Buying a House

The topics in the Dial-A-Law series provide general information on legal issues within the Province of Alberta. The purpose of this topic is to inform you of your legal rights and responsibilities. This is not legal advice. If you require legal advice, you should contact a lawyer.

This topic discusses information for persons planning to purchase a home.

Consulting a Lawyer

Purchasing a home is probably the most significant investment a person will make in their life. The transactions for buying and selling a home are complex, and it is easy for things to go wrong.

It is essential to consult a lawyer before signing any agreements concerning the purchase of a home. Often, a lawyer is conferred after the contracts are signed, which can be too late to fix any problems in the Agreement. Once the agreements are signed by all parties involved, they create binding legal obligations.

A real estate agent or a financial institution may suggest a lawyer, but a person can choose a lawyer if they please. Check with several lawyers, asking about their prices and the services they offer.

Purchase and Sale Agreement

A real estate agent will provide you with a standard form Purchase and Sale Agreement. You should carefully review this Agreement before you sign it to ensure that it contains the correct information and terms under which you will purchase the property. It is essential that you understand all of the terms of the Agreement. If you do not understand any term(s) in the Agreement, ask the real estate agent or your lawyer for a written explanation.

Once you and the Seller sign the Purchase and Sale Agreement, binding legal obligations are created. These obligations can only be changed with the written Agreement of you and the Seller.

Deposit

Most sellers require a purchaser to provide a small deposit. This is an indication of good faith for the offer to purchase the home. For example, the deposit may range from 5% to 10% of the purchase price. If the Seller listed the property with a real estate agent, that realtor typically holds the deposit in their trust account until the sale is completed. The payment for the real estate agent’s commission is the Seller’s obligation.

Conditions on the Offer

Conditions on the offer to purchase the home are required in most cases. For example, a condition may be the buyer’s mortgage’s approval or that the buyer sells their home by a specific date. If the condition is not met, and a mortgage is not obtained, or the buyer’s house is not sold within the specified time, the Agreement cannot go ahead. If the Agreement does not go ahead, the buyer is entitled to the return of their deposit. Other conditions on the offer to purchase may concern the condition of the property. For example, you may want a satisfactory home inspection by a licensed inspector or want certain repairs completed before you move in.

However, after the conditions are met, if the buyer decides that they no longer want to purchase the home, the Seller may keep the deposit or sue for damages (or both).

 

Fixtures of the Property

Any fixtures included as part of the purchase of the home should be identified in the Agreement for Purchase and Sale. Fixtures are anything that is physically attached to the house, including:

  • Major appliances
  • Furnaces
  • Lighting (but not necessarily light bulbs)
  • Satellite dishes
  • Vanity mirrors and mirror closet doors

Drapes, blinds, picture mirrors and picnic tables are not generally considered fixtures. To be clear, any fixture that a buyer expects to remain with the purchase of the home should be written down in the Agreement.

Compliance with Local By-Laws

A warranty that the building and land comply with all local bylaws should be clearly stated in the Agreement. For example, the Agreement could state: “The Seller warrants to the Buyer that the land complies with all local bylaws.”

The Seller is responsible for costs to have any problems with local bylaws rectified. For example, if the garage is not the required distance from the sidewalk or alley, the Seller must pay the costs to move the garage to comply with local bylaws. The Seller may also obtain a “relaxation” or consent from the municipality to have the garage infringe on its property. The warranty written into the Agreement ensures it is the responsibility of the Seller to verify bylaw compliance.

Real Property Report

A “Real Property Report” for the property must be provided by the Seller unless the Agreement clearly states otherwise. A Real Property Report is a survey of the land and its buildings. It will show the location of all buildings on the property, the location of easements, utility rights of way, and so on. It will also show if there are any encroachments onto the neighbouring property.

The Real Property Report must show the current state of improvements on the property. It must also be stamped by your local municipality “Municipal Compliance” to show that the property does not infringe upon the City property. The city will not certify the survey if there is a problem with any building or improvement location. If you do not have a current Real Property Report with Municipal Compliance, you should contact a lawyer immediately.

Possession Date

The closing or possession date must be clearly stated in the Agreement. The possession date is generally the day the Seller’s interests in, and responsibility for, the property end, and the buyer’s begin.

Property insurance should be placed on the purchased home effective on the closing date. All utilities should also be connected on that date.

Title Searches

The lawyers must complete all the financing paperwork and searches before the closing date. Investigations must be made of the title to the property. An investigation will indicate whether any special requirements must be fulfilled before the title transfers to the buyer. The buyer must pay the costs of the searches.

Title Searches are done at the Land Titles Office. The title to the property shows all registrations of encumbrances and charges against the land. These include mortgages, gas easements, restrictive covenants, rights-of-way, and builder’s liens.

All financial encumbrances of mortgages and liens must be removed from the title by the Seller before the closing date. Some non-financial hurdles which interfere with the owner’s use of the land will not come off the title. These are the utility rights of way and restrictive covenants that will transfer to the new title. A search must be made at the Personal Property Registry to see if there are any outstanding debts that could ‘attach’ to the land and interfere with the sale unless cleared up.

Searches are also done with the municipality for payments of tax, utilities, and compliance with the local bylaws. In some municipalities, property taxes are paid by June 30 for the entire year. This means that an adjustment for tax costs is required between the buyer and the Seller. For example, if the Seller pays the taxes on June 30, 2017, for the entire year, and you bought the home with a possession date of October 1, 2017, then you must pay the taxes for the months you lived in the house (From October 1, 2017, to December 31, 2017).

Statement of Adjustments

The adjustment for the taxes is made on a Statement of Adjustments prepared by the Seller’s lawyer. The Statement of Adjustments determines the final amount of money due for the sale of the property. It states the cost of the property, less the deposit, and adds in the “unseen” costs. These is usually the property tax adjustment. There may also be costs from adjustments made for security deposits, tenant rents, or condo fees.

The buyer’s lawyer sends the entire amount owing on the Agreement of Purchase and Sale to the Seller’s lawyer. The Seller’s lawyer then pays all money owed regarding the property or the Agreement and provides you with evidence that all financial encumbrances have been discharged.

Transfer of Title or Ownership

In Alberta, land ownership is transferred by a Transfer of Title signed by the Seller and registered at the Land Titles Office.

The Transfer is often registered at Land Titles before the Seller is paid because some lenders will not advance any mortgage funds until certain conditions are met. For example, money will only be transferred when the title to the property is in the name of the mortgagee (the buyer). The Seller is protected because the buyer signs a Transfer Back to the Seller, in case the mortgage monies are not advanced as expected. The Transfer Back is held by the Seller’s lawyer until the mortgage monies are dealt with. The lawyers for the Seller and for the buyer are responsible for drafting the actual documents required.

Sometimes the mortgage funds are not paid until after the closing date. If you wish to move into the property and the Seller agrees, you must pay interest on the amount of money still owing to the Seller. A buyer may also move in as a tenant and pay rent to the Seller until the final payment is made to purchase the property. In order to do this, a buyer must sign an agreement called a Tenancy-At-Will. The Tenancy-at-Will may require the buyer to vacate the property on 48 hours written notice if the outstanding sum is not paid within a specified amount of time.

Dial-A-Law is a Calgary Legal Guidance public service project funded in part by the Alberta Law Foundation.