An Agreement of Purchase and Sale (APS), is a legal document that outlines the terms and conditions of a real estate transaction. In Ontario, the standard APS is published by the Ontario Real Estate Association (OREA) and is used by the large majority of real estate agents, lawyers, and other professionals involved in the buying and selling of real estate. For the purposes of this blog, we’ll focus on the version that OREA published, however the information will broadly apply to the structure and purpose of the document across the province.
What does the standard Agreement include?
The Agreement of Purchase and Sale is a detailed document that covers a wide range of important information related to the transaction, including the purchase price, closing date, title search date, and any conditions that must be met before the sale can be completed. There are a wide range of conditions that may be included, but a few common examples are the condition that the buyer is able to obtain financing, the seller provides certain disclosures about the property, or the seller fixes something on the property.
The closing date is an important part of the APS as it marks the end of the transaction process and the transfer of ownership of the property. The closing date sets a deadline for all parties to fulfil their obligations under the agreement. For example, the buyer must provide funds, and the seller must provide clear title to the property by the closing date, and if these obligations are not fulfilled, the transaction may be delayed or cancelled.
The OREA Agreement of Purchase and Sale also requires the buyer to make a deposit at the time of signing, which is typically at least 5% of the purchase price, but can be any amount agreed to by the parties. This deposit is held in trust by the seller's real estate brokerage and is applied towards the purchase price at closing. If either party defaults on their obligations under the transaction, the deposit will remain in trust with the Realtor until an agreement is reached about which of the parties will receive it.
The Agreement also includes a section for included chattels and excluded fixtures. Fixtures are items that are permanently attached to the property, such as built-in appliances and lights that are hard-wired into the ceiling or walls. They are considered to be part of the real property and are typically included in the sale of a home, unless otherwise specified in the contract. Chattels, on the other hand, are items that are not permanently attached to the property, such as freestanding appliances, furniture, and personal property. These items are considered to be personal property and are typically excluded from the sale of a home, unless otherwise specified in the contract.
The OREA Agreement of Purchase and Sale includes a section that outlines the terms and conditions related to title searches and any defects on the title. The purpose of a title search is to ensure that the seller has clear ownership of the property and that there are no outstanding liens, encumbrances, or restrictions that would prevent the transfer of ownership.
The APS usually includes a condition known as the "clear title condition" which requires the seller to provide clear title to the property at closing, meaning that the property is free from any liens or encumbrances. If the title search reveals any defects on the title, the seller is typically required to rectify the issue before closing, or the buyer may have the option to terminate the agreement and have their deposit returned.
The APS also includes a section that outlines what the buyer agrees to assume as a defect on the title. This may include easements, covenants, restrictions, zoning bylaws and any other minor defects that may exist at the time of the purchase.
In the OREA Agreement of Purchase and Sale, a "condition" refers to a requirement that must be satisfied before the sale of the property can be completed. Conditions are not part of the standard boiler-plate language, but can be inserted for the benefit of the buyer or the seller. Some common conditions that are included for the benefit of the buyer include:
Financing condition: This condition requires the buyer to obtain financing within a specified timeframe in order for the sale to proceed. If the buyer is unable to obtain financing, they may be able to terminate the agreement and have their deposit returned, depending on the phrasing of the condition.
Home inspection condition: This condition requires the buyer to have a professional home inspection performed on the property within a specified timeframe. If the inspection reveals any significant issues with the property, the buyer may be able to terminate the agreement or renegotiate the purchase price.
Review of Status Certificate (if the property is a condominium): This condition allows the buyer to review and approve the status certificate of the condominium before committing to the closing.
Lawyer review: This condition allows the buyer to have their lawyer review the agreement and advise them on any legal issues before proceeding with the purchase.
Sale of current property: This condition requires the buyer to have the sale of their current property close before the purchase can be completed.
Most conditions include deadlines for completion. The party who benefits from the condition typically must provide either a Notice of Fulfilment of Condition or a Waiver of the condition on or before the deadline, or the APS is rendered void. It is important to track these dates, which Doormat can help with.
In a hot real estate market, a buyer may be persuaded to make an offer without some or all of these conditions, even if they may need them. It is important for buyers to consider whether they are prepared to fully commit to the transaction before they provide an offer without conditions.
The OREA Agreement of Purchase and Sale is a binding contract that outlines the terms of closing that both parties must follow, but it is worth noting that it may be amended. Any changes made to the original agreement must be agreed upon by both parties and then initialed by both parties before being considered as valid. Neither party should count on the other party agreeing to amend the Agreement later, and should carefully consider what they need to include in the original agreement before they sign.
Issues that may arise
When a real estate transaction is being conducted, it's common for a realtor to draft the APS rather than a lawyer. However, there are some difficulties that can arise as a result of this practice.
Realtors are not legal professionals, and while they may be knowledgeable about the real estate industry, they may not have the same level of expertise or understanding of the legal nuances involved in a real estate transaction. They may not be familiar with the specific laws, regulations, and standards that apply to real estate transactions in the province, which could lead to errors or omissions in the document. It is therefore important to get a lawyer to help interpret and explain any legal language or complex clauses in the agreement before it is signed.
To sum it all up
The Agreement of Purchase and Sale is a crucial document that outlines the terms and conditions of a real estate transaction in Ontario. It covers important information like purchase price and closing date and has provisions for handling disputes and satisfying conditions. Both buyer and seller should fully understand the agreement and consult a lawyer if needed before signing.