It may seem as though the sale end of a real estate transaction should be relatively simple. However, there are some common issues that, if not adequately addressed by the Seller, can disrupt and possibly even kill a sale, resulting in a significant loss of time and money for everybody involved. The following are a list of the most common issues that arise during a real estate transaction from the perspective of a Seller. It is important that these issues are considered by the seller with the assistance of a real estate professional (typically at this stage, the Seller’s realtor) and addressed accordingly:
Dower Act Compliance
In Alberta, the sale of a homestead owned and registered in the sole name of one spouse requires the consent in writing of the unnamed spouse to be effective. The Land Titles Office will not accept a title transfer without such a consent, unless by court order. This issue tends to arise in two scenarios:
- The travelling spouse – A common scenario is where the spouse who is not listed on title does not believe he or she needs to be present for signing of closing documents prior to the completion of the sale, as that spouse is not the listed owner. That spouse may decide to travel out of town or out of country for whatever reason, only to discover that the sale cannot be completed without his or her signature.
- The divorcing spouse – The other common scenario is where a separated but not yet divorced spouse enters into an agreement to sell the former matrimonial home, believing they have sufficient power and authority to do so. They may be shocked to discover that they will still require their spouse’s consent, at a time when the other spouse may not be amicable or very inclined to assist their ex-partner.
Real Property Report and Evidence of Municipal Compliance
The most recent version of the Alberta Real Estate Association residential purchase contract contains a clause requiring the Seller to provide typical closing documents, including (if applicable) a Real Property Report with evidence of municipal compliance or non-conformance. A Seller, who may themselves have purchased the property without receiving an RPR and compliance certificate from the previous owner, may be completely unaware at the time of purchase that their property did not comply with municipal by-laws. Additionally, a purchaser may have completed some do-it-yourself home improvements, not realizing that the particular project would require a municipal permit.
Common issues include failure to obtain proper permits for exterior improvements like decks, driveways that encroach onto public property without an encroachment agreement, or fences that were built over a utility right of way.
If a Seller agrees to provide these documents at the time of closing without ensuring that their property is compliant in advance, they may encounter some unexpected headaches prior to closing if it’s discovered that their property is non-compliant. At best, the Seller will be required to spend an extra couple hundred dollars to obtain a permit or encroachment agreement. If however, the municipality does not grant the required permissions, the Seller may end up having to carry out work to remedy the non-compliance, which could end up costing thousands! It is imperative that this is duly addressed prior to entering into any agreement to sell, possibly by obtaining a compliance certificate, or negotiating out of the contract the requirement to provide one.
Non-Resident Tax Withholding
If the Seller is not a “resident” of Canada as defined under the Income Tax Act (Canada), the Seller may be liable to pay a portion of the net sale proceeds to the Canada Revenue Agency, failing which the CRA may lien the property in question. As such, it is customary for a substantial portion of the sale proceeds (sometimes up to 50% of the total sale proceeds, before payouts) to be withheld by the Seller’s counsel until the CRA has provided a clearance certificate confirming that all required remittances have been made.
Sellers should ensure that, if they are not Canadian residents, that they have properly negotiated an appropriate holdback amount pending CRA clearance, so that they can satisfy other liabilities out of the sale proceeds, most notably the payout of the mortgage.
Mortgage Payout
Some sellers may not be aware that an early payout of their mortgage loan before the maturity date typically comes with pre-payment penalties, which can end up being substantial (even exceeding ten thousand dollars!). It is recommended that all sellers confirm the pre-payment penalty with their lender prior to agreeing to sell their property. Banks will typically not agree to discharge their mortgage from the property unless payment is made in full.
Execution
While recent advances in technology have been made that have greatly benefited the real estate industry, when it comes to registering a change of ownership of real estate in Alberta, the Land Titles Office still requires an original signature from the owner of the property to be effective. Digital signatures and DocuSign signatures are not acceptable. If the Seller anticipates that they will not be present in Alberta to sign and deliver a land transfer to the Buyer prior to closing, they may end up needing to visit a lawyer or notary public in another jurisdiction to ensure that this is completed. This can be costly and may end up delaying their sale.
If you are selling your home and have questions about any of the above as they relate to your sale, please contact Forum Law and ask to speak to one of our real estate lawyer’s today.
