This article was supplied by Mark Weisleder, RealEstateLawyers.ca LLP
In the initial wake of COVID-19 and in the subsequent waves (we’re now into the fourth) there has been a lot of uncertainty. This fragility has extended to the housing market as many buyers and sellers found themselves either mid-deal, planning to buy or sell, or had a construction project underway. As real estate professionals, we have received many questions regarding the pandemic and the housing market, frequently around real estate agreements and how COVID-19 has impacted such agreements. Here are the answers to our most frequently asked questions from both clients and Realtors, about how the pandemic has affected real estate agreements.
Can a buyer cancel a real estate deal due to COVID-19?
Is COVID-19 a valid excuse to get out of a purchase contract? The simple answer is no. It doesn’t matter if a buyer cannot obtain a mortgage, goes into quarantine or the value of the property decreases, these are not an excuse to cancel a real estate agreement. In these cases, either terms of an extension are agreed to, or the buyer can be sued for any deficiency the seller suffers on a resale.
Can a seller refuse a pre-closing viewing of the property, for fear of contracting COVID-19?
If the visit is provided for in the agreement, a safe compromise should be worked out, with perhaps only one buyer visiting the home. The buyer may be expected to wear a mask and gloves, and only enter the home for a prescribed period of time (for example, a maximum of 20 minutes). During such visit, the buyer may also be ordered not to touch anything in the home to ensure safety. Another option is for the buyer/seller to agree to a Zoom meeting where the seller goes around the entire house, virtually showing the buyer all areas of concern. A final option we have seen is when the seller arranges to vacate the property early on the closing date and have the buyer enter the property for the final inspection.
Can the Government Land Registry System close down?
While this is theoretically possible, we have been assured by the Director of Titles that this will not occur since the system is being operated by staff who are working remotely. In the unlikely event that this did occur, most real estate closings could still proceed as long as the buyer had title insurance, which provides gap coverage, meaning that the agreements can close as scheduled, money can be paid to the seller, the keys released to the buyer, and registrations occurring once the system is up and running again. Gap coverage means that in the unlikely event that a lien or judgment arises in the intervening period, which could affect the title, the buyer’s title insurance policy will remove it.
Can a buyer or seller complete a real estate closing without visiting a lawyer in person?
The answer is yes, but not all law firms offer virtual services. Technically speaking, there is no requirement to meet any buyer or seller in person. All document signings can be done via video conference. If a law firm is registered as a bill payee at major banks, buyers can transfer the closing down payment directly to its trust account online, so that they do not have to attend a bank branch in person for an extended period of time to obtain a bank draft. For sellers, this would mean signing all documents by video conference and automatically transferring closing funds by Electronic Funds Transfer directly to the seller’s bank account after closing, the same way real estate commissions are paid after closing.
Do you need special clauses to protect buyers and sellers during the pandemic?
You should consult your lawyer, but here are three practical clauses to consider including in any agreement during the pandemic:
- The Buyer shall pay the balance of the purchase price, subject to the usual adjustments by wire transfer.
- The parties acknowledge and agree that all closing documentation can be signed electronically and forwarded by email or fax in accordance with the Electronic Commerce Act, 2000, S.O.2000,c.17
- The parties agree that the keys to the property shall be left in a lock box at the property and the code to the same is to be provided to the Buyer’s lawyer in escrow pending closing of this transaction.
Otherwise, no further clauses should be added, as they do more harm than good–especially when they give buyers or sellers the right to terminate an agreement. As stated earlier, even in the remote situation that the government registration system goes down, real estate agreements can still close if there is gap coverage in place through the title insurance. Legal advice should always be obtained before any additional clauses are introduced into any real estate agreement of purchase and sale.
This article was supplied by RealEstateLaywers.ca LLP. It is intended for information purposes only, and does not constitute legal advice. Consumers are advised to reach out to a lawyer regarding their specific situation. Find one by visiting the Canadian Bar Association.