OREA and the Residential Real Estate Transaction
Whether purchasing or selling, a real estate transaction should be governed by a contract. Such a contract is known as the Agreement of Purchase and Sale (“APS”). The APS sets out the obligations and responsibilities of all parties to the contract, as well as the procedures to be followed throughout the transaction. When properly drafted, it dictates how issues arising in the course of the transaction are dealt with. Evidently, the APS must contain all the elements of a binding contract and must be in writing in order to satisfy the Statute of Frauds.
In an effort to make the process more uniform and seamless, every real estate board in Ontario has adopted the Ontario Real Estate Association (OREA) form of APS for residential real estate transactions. The OREA form contemplates most purchase and sale scenarios, however, the drafter must anticipate particular needs of the client or issues that may arise from each transaction and, where appropriate, draft additional and/or remove any non-applicable clauses. Additional clauses are often added by way of schedules to the APS.
Among other things, every OREA form will contain the following important details regarding the transaction:
- The date of the agreement and the closing date;
- The buyer’s and seller’s name;
- The address and location of the property;
- The purchase price and deposit amount;
- Chattels and fixtures included or excluded from the transaction; and
- Conditions (i.e. financing, inspection, insurance, etc.).
Another aspect of the APS that should be carefully reviewed prior to signing is the paragraph which sets out the requisition date. This section discusses easements and minor title qualifications that bind the buyer. A buyer needs to be made aware of such easements because they could interfere with the use he/she wishes to make of the property being purchased.
A standard OREA APS provides limited seller’s liability. Until recently, a widely used practice was for realtors/brokers to present sellers with an optional Seller Property Information Sheet (SPIS). The SPIS is a 4 page document that consists of technical questions about the physical condition, history, and legal status of the property. However, because the use of the SPIS has become a basis for litigation against sellers, sellers are often advised not to fill it out. Consequently, SPIS forms are not often used and the law remains “caveat emptor” or “buyer beware”. In order to mitigate risk, buyers are encouraged to include a condition precedent in their offers allowing them the time to obtain a professional inspection of the property before the agreement becomes firm.
More and more APSs include a representation and warranty by the seller which states that the property is not stigmatized. A stigmatized property is one where, for example, there was a murder, a suicide, or the property was used as a grow op. Stigmas are not typically discoverable during an inspection; therefore, a clause like this one can help protect a buyer client after closing.
When drafted properly, OREA forms are the best protection for both the buyer and the seller when dealing with residential real estate.