Agreement of Purchase and Sale of Property - Clauses you should know
One of the most important documents in any real estate transaction is known as the Agreement of Purchase and Sale. In residential transactions this agreement is generally negotiated by the realtor for the seller and the realtor for the buyer. In larger commercial transactions, generally speaking both parties engage legal counsel right from the start to finalize the agreement. However it's done, the agreement of purchase and sale (the "APS") constitutes a binding contract between the Buyer and Seller and is filled with a number of clauses that govern the transaction. In this blog post, we will be taking a look at some important clauses you should understand before you sign that Agreement.
This is perhaps one of the most important clauses because it determines whether the Seller indeed has the authority to sell or lease the property to the Buyer. The title information should therefore be provided and adequately described in the APS so that the Buyer can verify that there are no encumbrances on the said title and can make requisitions in the event that there are. Ultimately, the Buyer has the obligation to ensure that they are acquiring good title to the property.
2. Price and Deposit
This is an important clause because it states the amount that will be paid in exchange for leasing or purchasing that property. It is also very important to know the amount that is to be paid as a security deposit and ensure it is expressly stated in the APS. In addition to the amount of the deposit, the timing for delivery of the deposit and which party will hold the deposit must also be clearly described - generally speaking in a residential purchase, one of the real estate broker's will hold the deposit, in a commercial transaction, either the seller's lawyer or buyer's lawyer will hold the deposit in trust.
This is simply a clause put in place to protect the Seller where he has a Buyer that shows interest in the property. In the event that the Seller decides to sell to that Buyer, the clause prevents the Buyer from retracting its offer, especially because the Seller has declined other offers for that of the Buyer’s.
4. Possession Date, Completion Date, Closing Date
Just as the names suggest, this is the date that the property would be given to the Buyer to live in and use, subject to satisfying its obligations in the APS prior to or on the date of closing.
The Buyer and Seller may have certain conditions upon which the APS will stand. The APS will therefore state all the conditions that must be met by either the Buyer, Seller or both of them in order to finalize the transaction. These conditions could include a Buyer's right to complete various inspections (structural, environmental, geotechnical), confirming that the seller has good title to the property, arranging financing, selling their own property and will also describe the remedies of the buyer or seller if the conditions are not satisfied. These remedies can include termination of the APS or a reduction of the purchase price, for example.
An Agreement of Sale and Purchase is very important in real estate transactions as it helps to avoid misunderstandings and potential conflicts between the Buyer and the Seller. It is also very important for both parties to consult with an experienced real estate lawyer to ensure that their rights are well-protected in the APS.
For any questions or advice on drafting or confirming your rights under an Agreement of Purchase and Sale, please don’t hesitate to contact Northview Law at 416-639-7639, or follow this link to book a free consultation.