REAL ESTATE LAW Real Estate Brokers Program Barbara

REAL ESTATE LAW Real Estate Brokers’ Program Barbara Grodaes

Sources of Law Common Law – foundation of other elements of law, legislation and case law. Legislation – statutes and regulations passed by government. Case Law (decisions on the basis of earlier ruling/judgment) precedents.

Real Property Law Deals with rights or interests in land all that is erected, growing upon or fixed to the land. Not dealing with moveable property or all types of property other than land fixtures (personal property law). Tenure – theoretical basis in that only the Crown is the absolute owner.

Estates Defines the nature, degree, extent and duration of ownership in land. Real estate and real property mean the rights or interest an individual holds with respect to land. 4 types of estates in land: fee simple, life estate, leasehold and dower.

4 Types of Estates in Land Fee Simple – most common, can be inherited, any heir can inherit, absolute owner of the land. Life Estate – has most of the rights of fee simple owner except right to sell. Leasehold – fixed period of time. Dower – spouse right to life estate.

Methods of Holding Land In Trust – legal estate held by one for the beneficial interest of another. Co-Ownership – joint tenancy (right of survivorship) and tenancy in common (interests split) Co-operative Housing Ownership – incorporated, non-profit business.

Methods of Holding Land cont. Time Share Ownership – rights of ownership limited for a specific part of the year (undivided or interval). Strata Title Ownership – subdivision plan subdivides the volumetric space above or beneath land surface (3 dimensional drawings necessary).

Surface and Mineral Rights Generally, surface rights only, title showing “excepting thereout all mines and minerals. ” Most titles separated into “surface only” and “minerals only” titles. Surface Rights Act regulates rights and relationship between holders.

Law of Agency is a contractual relationship in which the principal and the agent agree that the agent will do certain acts on the principal’s behalf in dealing with a third party. Legal relationship between the brokerage and the client (written).

Fiduciary Duties Loyalty (RANCOLD) Obedience Disclosure Confidentiality Reasonable care and skill Non-delegation Full accounting

Single Agency Single agent represents either the buyer or the seller, never both. The Seller’s Agent represents seller. The Buyer’s Agent represents buyer. Buyers and/or Sellers can represent themselves or by their legal counsel.

Dual Agency Same brokerage represents more than 1 party in same transaction; Seller and Buyer or 2 or more Buyers or all 3, all competing for property. Brokerage can. NOT disclose price OR motivation and no confidentiality concerning material facts.

Dual Agency continued … Agent MUST have proper written authorization of both (all) clients. Agent MUST be particularly careful and act fairly, honestly & with integrity. Agent MUST obtain written acknowledgement in timely manner. Agent MUST obtain informed consent.

Other Agency Dual agency also applies to lease transactions by substituting Landlord for seller and Tenant for buyer and is otherwise the same. No Agency Relationship if one party acts on his or her own behalf – Ethical duties – be honest, fair, careful and do not misrepresent.

Contract Law An agreement, based on a promise or a set of promises, which results in some legally enforceable obligations between two parties. Written or verbal, long or short, are essential parts of many business transactions. Legally binding – get legal advice!

Elements Must Exist 1. 2. 3. 4. 5. 6. Capacity of parties (legally competent). Legality of object (lawful). Legal intention (intent to be legally binding). Consideration (each receives something of value [promise is value]). Mutual agreement (offer/acceptance). Genuine consent (all facts needed to make a reasonable decision and have free will).

Contract valid if all 6 present, otherwise, contract is: 1. 2. 3. Void (never existed). Voidable (originally valid but able to be rejected by one of the parties later. Illegal (contravene a law and not enforceable).

Capacity of Parties (Competent) Individuals NOT considered to have the capacity to make a contract are: 1. Infants or minors (>=18 years). 2. Mentally incapacitated persons. 3. Intoxicated persons. 4. Cannot read OR speak English or vision impaired.

Legality of Object (Lawful) Courts will not enforce contracts made for illegal purposes and violate criminal laws. Contracts can NOT contravene regulatory statutes or public policy. Though no longer legality of object, practical reasons suggest contracts be made during a weekday as opposed to being conducted on a weekend (closing date).

Legal Intention Parties to contract MUST have intended their actions to be legally binding. In real estate, there MUST be an invitation to treat in the form of a statement inviting prospective buyers to negotiate a purchase contract. Listed price is intended to solicit offers.

Consideration To be enforceable, a contract MUST be made under seal or be supported by consideration. What each party in a contract receives in exchange for the promise to act in a specified way. Past consideration NO consideration.

Mutual Agreement Offer MUST be definite & made with intent to create legal, binding obligation. MUST contain all essential terms of the proposed agreement so that a contract exists upon acceptance. CAN remain open until acceptance and/or until a stated time limit unless withdrawn before acceptance is communicated.

Agreement Offer, cont… CAN lapse after the passing of a reasonable amount of time if it contains no time-limit or acceptance. MAY be revoked if communication of the revocation is communicated to the offeree prior to the communication of the acceptance of the offeror.

Mutual Agreement Acceptance MUST be unconditional (NO changes to the Offer – any change is a rejection and making it a counter-offer). MUST be communicated to the offeror in the manner required by the offer. MUST be made within the time specified in the offer OR a reasonable amount of time if no time-limit.

Mutual Agreement If the offer does not specify a manner of communication, then the method of acceptance MUST be in a manner as good or better than communication of the offer. If this is mail or fax, contract is binding even if mail or fax not received.

Genuine Consent To form binding contract, mutual agreement MUST be real and genuine. Inducements that may invalidate a contract are: 1. Mistake. 2. Misrepresentation. 3. Failure to disclose. 4. Duress or undue influence.

Contract Deemed Invalid MAY be deemed invalid if one of following occurs. Courts ultimately decide if contract is enforceable – they are not automatically void: Mistake Misrepresentation Failure to Disclose Duress and Undue Influence

Mistake May nullify apparent consent, contract has no legal effect as is based on mistake that has a ‘narrow’ meaning in contract law. May remove the element of genuine consent essential to a contract. MUST be a mistake of fact and go to root of contract. General rule – people are bound by their signatures, whether they’ve read it or not.

Misrepresentation Any statement made before or at the time of contracting, with regard to any existing fact which induces other party to enter contract. Can be: 1. Innocent (false without realizing). 2. Negligent (intended to be fact without checking for accuracy). 3. Fraudulent (knows it is false).

Note for Misrepresentation The law treats a statement of opinion made by a real estate agent as a statement of fact. An agent making statement of opinion about real estate may be found having made negligent representation and be liable for compensation to the person who relies of this statement.

Failure to Disclose Agents have a legal DUTY to exercise care when providing information. Hiding a significant defect can be considered FRAUD. Caveat emptor (let the buyer beware). Patent defects (visible to the eye & should be discovered on examination). Latent defects, must be disclosed. Failure to do so or conceal may INVALIDATE.

Duress and Undue Influence Duress is compulsion which forces a person to act through fear of personal suffering – not of his/her own free will. Undue influence is the improper use of one’s power over another to induce into a contract (such as educated/uneducated, experienced/inexperienced) takes advantage because of his/her position.

Conditions Condition precedent (normal in real estate) calls for event or act to occur before agreement becomes binding. Condition subsequent (after contract is binding) that if not met can give right to end contract. Conditions are fundamental to the contract and warranties important when a breach occurs.

5 Ways to Terminate Contract 1. 2. 3. 4. 5. Performance (fulfillment). Agreement (mutually agree). Frustration (events beyond control). Non-fulfillment of a condition (“subject to” clauses/condition not met in time. Breach of contract (fails to complete).

Remedies Rescission (court have contract set aside). Damages (financial compensation for losses caused) *damages not available where innocent misrepresentation occurred – rescission is only available recourse. Specific performance (court force). Injunction (court order). Quantum Meruit (as much as he deserves).

Considerations for Agent Requirement of writing (Statute of Frauds requires any contract for the sale of lands or any interest in lands must be in writing and signed by parties. *Any contract must be performed in one (1) year unless written). Dower act – IMPORTANT only when title shows only one owner and that owner is married.

Duty of Care Special relationship where one party relies on information supplied by second party in position of knowledge. Relationship exists brokerage/client. Agent MUST represent information honestly and accurately to others.

Further Considerations Power of Attorney – (general/specific). Trustee/Guardian of Mentally Incompetent (court appointed under the Dependent Adults Act or other. Bankruptcy – trustee has power to deal with land (files caveat on title). Privity – binding to parties in contract.

Listing Contract MUST contain essential elements. MUST contain clear description of 3 Ps (Parties, Property, Price – Property is professional service of selling). Other information and documentation is important as Agent – independently verify ALL information wherever possible.

Purchase Contract MUST contain essential elements. MUST contain clear description of 3 Ps (Parties, Property, Price – to render contract “certain” of intentions). Possession Date, completion date, adjustment date, payment date or closing date – ALL same thing. Deposit NOT required to be binding.

2 Common Seller Financing Vendor Take-Back Mortgage – title transfers and mortgage registered. Agreement for Sale – possession transfers but title remains in Sellers name until paid in full. Seller’s foreclosure procedures are same, protecting buyer’s interest.

Option/First Right of Refusal Option – buyer acquires right to purchase within a specified time (sole control of buyer – interest in land subject to caveat against title). First Right of Refusal – (not absolute right to acquire) Two Steps: (1)make offer to holder and (2)its acceptance by the holder, or not.

Encroachments MUST make reference to any encroachments on real estate purchase contract if there is any on title. Check the standard real estate purchase contract to ensure that seller is not providing warranty wrongly.

Commercial Transactions Unique in nature and encompasses: Industrial sales Commercial sales Investment sales Sale of businesses and companies. AREA has customized contracts.

Sale of Assets Versus Shares Business can be sold by either sale of assets or sale of shares – different tax consequences – do NOT give advice. This field has securities law implications and must comply with the Securities Act – obtain legal advice.

Recognize and Be Aware Business records searches – obtain and analyse to better advise client. Employment conditions MUST comply with the Employment Standards Code. Non-Competition Agreements – seek legal advise contracts restricting trade. Warranties and representations vary.

Commercial Leases Leasing involves complex negotiations and contractual terms. MUST contain specific elements to be valid and enforceable. Closely examine lease and confirm information. Advise client to seek legal advice.

Land Titles System Torrens Land Registration System in Alberta under the Land Titles Act (1+1+1) 1 one piece of paper +1 one piece of property +1 located in one place (North or South Alberta Land Titles Office – Edmonton or Calgary)

Legal Land Descriptions Meridians north/south W 4, W 5 and W 6. Ranges N/S every 6 miles starting meridian line. Townships E/W every 6 miles apart (#1 -126: 134 SALS, 35 -126 NALS – 36 sq. miles divided into 36 sections 1 sq. mile. Sections –measurement 1 x 1 mile (640 acres/259 hectares) (correction lines for earth curvature). LSDs (legal subdivisions) divide sections in 16 (40 acres each or 4/quarter).

Exceptions Settlement Plans –plans accommodating settlements (St. Albert, Fort Mc. Murray and Edmonton) small fixed areas, no fixed pattern. Metes and Bounds – irregular shape that is difficult to describe. Unsubdivided to subdivided, description is replaced except condominiums.

Principles of Torrens System 1. 2. 3. Curtain – MUST be registered. Mirror – WYSIWYG what you see is what you get (rely on accuracy). Insurance – Assurance Fund created to pay for any errors caused by the Land Titles Office – compensation for Loss of Rights.

Good to Know Torrens system provides many advantages, the most important one is they system guarantees the state of the title. Deed registry systems do not. Land Titles Act provide administrative framework of Torrens System. Title search is imperative. Agent expected to be good detective.

Law of Property Act Provides remedies to recover security, protecting the owner personally (except for CMHC insured or corporate mortgagor). Foreclosure, Quit Claim, Statement of Claim, Order Nisi, Final Order for Foreclosure, “RICE” Order, are all part of the foreclosure process. All documents in action are public.

Foreclosure Process If borrower does not file Statement of Defence or Demand of Notice, will be unaware of action is being taken and when. “RICE” Order is last step for CMHC Mortgagees allowing lender to pursue debt recovery.

Condominium Property Act Every condominium development in Alberta is governed by the Condominium Property Act. Role of Agent is to identify issues and direct clients to appropriate legal advice.

Condominium Ownership Rights allocated to owners via individual titles with 2 distinct yet inseparable parts: 100% exclusive ownership of unit. Co-ownership share as tenant in common of common property, in proportion to the unit factor assigned to the unit.

Condo Corporation Owners are members of corporation. Governs by board of directors. MUST maintain common property and comply with municipal regulations regarding repairs and work to be done. MUST enforce bylaws & do all things in the best interest of all owners.

Regulation ALL condo corps have a total of 10, 000 unit factors. LTO uses CADS (Condominium Additional Sheet) to record registered documents against a Condo Plan. Reserve funds are MANDATORY and MUST have a reserve fund study.

Condominium Potpourri As agent, beware of rental pools – contract could affect sale of property. “Condominium” refers to land. Bare Land Condominiums are popular with developers because they can ‘phase’ their development.

Potpourri Cont … Leasehold condominium – where government does not provide for fee simple title (national/provincial parks, crown land, etc. ) Parking – stall MAY have separate title as may storage facilities. Restrictive covenants – MAY limit the freedom of use of the property.

Residential Tenancies Act If property is residential, the Residential Tenancies Act governs the relationship between landlord (seller or buyer) and the tenant. Provides for the obligations and remedies of the landlord and tenants as well as regarding security deposits.

Definition Written, oral or implied agreement to rent residential premises. Fixed term –ends on specified day. Periodic tenancy – renewed or continued without notice. Commercial, industrial and other types of tenancies NOT governed by Act.

Termination for Landlord The landlord’s rights to terminate a periodic tenancy is severely restricted. Landlord MUST have prescribed reason which may make it difficult. Notice to terminate MUST be in writing and not until all conditions of an offer to purchase have been met.

Termination for Tenant MAY terminate the periodic tenancy by serving the appropriate notice, with sufficient time: Week to week – one tenancy week. Month to month – 1 full tenancy months (3 full tenancy months for landlord). Year to year – 60 full days prior to last day of year (90 for landlord).

Need to Know! ANY provision waiving rights, benefits or protection under the Act is VOID and unenforceable. Landlord NOT entitled to deduct from damage deposit unless beginning report and final report produced. Knowledge of the Act is IMPORTANT.

Municipal Government Act Provides legislative basis to determine how property may be used. Province divided into municipalities (city, town, village, summer village, municipal district). Required to pass a Land Use Bylaw which develops plan policies (critical for Realtors to know).

Land Use Bylaw (Zoning) Will generally contain: Section for administrative matters. General rules applicable to all land use classes. Detailed land use classes and subclasses.

Land Use Control Methods Zoning Control – specifies every aspect of how property may be used. Development Control – allows each proposed development to be considered according to its own merits.

4 Kinds of Land Use Districts 1. 2. 3. 4. Residential (R) Commercial (C) Industrial (I) Special – catch-all for special needs For each land use classification the bylaw lists a number of “permitted uses” or “discretionary uses”, or both.

Permitted Vs Discretionary Permitted are uses that entitle applicant to permit if the development conforms with the bylaw (inflexible but certain). Discretionary are uses that are deemed to be generally appropriate but not necessarily compatible with the surrounding (may/may not be approved – flexible but uncertain).

Land Use Compliance Matters Real Property Report is necessary to verify buildings comply with sideyard and setback requirements of the Land Use Bylaw and shows where they are relative to the property lines. Municipality will stamp a compliance certificate or legal but non-conforming.

Compliance Matters cont … Burden is generally on the seller to rectify any problems. To allow seller to maintain the structure as is, encroachment agreement or relaxation is necessary. Buyer MAY choose to or NOT to complete transaction.

Permits Development permit – document issued under the bylaw authorizing development. Building permit – document issued and required for the actual construction. If not issued, can be appealed.

Illegal/Non-Conforming Uses Illegal use of a property (not allowed under the Land Use Bylaw) may require change or removal. Non-conforming use (not allowed under the current bylaw but was okay at the time in came into use – note: if discontinued for more than 6 months, the use must stop).

Environmental Law Environmental Protection and Enhancement Act deals with environmental concerns. Encourage buyers to investigate any issues of concern to them. Include a professional environmental audit as a normal condition to contract.

Common Concerns Release of Substances, Contaminated Sites, Conservation and Reclamation, Groundwater and Related Drilling, Potable Water, Hazardous Substances Pesticides, Recycling Waste Management. Urea Formaldehyde Foam Insulation, Radon, Polychlorinated Biphenyl, Underground Storage Tanks, Post Tension Cable, Lead Paint/Plumbing, Farm Disposal Sites.

Be Alert to Types of Land! Old service station locations. Industrial site - heavy construction occurred. Storage sites batteries, tires, scrap metal. Truck depots, old landfills. Lumber treating sites (creosote/bluestone (wood preservative). Pay attention smells, stains, soil, taste, etc.

Environmental Audits Three-Phased Approach to analyze to determine the extent of damage or to determine compliance. Sampling and/or Testing required in Phase II may include Sampling Plan, Analytical Plan, Health and Safety Plan, then Final Report. Phase III is remedial action plan. MAY include Repair, Isolation, Encapsulation, Enclosure, Removal & Disposal, hopefully limiting a problem of Stigma.

Other Legislation Fire Prevention Act. Federal Environmental Protection Act. Once terms are in contract and agreed on, investigation and searches begin. If there is any indications of potential environmental problems, it is important to be more diligent.

Municipal Taxation Property Taxes = Assessed Value (land buildings) x Mill Rate. A “mill” is one-thousandth of a dollar (1/1000 of $1). Taxes due and payable June 30 th of each year.

Tax Adjustment Taxes are based on calendar year (January 1 to December 31 but due June 30 th). Before June 30 th, Buyer gets tax credit. After June 30 th, Seller gets tax credit. Tax adjustment based on #ofdays/365 ($yearly taxes x #ofdays/365).

Tax ACCOUNT Adjustment Tax Account based on tax year (July 1 -June 30). Tax Accounts are savings for next June 30 th. If assuming mortgage, Buyer reimburse Seller, Seller gets tax credit, Tax Account remains. If new mortgage, Buyer creates tax account with mortgagee so that, combined with the tax portion of PIT payments left before June 30 th, lender will have sufficient funds to pay. Adjustment may be in Mortgage Statement, or not, but it will affect the Cash required to Close.

Municipal Government Act Once tax notification registered on title for one year and before three, land can be offered for tax sale. If taxes not paid by March 31 of next year, property for sale by public auction with reserve bid and Sold. If reserve not achieved, then Municipality becomes owner – usually redeemed.

Caution. . Tax Considerations Business Taxes. Allocation of Purchase Price (beware assets that allow high rate of depreciation). Income Tax. Note: principal residence exemption.

Lawyers The function of Real Estate Lawyers in residential transactions is VERY important, timely (always working with deadlines) and similar, yet each is different. The real estate agent’s quality of work, thoroughness and ability to help clients aids the lawyers in the ease of closing.

Miscellaneous Considerations Dealing with Estates –have knowledge about how death affect contracts. Personal Property Security Act. Expropriation Act. Mobile Home Sites Tenancies Act (similar to Residential Tenancies Act).

Legal Concerns – Land Types Some types of land requires special consideration. Some of these concerns are found in: Agricultural Land. New Construction. National Parks. Indian Lands.