Ontario Real Estate Network

Real Estate Commissions Must Be Paid

2008-02-23T09:47:00.000-05:00

A decision of the Ontario Divisional Court late last year serves as a good reminder that it's not a good idea to try to avoid an obligation to pay real estate commission, and it's an even worse idea to try to get your lawyer to pay the commission for you.

In late 2003, Sohan Gidda listed his property for sale with a real estate agent, and retained a Brampton law firm to represent him in the transaction.

While the property was subject to the listing agreement, Gidda found a purchaser on his own and entered into a private agreement of purchase and sale.

The listing agreement expired Feb. 12, 2004 and the private sale transaction closed at the end of that month. According to Gidda's listing agreement, commission was payable even if the property was sold privately during the listing period.

Gidda's real estate agent heard of the private sale and called the lawyer's office stating that she was the agent acting on the private transaction. She convinced the lawyer's secretary to send her a copy of the private sale agreement.

The real estate agent then sued Gidda in Small Claims Court for $10,000, and was successful in obtaining a judgment against him for that amount. The judgment was filed in the office of the local sheriff and when the house was later sold, Gidda was forced to pay off the agent's claim.

Blaming his $10,000 loss on the mistake of his lawyer's secretary in releasing the document, Gidda then sued his lawyer to recover the damages. The trial took place before the sale of the house and before the judgment was paid.

The deputy small claims court judge ruled that the lawyer was negligent in disclosing the private agreement, but dismissed the case on the basis that Gidda had not suffered or proven any damages. His reasoning was that since Gidda had not yet paid the $10,000 to the agent at the time of the court hearing against his lawyer, he could not recover the money.

Gidda appealed the decision of the small claims court, and the case was heard by Justice John R. Sproat in October, 2006.

Justice Sproat ruled that in his opinion, Sohan Gidda had in fact suffered damages since the court judgment against him was a legal obligation, which eventually had to be paid.

Nevertheless, the judge dismissed the appeal and ruled that although Gidda had suffered damages, he failed to prove that the negligence of the lawyer actually caused the damage.

First, the judge wrote, it was agreed that the agent knew of the private sale prior to calling the law firm.

"I think it unlikely," he ruled, "that a real estate agent who believed she was being cheated out of a $10,000 commission would simply let the matter rest. The fact of the sale would be a matter of public record, the real estate agent would probably have pursued the matter, the plaintiff could have been compelled to testify and would have been obliged to tell the truth."

The judge also ruled that the direct cause of the "damages" was not the mistake of the lawyer's secretary, but rather the fact that Gidda entered into the listing agreement and agreed to pay commission if the property was sold.

Justice Sproat wrote, "I have some difficulty in seeing how the plaintiff is damaged by being obliged to make a payment which he agreed to make under a contract that he entered into. It does not sit well with me that a person in the position of the plaintiff can enter an agreement, set out to deprive the other party of their entitlement under the agreement and then when he is caught, shift the loss to the law firm."

Although the judge did not specifically refer to it, the ruling may well have been based on the doctrine of "clean hands."

This common-law doctrine, going back hundreds of years, says that a person who has acted wrongly, either morally or legally – in other words, someone with unclean hands – will not be helped by a court when complaining about the actions of another party.

Gidda lost his first case when the agent sued him. He lost the second case when he sued his lawyer, and he lost the appeal of that decision. Justice Sproat awarded the lawyer $1,500 in costs against Sidda. The judge stated that his decision should not reflect adversely on the lawyer's professional competence or reputation.

This case serves as a useful reminder that the standard Ontario Real Estate Association listing agreement obliges the seller to pay a commission for any valid offer to purchase the property obtained from any source during the listing period.

As well, there is usually a holdover period after the listing expires, which obliges the seller to pay commission on a sale to anyone introduced to the seller during the listing period. If you've committed yourself to pay commission to a real estate agent, pay it. The courts don't look too kindly on an attempt to circumvent a binding agreement, or to shift the loss to a third party like your own lawyer.

The Gidda case is also a good lesson about suing a third party when you only have yourself to blame for the loss.

Written by Bob Aaron - Toronto Star - March 3, 2007

Two-lawyer rule for registering deeds is overkill

2008-02-23T09:36:00.000-05:00

Question: How many lawyers does it take to register a deed transferring the ownership of a parcel of land?

Answer: For the past 212 years, the answer has been "one." Next year, the answer will be "two."

Ever since the province of Upper Canada introduced land registration in 1795, one Ontario lawyer could represent both a buyer and seller and register a transfer or deed from one to the other.

Of course, Law Society rules prevent a lawyer from acting for both sides where there is a conflicting interest between the clients, but as far as the government was concerned, anyone – lawyer or not – could represent both sides of a transaction and register a change of ownership.

Now, all that is about to change and the public will be forced to bear the brunt of the cost. In the wake of the passage of Bill 152, its fraud-buster legislation, the Ontario government is about to introduce a sea change in public accessibility to the land registration system.

Starting early in the New Year, only lawyers will be able to register a document to transfer land ownership. From a public perspective, however, the more significant rule change will require that virtually every ownership change must have one lawyer acting for the seller and a separate, independent lawyer acting for the buyer.

The policy reason for implementing the two-lawyer rule is the belief that having two lawyers involved in every title transfer will significantly reduce the occurrence of title fraud and the number of claims to the government's Land Titles Assurance Fund.

At the same time, the government has downloaded a significant component of the insurance risk from the Assurance Fund to LawPRO, the Law Society's own insurance company. Starting in the spring of 2008, title fraud claims where a lawyer has been involved – either as a participant or a dupe – will be referred to LawPRO instead of the government's fund.

As a result, every Ontario real estate lawyer will now have to contribute an additional $500 a year to underwrite the new insurance risk.

Normally, most real estate transactions involve two lawyers. Many however, typically use only one lawyer. Some of these include transfers:

from one spouse to another (either in a separation context or for any other reason)
between parent and child
to or from an owner to his or her own corporation for tax or other purposes
in estates between an estate trustee and the beneficiaries
in remote locations where the closest real estate lawyer is hundreds of kilometres away from the first one
where the money changing hands is nominal, such as for a condominium locker
between neighbours to correct a boundary problem
for estate-planning purposes
where both parties have been long-time clients of the same lawyer
Under the government's proposed rules, transfers or deeds in virtually all of these types of transactions will soon require two lawyers – effectively doubling legal costs for the parties involved.

Is the rule change justified? I don't think so.

There are about 2.2 million land registrations every year in Ontario. Over the past 10 years, there has been an average of about 10 fraud-related claims a year to the Land Titles Assurance Fund. Not all of them are successful, and no decisions (if there were any) have been published on the fund's website since 2004.

The government has not provided any statistical or anecdotal evidence to support its position that a two-lawyer rule will eliminate or reduce real estate fraud. In the meantime, a significant segment of the public involved in real estate transactions will be inconvenienced and saddled with significant additional legal costs.

To me it's like killing a fly with a sledgehammer.

Written by: Bob Aaron - Toronto Star, December 22, 2007

House fraud decision rocks industry

2008-02-23T09:34:00.000-05:00

Bank 'did not take steps to scrutinize power of attorney,' judge rules.

It took the better part of 18 months and more than $30,000 in legal fees, but Paul Reviczky has his property back in his own name, with the $337,500 mortgage in favour of HSBC Bank Canada finally discharged.

As reported last month in the Star, the Ontario Superior Court of Justice ruled Reviczky is not responsible for the mortgage that was taken out on his property after it was sold in 2005 without his knowledge. But Justice John Macdonald's decision has ramifications that extend far beyond the parties involved in the Reviczky litigation, and may well affect many future real estate and mortgage transactions.

In the summer of 2005, Reviczky's rental property on Sheppard Ave. W. was stolen from him. A fraudster used a forged power of attorney in favour of Reviczky's non-existent grandson to sell the house to an innocent third party for $450,000.

In June 2007, after months of legal proceedings at his own expense, Reviczky finally obtained a court order restoring ownership to him, but not discharging the purchaser's mortgage in favour of HSBC. Since both the purchaser and HSBC were unaware of the fraud, the court in June declined to discharge the HSBC mortgage, believing it to be valid.

Reviczky then faced the prospect of losing the house again, this time to the bank. At this point, Reviczky became involved in a messy contest among three insurers: Stewart Title, which insured and paid out the HSBC mortgage; LawPRO, the Law Society's insurer representing the lawyer who acted for the fraudster using the forged power of attorney; and the provincial Land Titles Assurance Fund, which protects the public from fraud in the land titles system.

Stewart Title paid out the HSBC mortgage, but under the Consumer Protection and Service Modernization Act, it was unable to recover its loss from the government assurance fund.

If the mortgage was determined by a court to have been valid, Reviczky would have had to pay off the HSBC loan by making a claim against the assurance fund. Stewart Title would be off the hook to the bank and would recover its payout from the public purse by way of Reviczky's claim. In that case, the title insurer would have found a loophole in the law.

In his ruling last month, Judge Macdonald voided the bank's mortgage because it "did not take steps to scrutinize the power of attorney." The bank "chose to put itself in proximity to the unknown fraudster in this transaction by dealing with him, yet it failed to make use of the opportunity to avoid the fraud, which that proximity gave it."

The judge said the lawyer representing the fraudulent seller sent a copy of the forged power of attorney to the lawyer acting for both the purchaser and the bank. Both lawyers were unaware the document was a fake. At this point, the second lawyer failed to "inform himself about the terms, conditions or validity of the power of attorney." Since HSBC, through its lawyer, had an opportunity to avoid the fraud and did not do so, the court decided it could not succeed in its claim that the mortgage was valid.

"The bank knew ... ," the judge wrote, "the person purporting to sell the property was acting pursuant to a power of attorney. The bank had the means of protecting its interests in this circumstance ... (T)he bank must have known (its) solicitor would be in direct dealings with the person purporting to sell, whether through that person's solicitor or otherwise."

Ultimately, the judge decided the issue was not the actions or inaction of a solicitor, but whether the bank had an opportunity to avoid the fraud. Effective immediately, the Reviczky decision will have an enormous impact on how banks, real estate agents, lawyers, buyers and sellers treat any transaction involving a power of attorney.

In every transaction, those documents are now going to be scrutinized, not only by the lawyer for the seller using the document, but by the lawyer for the buyer and the buyer's bank. If a seller cannot provide satisfactory evidence that the power of attorney is valid and enforceable, a buyer and his or her bank could conceivably refuse to close the transaction.

Just exactly how this will happen – especially where the giver of the power of attorney is at the time mentally or physically incompetent, or overseas, or simply unavailable – remains to be seen.

The vast majority of powers of attorney used in real estate transactions are legitimate documents, but from now on it will be tougher to use them to buy, sell or mortgage real estate in Ontario.

Written by Bob Aaron - Toronto Star, January 5, 2008

House must be completely empty when sale closes

2008-02-23T09:30:00.000-05:00

Seller's belongings must be gone from moment keys are handed over.

It's a question virtually every homebuyer asks: When do I get my keys? The answer usually is that the keys are released when the seller's lawyer receives the money and the buyer's lawyer registers the deed.

Getting vacant possession of the house or condo, however, is another story. In theory, at the moment the buyer receives the keys and registers the deed, the home belongs to him or her, and it should be empty. Unfortunately, it doesn't always work out that way.

I'm grateful to my colleague Merv Burgard in London, Ont., for bringing to my attention a 15-year-old court decision that seems to answer the difficult question of whether the home has to be totally empty at the moment the buyer gets the keys.

Roger Foord was moving from Toronto to London, and retained a lawyer there to represent him. At 3:09 p.m. on Jan. 16, 1992, the London lawyer closed the purchase of Foord's house on Glenora Dr.

That purchase and sale was part of a chain reaction, which is typical when a series of buyers and sellers all want to close on the same day.
When Malcolm and Bessie Smith, the sellers of Foord's house, received the closing funds, their lawyer immediately used the money to close their own purchase.

Three hours after the transaction closed, Foord's movers arrived at the Glenora Dr. house with a truck full of household goods. Unfortunately, the Smiths were still in the process of moving out and the house was not empty.

The movers waited for the better part of three hours, but the house was still not empty. They returned to Toronto since they needed the truck there the following day.

Finally, on the following Monday, the movers were able to return with Foord's possessions and move him into the house. For the second trip, the movers billed him an additional $1,393.91. On top of that, Foord incurred hotel and other expenses totalling $401.55.

He sued the sellers for his losses, and the case came up for trial in Small Claims Court in London in September 1993.

The judge succinctly set out the main issue of the case, which was when vacant possession is to be given to purchasers in residential real estate transactions.

Standard-form real estate agreements provide that vacant possession is to be given on closing. In other words, when the seller gets the money and the purchaser gets the keys, the house is supposed to be empty.

In court, the sellers' representative argued that vacant possession did not have to be given on closing, and that the vendor was entitled to possession of the property until midnight on that day.

She pointed to a 1985 case of the Ontario High Court, which ruled that if a vendor remained in possession for a few hours after the Land Registry Office closed, it was not a fundamental breach of contract. That ruling was found not to have any bearing on the Foord vs. Smith case.

After considering the evidence and relevant law, the deputy Small Claims Court judge awarded the plaintiff $1,791.18 in damages, plus costs and interest of $685.20.

In making the award, the judge wrote: "It is often that parties are moving in as others are moving out, and most of the time this is done in a co-operative spirit which recognizes the problems inherent (in) moving in and out, along with timing of transactions at the registry office. In almost all cases, the loss would be nil, except for inconvenience. Here, unfortunately, there was loss, and the Smiths must pay Mr. Foord's losses."

The case serves as a useful reminder that at the moment the seller's lawyer receives the purchase money and hands over the keys, the sellers should be completely moved out of the house.

If they aren't out, and the purchaser's movers are charging by the hour, the sellers are going to have to pick up the tab.

Written by: Bob Aaron - Toronto Star, February 9, 2008

RRSP Home Buyers' Plan

2008-02-23T09:27:00.001-05:00

The Home Buyers’ Plan (HBP) is a program under which you can, generally, withdrawup to $20,000 from your registered retirement savings plan (RRSPs) to buy or build a qualifying home.

Withdrawals that meet all applicable HBP conditions do not have to be included in yourincome, and your RRSP issuer will not withhold tax on these amounts. However, before you can withdraw funds you must have entered into a written agreement to buy or build a qualifying home which you must occupy no later than one year after buying or building the home.
If you buy the qualifying home together with your spouse or other individuals, each of you can withdraw up to $20,000. You cannot withdraw an amount from your RRSP under the HBP if you or your spouse owned the home more than 30 days before the date of your withdrawal.

Details
Up to $20,000 per person could be withdrawn tax-free from RRSPs to buy or build a principal residence. Couples —including common-law — will be able to withdraw up to $40,000.

You have to meet the first-time buyer’s condition. You are not considered a first-time home buyer if you or your spouse owned a home that you occupied as your principal place of residence in the past 5 years. To determine past 5 years, the 4 years preceding the year you make your withdrawal plus the period in the year you make your withdrawal ending 31 days before your withdrawal is the rule adopted.

Home buyers withdrawing funds do not have to pay income tax on the amount withdrawn, as long as the funds are repaid into an RRSP in the future.

The 15-year repayment period will begin in the second calendar year following the calendar year in which the withdrawal is made. In addition, a qualifying home must generally be acquired before October 1 of the calendar year following the year of withdrawal. For example, those making withdrawals under the plan in 2000 will have until October 1, 2001 to acquire a qualifying home and their first annual repayment will be due by the end of 2002 or the first two months of 2003.

A special rule denies a tax deduction for contributions to an RRSP that are withdrawn within 90 days of the RRSP deposit being made. Consequently, to get the normal tax break for a contribution and to use those funds under the plan, the money must be in your RRSP for at least 90 days before a withdrawal is made.

Existing homeowners can use the HBP to purchase a more accessible home or a home for a disabled dependent relative where the individual withdrawing the funds:

qualifies for the disability tax credit (DTC) and is buying a home that is more accessible for the individual or is better suited for the care of the individual;

is related to a disabled individual who qualifies for the DTC and is buying a home for the benefit of the disabled individual that is more accessible for, or better suited for, the care of the disabled individual, or;

is related to a disabled individual who qualifies for the DTC and is withdrawing an amount for the disabled individual to buy a home that is more accessible for, or better suited for, the care of the disabled individual.

Real Estate Market Update - February 2008

2008-02-23T09:20:00.001-05:00

Toronto Real Estate Board reports sales near 3,000 at mid-monthFebruary 20, 2008 -- Resale home transactions in the Greater Toronto Area declined in the first two weeks of February, Toronto Real Estate Board President Maureen O’Neill announced today.

The first half of the month yielded 2,775 transactions, down 14 per cent from the 3,240 sales recorded in the same timeframe last year. The moderation in sales was more pronounced within the City of Toronto--down 18 per cent to 1,066 from last February’s 1,308—than in the 905 suburbs, which saw transactions off 11 per cent.

“It’s important to recognize that the mid-month report provides an indication of market conditions based on a very brief period,” said Ms. O’Neill.

“However, we believe the harsh winter weather we’ve experienced in the early part of the month has had a negative impact on both sales and inventory levels. If you can’t get buyers out to your open house, then you are less inclined to list. And fewer listings means less appealing product for the potential home-buyer. It’s a compound effect.”

Although sales eased, several positive factors were also noted. At $385,735, the average price in the GTA rose seven per cent compared to $358,533 recorded in mid-February 2007. Within the City of Toronto, the average rose 11 per cent to $434,657, although pockets within the East end (Agincourt, for example) rose at the more affordable pace of around five per cent. As well, properties are remaining on the market fewer days.
The average number of days on market is currently 31 versus 35 days at the same time last year.

Furthermore, a few neighborhoods both within and outside of the 416 area code saw increased sales over the first half of February, 2007.
In Ajax (E14) sales were up 11 per cent compared to mid-February 2007, based mainly on an increase in detached home sales.

In the West region, the W3 (York South) district saw a 41 per cent increase in transactions, driven by strong sales of semi-detached homes.
Central Richmond Hill (N04) also experienced a notable increase in sales compared to the same timeframe last year. Transactions were up 21 per cent, primarily due to an increase in attached row sales.

“We are optimistic that we will see a strong spring market because the economic fundamentals remain in place,” said Ms. O’Neill. “Prices are still particularly affordable in Toronto’s East end.”

Real Estate Market Update - January 2008

2008-02-02T07:10:00.000-05:00

TORONTO, January 17, 2008 - The first half of January saw 1,776 resale homes in the Greater Toronto Area change hands, an 11 per cent increase over the same timeframe a year ago Toronto Real Estate Board President Maureen O’Neill announced today.

This early indication certainly gives us reason to be optimistic about the 2008 resale housing market, said Ms. ÕNeill. We are still looking forward to a strong, steady year ahead. Torontos land transfer tax will come into effect on February 1, so we are watching this issue.

The average price also increased considerably compared to the first half of January 2007. It currently stands at $367,574 an eight per cent increase over the $340,793 recorded at mid-January a year ago.

Strong activity was noted in several areas of the GTA.
Bowmanville (E17) experienced a 65 per cent overall increase in transactions compared to the first half of January 2007, primarily due to detached home sales.

In Downsview (W05) sales nearly doubled compared to the same timeframe a year ago, with activity in all housing types.

The Lawrence Manor area (C04) also saw transactions double compared to year ago, driven largely by detached homes sales.

Central Richmond Hill (N04) showed a 59 per cent overall increase in sales compared to mid-January 2007, mainly as a result of attached/row house transactions.

The average time a property is currently on the market is 41 days, down 13 per cent as compared to a year ago.

“These are all solid gains that point to a stable, healthy market for 2008,” said Ms. O’Neill.

Land Transfer Tax - Ontario and Toronto

2008-01-26T11:01:00.000-05:00

Ontario's Land Transfer Tax is a provincial tax payable by the purchaser upon the acquisition of an interest in land by registered conveyance or unregistered disposition. Therefore, if you purchase a property or land you are responsible for paying Land Transfer Tax to the province at the time the transaction closes.

As a taxation measure granted under the City of Toronto Act,2006, Toronto City Council approved a new Municipal Land Transfer Tax effective February 1, 2008 that will be applied to all purchases of homes in the city of Toronto in addition to the Province's Land Transfer Tax.

To find out more information and to calculate the Land Transfer Tax for your property visit...

http://www.ParnesRothman.com/Land_Transfer_Tax.html

Real Estate Market Update - December 2007

2008-01-26T11:00:00.000-05:00

Healthy December Sales = Best Year Ever

TORONTO - Monday, January 7, 2008 -- A healthy 4,646 sales in December propelled 2007 sales to a record setting 93,193 sales, TREB President Maureen O'Neill announced today. "Year-end sales are up 12 per cent over last year and up 11 per cent over the 84,145 recorded during 2005, the Toronto market's previous best-ever annual performance."

On a year-over-year basis, prices rose seven per cent to $376,236 from last year's $351,941. The annual time-on-market figure stood at 32 days versus 2006's figure of 34 days, meaning that over the course of the past two years it has taken homes within the GTA barely a month to sell on average.

Breaking down the total, 1,756 sales were reported in TREB’s 28 West districts and averaged $357,711; 1,057 sales were reported in the 14 Central districts and averaged $531,366; 771 sales were reported in the 23 North districts and averaged $420,508; and 1,062 sales were reported in TREB’s 21 East districts and averaged $302,113.

Neighbourhood Corner
City of Toronto
IThe City of Toronto (E-1 to E-11, W-1 to W-10, and C-1 to C-15) recorded 39,052 sales in 2007, up 13 per cent over the 34,404 recorded in the previous year. Prices averaged $415,041, up 10 per cent over 2006.

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Real Estate Closing Cost Quotation System

2008-01-26T10:42:00.000-05:00

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