The transfer and development of real estate in Canada is a matter of provincial jurisdiction, with the exception of Quebec. Each province has enacted statutes that govern dealings in real estate in that province. Any natural person (minors and people under a disability excluded) or corporation can acquire, hold, and transfer real estate. Provinces have the power under the Citizenship Act to enact laws that restrict ownership of real property by non-residents.
In law, an “estate” indicates an interest in real property of a certain type or duration, and is either “freehold” which is of indefinite duration, or “leasehold” which is of a fixed duration. Among the various types of freehold estate, the most common, and greatest possible interest in real property, is fee simple, which means that the estate is unconditional, unlimited, and perpetual. Some other types of rights frequently encountered in the common law jurisdictions include rights of way, easements, profits-a-prendre and restrictive covenants.
Persons buying and selling real estate in Ontario need to rely on many third parties to successfully complete their real estate transactions, including brokers, surveyors, mortgage lenders, title insurers, and lawyers. Real estate lawyers represent clients in all aspects of a real estate transactions, including negotiating and preparing the agreement, completing the due diligence and closing the real estate transaction.
Basic to the practice of privately owned (as opposed to crown-owned) is the system under which titles are registered. All land in Ontario is parcelized, mapped and assigned a Property Identification Number (PIN) on a system called POLARIS (Province of Ontario Land Registry Information System) which is accessed by the software Teraview. Every real estate lawyer in Ontario is granted a particular digital key to access Teraview, search title, and register documents on title to properties.
There are several statutes that affect real estate law in Ontario, such as the Land Titles Act, Planning Act, Building Code, the Family Law Act and various tax and environmental laws. It is the lawyer’s duty to ensure that all relevant legislations are complied with in every closing.
In a nutshell, the role of the real estate lawyer includes, but it is not limited to, the following:
Review or draft the agreement of purchase and sale
Conduct the property and name searches, i.e. title, off-title, writs searches
Prepare all the closing paperwork and financial figures for the transaction
Obtain title insurance
Satisfy mortgage conditions
Quarterback the transaction by working with the lender, broker, purchaser/borrower and the vendor’s lawyer to ensure a proper and timely closing of the transaction
Nurse troubled closings to completion, such as obtaining closing extensions
Meet with the client and administer the execution of the documents and the transfer of money or keys to the other side
Below is an illustration of a general timeline of a real estate purchase closing.
Some of the issues that will be considered and discussed by the lawyer with the client during the due diligence period include encumbrances on title, policy of title insurance, statement of adjustments, and mortgage financing.
Potential Encumbrances on Title
A title search may reveal encumbrances or "clouds" on title, which will have to be either removed, accepted or insured against by the owner, such as Charge/Mortgage of Land, Discharge of Charge, Notice of Security Interest, Construction Lien, Court Order, Caution/ Certificate of Pending Litigation, Plan of Subdivision, Easement and Work Order.
For every real estate transaction time is of the essence. All defects on title, except for those going to the root of title, must be requisitioned to be cleared by the vendor's lawyer by the Requisition Date. This date is very important and if missed, certain title issues fall to be cleared at the expense and by the efforts of the purchaser.
Title Insurance
Insuring against potential title defects is the preferred alternative in real estate transaction as opposed to relying on a solicitor’s opinion on title, which is the way real estate transactions were handled in the past.
Title insurance is not mandatory in Ontario. The lawyers' Rules of Professional Conduct require that they advise clients of the options available to protect the client’s interest and minimize the client’s risks in a real estate transaction. The insurance agreement provides that it will compensate a purchaser for losses that may arise from events or circumstances such as identity or other fraud, improperly signed documents, defective registration of an instrument, lack of access to the property, lack of marketable title from zoning violations and other defects, a charge, lien, or encumbrance affecting title, Planning Act violations, and work orders and encroachments. The policy may contain a list of exclusions and exceptions which the lawyer should discuss with the policy owner before closing.
The fact that lawyers may arrange title insurance does not relieve them from their responsibilities to search title. Title insurers rely on lawyers to properly investigate the title and advise of any defects or deficiencies. In obtaining a title insurance policy, a lawyer certifies to the title insurer that she has investigated title and provides an opinion that the purchaser and/or lender has obtained a good and marketable interest in the lands.
Statement of Adjustments
Adjustments are amounts that are credited either to the purchaser or the vendor on closing in addition to the purchase price to determine the amount the purchaser has to pay to the vendor on closing. For resale properties, commonly items adjusted include deposit, property taxes, common expenses, and rent payments. For builder’s properties, additional items that are adjusted include HST rebate, development charges, park levies, site review, education levies, and others which are set out in the agreement of purchase and sale.
Clients rely on their lawyers to ensure that they obtain good and marketable title to the properties they are purchasing. In fact, the courts have confirmed that obtaining marketable title for a client is one of the primary responsibilities of a real estate lawyer.
Mortgage
A mortgage financing transaction can form one part of a larger purchase transaction or constitute an independent transaction. In either case, the end result of a mortgage financing transaction can be summarized as the receipt of mortgage funds by a borrower and the registration of a Charge instrument (and any concomitant instruments) in favour of a lender on title to the borrower's property. The lawyer plays a critical role in achieving this end result.
Once the lender has received the contact information for the lawyer, it will provide a set of mortgage instructions directly to the lawyer. Mortgage instructions come in various shapes and sizes but they all serve one shared function, and that is to outline the obligations of the lawyer to the lender, such as performing searches, obtaining title insurance, drafting the Charge, ensuring fire insurance is in place, reviewing the status certificate, ensuring the property taxes are paid up to date, and producing the closing documents.
This article briefly outlined some aspects of real estate law to shed some light on the role and obligations of a real estate lawyer in Ontario.
If you have a question about your next real estate law transaction, please contact our office at reception@arralawfirm.com or download the free Arra Law Firm app on the App Store or Google Play to discuss your particular transaction with one of our real estate lawyers.
