Legal Advice

Legal Issues in the Purchase and Mortgage of Residential Property

When an agreement concerning a sale and/or purchase of residential property is reached, it is important that all main elements are in writing i.e. price, closing date, and any conditions. Also, the difference between "fixtures" and "chattels" have to be kept in mind. Fixtures are items that, because of the way they are affixed to the property, stay with the property and go to the new owners, whereas chattels do not go with the property but stay with the vendor. For example, a furnace would normally be regarded as a fixture and stays with the property, whereas a free standing wood stove may not be. Certainly a carpet is a fixture, whereas a rug would be a chattel. Therefore, if any items are subject to interpretation, it should be spelled out in the agreement as to what goes and what stays. If you are dealing through a real estate company, the agent would undoubtedly look after this on your behalf.

Generally, in the sale of property, the principle of "buyer beware" would apply. In other words, once the sale is completed, if the buyer is not satisfied with the condition of the property, there is very little recourse against the seller unless the seller either made a complete misrepresentation of certain conditions or failed to disclose what was not visible on a reasonable examination. Therefore, it is important to make all necessary inquiries and inspections before an offer is made. Special emphasis should be placed on the electrical and plumbing systems. If the property is not in a municipality with municipal services, it is important to inquire as to the water supply and septic system to make sure both have clear certificates and are working properly.

In the event the property is outside a municipality and not accessible by public road, it is important to ensure that access is provided by way of a registered easement. The same would apply in the event the water supply is by way of a well located off the property. It should be kept in mind as well that in cases of property serviced by a private well, the financial institutions supplying the mortgage usually require a Clear Well Certificate from the Department of Health. In such a purchase, this should be built into the Agreement of Purchase and Sale as a condition.

In the sale/purchase of residential property, it is the vendor's obligation to supply a proper survey. However, if the buyer is financing through a mortgage, the mortgage companies want what is known as a Real Property Report which is basically an affidavit by the surveyor certifying the house is wholly on the lot and complies with the municipal bylaws, etc. It is normal that if the vendor already has one, a copy passes to the buyer. However, it there is none in existence, this is considered the buyer's responsibility.

In the purchase of residential property, the buyer is faced with various closing costs which are generally as follows:

1. The down payment - this would be the difference between the purchase price minus the deposit already paid less the net mortgage proceeds (after deduction for application fees at the financial institution, mortgage insurance fees, etc);
2. The legal fees and disbursements for the law firm doing the work for the buyer. The disbursements would include such things as search fees, and the costs of obtaining sheriffs and other clearances, etc.;
3. Registration costs - both the Deed of Conveyance passing title from the vendor to the purchaser and the mortgage document have to be registered at the Registry of Deeds. There is a charge involved in this which is in effect a payment direct to the Province of Newfoundland and Labrador. The amounts involved depend upon the purchase price of the property and the mortgage amount;
4. Real Property Report - should there be none in existence, one has to be obtained and this is an added cost to the buyer;
5. Town tax adjustments - normally the owner of the property will have paid taxes for the entire year, therefore, when the sale occurs, the buyer will have to reimburse the vendor for the taxes paid for to that date in the year. In other words, if the sale closes on June 30 and the taxes are paid for the year, the buyer would have to reimburse the vendor for half a years town taxes.

The foregoing is presented to help clarify the issues involved in the purchase and/or mortgage of residential property and is not meant to be all encompassing. For further clarification, you certainly should consult with the real estate agent and/or the person you would normally deal with at your financial institution and/or your lawyer. All these are quite able and willing to provide further clarification on the issues involved.

While care has been taken to ensure the information contained herein is accurate, the firm does not warrant that all the information relayed is correct. The information provided is based upon Newfoundland law and is supplied for general interest purposes only. It is not intended, nor should be considered to be specific legal advice or opinion.

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