless, the sale of a principle residence (as is the case with most home-owners) is exempt from a Capital Gains tax.

The Deposit;

Although making a deposit is not a legal requirement to make an agreement for the purchase of land, it is often made by purchasers or demanded by the seller in order to reassure the seller that the purchaser will go through with the deal. It is common commercial practice in the Greater Toronto Area to demand a deposit of 2% to 5% however as it is not a legal requirement a deposit can exceed these amounts. Generally, the higher the deposit made by the purchaser, the higher desirability of the seller to come to a sale or purchase agreement, by virtue of it being a higher assurance. The deposit is generally counted towards the purchase price and the final price of the property is adjusted accordingly on the date of closing. Real Estate lawyers acting on behalf of the purchaser generally include provisions in the sale or purchase agreement which stipulates that the deposit, in the case of breach of the terms and conditions of the agreement by the seller, shall be refunded to the purchaser.

It is important to note however that if the purchaser without legal cause chooses to not go through with the agreement, especially where the vendor has satisfied all of the terms and conditions for the closing (or even where any breach has been waived by the purchaser) the deposit under the law will be considered forfeited by the purchaser.
The deposit can be released to the purchaser in a number of (though still exhaustive) ways;

  • Where the parties sign a mutual release;
  • Where the purchase and sale agreement is completed or performed;
  • A Judgment by the Courts ordering the release of the Deposit;

It is important to note that when bringing a court action demanding the release of the deposit amount, it will only be done so if the purchaser has not refused to close the deal without legal cause. A leading judgement of the Courts in relation to the release of the deposit is Iyer v. Pleasant Developments Inc. [2006] 210 O.A.C 90. In Iyer v. Pleasant Developments Inc. the Ontario Divisional Court set out the following principles about the essential legal features of a deposit in the case of default by a purchaser;

The forfeiture of a deposit can be established without the need to prove damages. That is to say even if the seller, resells the property at a higher price, compensating for any loss from the breakdown of the initial agreement, the deposit may still be considered forfeited by the purchaser.

Where the word ‘deposit’ is used in a contract of Purchase and Sale, although this is not decisive or conclusive, it will be held to indicate that the intention of the parties in the Agreement was for the money to be forfeited by the purchaser in the case of his or her default to the agreement. This is of course in the instance that no term or condition pertaining to the refund and/or forfeiture of the deposit moneys exists in the agreement. That is to say that the agreement is silent on this matter.

In some agreements and circumstances the loss of the deposit money is subject to relief from forfeiture. In such cases the deposit is refundable, partially or wholly, to a purchaser who has defaulted on the agreement.

Whether a court will return a deposit to a defaulting purchaser depends on a three-part test (every step needs to be satisfied). Questions the court will consider are:

Whether the purchasers conduct was reasonable in the circumstances?

Whether the deposit was made in order to secure the payment of the purchase price?

Whether there was a substantial disparity between the damage caused to the seller by the default or breach and the value of the property forfieted?

Deposit Held in Trust:

The standard clause in the OREA agreement demands that the deposit be held in a non-interest-bearing trust account. Generally, this trust account is with the listing real estate agents but can be arranged otherwise. Additionally if the purchaser makes a large deposit and would like interest on the amount the terms and conditions of the agreement will need to specify it.

Irrevocability Clause:

An irrevocability clause, generally used in the purchase and sale agreement of real estate, requires that the offer to purchase cannot be revoked for a specified period. Alternatively, if the offer is not accepted in that specified period of time it is deemed to be null and void, which in other words means that the offer is terminated.

Completion Clause:

This clause specifies the closing date.

For more information please contact one of our experienced Real Estate Lawyers at MEHDI AU LLP.

Disclaimer: Use of this site and sending or receiving information through it does not establish a solicitor / client relationship. The views expressed and the content provided on this blog is for non-profit educational purposes. It is not, and is not intended to be, legal advice on any specific set of facts. The use of this website does not create a solicitor-client (attorney-client) relationship. If you require legal advice, you should contact a lawyer directly.

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Use of the site and sending or receiving information through it does not establish a solicitor / client relationship. The views expressed and the content provided on this blog is for nonprofit educational purposes. It is not, and is not intended to be, legal advice on any specific set of facts. The use of this website does not create a solicitor-client (attorney-client) relationship. If you require legal advice, you should contact a lawyer directly.