Roadmap to the Residential Agreement of Purchase and Sale | Ontario

If you plan to purchase or sell property in Ontario, understanding the Agreement of Purchase and Sale (OREA Form 100) is paramount. An Agreement of Purchase and Sale (APS) is a legal document that outlines the terms and conditions of a real estate transaction. This blog will dive into how an APS works and explain how you can create one to stay o

What Is an Agreement of Purchase and Sale in Ontario?

An Agreement of Purchase and Sale (APS) is a legal contract between a Buyer and a Seller in a real estate transaction. Prospective Buyers or their agents can submit this Agreement as an Offer to a Seller. The agreement can go back and forth between the Buyer and the Seller many times before they reach an agreed-upon deal. To ensure you’re not missing anything critical it’s best to have a lawyer or a real estate professional assist you during this process. 

Is an Agreement of Purchase and Sale Legally Binding?

Once both parties sign an Agreement of Purchase and Sale, it becomes a legally binding document in Ontario. By signing, both parties indicate that they agree to the document’s terms, making it an enforceable contract. It can offer peace of mind throughout your asset purchase or sale journey.

It’s essential to fully understand all the clauses, terms, and obligations in the Agreement before you sign. Breaching the contract can lead to significant legal and financial consequences.

What Information Should an Agreement of Purchase and Sale Include?

An Agreement of Purchase and Sale should include the details below:

1. Description of the Property

This section should clearly identify the type of property being sold. Confirm whether the property in question is a condo, house, mobile home, duplex, etc. You must also mention the property’s address and legal description. You can find the property’s legal description on a mortgage agreement, tax assessment, or land title. You can also attach a property description with further details, such as number of bedrooms, bathrooms, and more. 

Importantly, you’ll want to detail the general condition of the property and certain disclosures. In Ontario, you must state whether the property has material latent defects that would render it unfit or unsafe for the Buyer’s purposes. Accurately describing the property can prevent disputes and misunderstandings between the parties involved.  Providing the correct details helps make the transaction process smooth and transparent. If you’re unsure what to disclose, take OREA’s quiz to be sure. 

2. Offer Price and Deposit Information

The Purchase and Sale Agreement should outline the purchase price of the property, which is negotiable. Negotiating the price is a central feature of the Agreement. Keep in mind, that appraisals or inspections can lead to adjustments to the sale price. Additionally, the document should specify the timeline of when payments are to be deposited. You’ll also want to outline: 

• The date by which the deposit is due
• The amount the Buyer is to deposit
• Who will hold the deposit until the end of the deal 
• Where the Buyer will get financing (for instance, a private lender, bank, or the Seller)

3. Irrevocability and Completion Date

The Irrevocability date is the date by which the party submitting the Offer agrees to allow the other party to consider and accept it. If the party receiving the Offer does not accept it by the Irrevocability date, the Agreement becomes null and void. As such, the deposit is returned to the Buyer in full without any interest.

The Completion Date (also known as the Closing Date) is the day the Buyer takes possession of the property officially. All parties should agree on a mutually agreeable Completion Date. It’s best to have the Completion Date fall on a business day rather than a weekend or a statutory holiday. This ensures that a proper closing takes place and that closing documents can be registered. 

Lastly, you can choose to give the Buyer the option to terminate the contract after signing it. This means the Buyer can terminate the Agreement if they pay a termination fee.

4. Personal Information of the Buyer and Seller

The Agreement must include the full legal names of the Buyer and the Seller. Both parties’ names in the Agreement must match the names on official identification documents. This ensures compliance with legal requirements and avoids complications during the transaction process.

5. Chattlets Included

The Buyer and the Seller need to list which items (Chattlets) they want to include with the sale of the property. Chattlets are not automatically included in a sale and must be added to the APS for clarity. These items that can be easily removed or left at the property after the sale. Some examples of Chattlets include kitchen appliances and yard machinery. The Seller needs to agree with the items to be included as part of the transaction. It’s a good idea to clearly list all the Chattels the Buyer wants to take with the property and all the items the Seller is prepared to leave behind.

6. Fixtures Excluded

Fixtures are items that are attached to the property, but the parties have agreed that they won’t be included in the sale. For instance, a specific lighting attachment, like a dining room chandelier, may be removed by the Seller and taken with them. The details of which Fixtures will remain with the property and which will be removed should be drafted into the (APS).

7. Rental Items

A Purchase and Sale Agreement should clearly state whether any rental items are included with the property. Rental items include alarm systems, furnaces, air conditioners, hot water tanks, water softeners, and more. The Agreement needs to address which items can and will be transferred from the Seller to the Buyer. 

8. HST

This section outlines how Ontario’s harmonized sales tax (HST) is to be treated and whether it needs to be paid. Previously owned residential property transactions are typically HST-exempt; the HST would’ve been paid by the original Buyer (when the property was first built). If the property in question is a brand-new property, the Buyer usually pays HST. The APS should communicate whether the property is HST-exempt, or if HST is to be paid.

However, the rule doesn’t apply if 90% or more of the used property has been renovated or remodelled. According to the Canada Revenue Agency (CRA), if 90% or more of a property has been renovated, it’s subject to HST. A property that’s been renovated significantly qualifies as a new residential housing product.  

9. Title Search Date

It’s important to include the Title Search Date in the Agreement. This is the deadline by which a Buyer can complete a title search to ensure no legal issues impact the property’s ownership. Unresolved title issues can lead to the termination of the Agreement of Purchase and Sale. The Buyer and Seller must agree on a reasonable Title Search Date to allow sufficient time to conduct thorough research. Title-related concerns should be addressed before the transaction is finalized.

If the Buyer finds issues, the Buyer’s lawyer has until a certain date, known as a requisition date, to present a “requisition letter” to the Seller’s lawyer. A requisition letter contains a list of requests resulting from issues found as part of the Title Search. These issues include but aren’t limited to:

• Outstanding work orders, liens, or writs of execution
• A registered current or prior mortgage
• A current or expired municipal notice
• An unexpected Transfer of Easement.
• Any clutter on title that can complicate matters for the Buyer
• Unpaid property tax and utility bills (as a result of an off-title search)
• A construction lien (as a result of an off-title search)

10. Terms and Conditions of the Sale

Certain conditions must be met before the sale is finalized, such as a satisfactory home inspection and securing financing. If a condition isn’t met, the Buyer or Seller is within their rights to cancel the Agreement. These conditions protect both the Buyer and Seller, ensuring a smooth and fair sale process. It is important to include any specific conditions in the Agreement to prevent any confusion. Real estate sales are often contingent upon:

• The sale of another property
• Ensuring the property has proper zoning for the Seller’s needs
• Financing approvals
• A satisfactory home inspection

11. Successors and Assigns

If one of the parties passes away, or cannot complete this transaction, the successors, heirs or assigns of that party are bound by the APS. This enables the other party to ensure that the transaction can still be completed.

12. Spousal Consent Signature

Spousal consent by way of signature might be required for the transaction to be fully authorized. This provision is intended to preserve the rights of spouses under the Ontario Family Law Act, R.S.O. 1990, c. F.3.

Cancelling an Agreement of Purchase and Sale

You may cancel an Agreement of Purchase and Sale by notifying the other party in writing. You would outline the reason(s) why you can’t proceed with the transaction. Valid reasons to cancel this type of Agreement include:

• Failing to meet the conditions of the Agreement
• Invoking your option to terminate the Agreement
• Learning certain facts about the property weren’t disclosed as required by law

Draft an Agreement of Purchase and Sale Today

Once you’ve gathered all the information you need, drafting an Agreement of Purchase and Sale is simple. Before you begin, it’s best to obtain the advice of a trusted lawyer or real estate professional. NotaryPro offers a seamless Agreement of Purchase and Sale template, so you can draft your Agreement in minutes! Get started today.