Tales from the Trenches

The conclusion of this podcast mini-series on legal fees finishes up with some miscellaneous advice on saving money. Real estate law is complex, but there’s still a lot you can do to make your lawyer’s job easier, which will cost you less!

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Folks, will following these tips guarantee a virtually no-cost real estate transaction? Of course not, but they will certainly help you have a more straightforward, no-stress experience.

Whether you need a consultation or help with amending off-the-shelf contract, Barry is the real estate lawyer you need. Contact him today!

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Complex legal work on real estate deals is typically billed by the hour. In this episode, Barry provides helpful tips to improve service, get better results, and reduce legal fees.

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Now let’s talk about how to save legal dollars on more complex work, which is usually billed on the basis of time, complexity, and value to client. Your lawyer can’t tell you a fixed fee when s/he doesn’t know how much time or effort it will take to do the work. But here are some things you can do to keep your costs in line.

Barry has decades of experience as an Alberta real estate lawyer; he’s your best choice for complex transactions. Get in touch today!

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A continuation of Barry explaining how your lawyer figures out your legal bill for a real estate transaction. Fixed fees only apply to plain, straightforward deals, so if your transaction becomes more complicated, the cost rises. Listen to this episode to get helpful tips on keeping your fixed fees fixed.

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Most of your legal accounts for real estate can be done on a fixed fee basis. Your lawyer has figured out a fixed fee on the basis that it’s typical transaction with no wrinkles or crinkles or surprises. If your deal turns out to have wrinkles, crinkles, and surprises, your lawyer may charge you an extra fee for the extra time put in to sort out what no-one know was coming.

It’s in your very best interest to avoid any extra legal fees. Here are some things you can do to keep your legal account to the fixed-fee deal you thought you were getting.

Barry keeps his lawyers fees up front and transparent. Contact him today for all your Alberta real estate needs!

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This episode explains how your lawyer figures out your legal bill for a real estate transaction. It also features discussion of how speed, risk, and benefit can influence the cost of more complex deals.

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Anyone buying and selling real estate needs a great team. You carefully select your team members including your realtor, mortgage broker/lender, building inspector, property manager, accountant, and your lawyer. It’s in your interest to have the team members giving you the best possible service at the best possible price. This presentation is aimed at making sure you understand what and how your lawyer charges you and how to keep those legal accounts under control.

Let’s start with some of the basics. Your legal bill/account is composed of three things: fees, disbursements, and taxes.

The fee portion of your lawyer’s legal account is calculated one of three basic ways; fixed fee, hourly rate, and on a contingency basis.

When it comes to Alberta real estate, Barry is the lawyer you want on your side. Contact him now!

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In this episode we revisit a sad truth: people lie. You are not allowed to use verbal evidence to vary a written contract, so get all promises in writing when buying and selling real estate. Don’t remove conditions especially a, ‘subject to financing’ condition, until you are satisfied you have the appropriate financing.

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An experienced real estate investor had a portfolio of 10 properties. That was good, but he decided commercial properties were his next strategy. He began negotiating on a commercial building. In friendly conversation with the husband and wife owners, he discovered that they were also selling their personal residence.

As it turned out, our investor was looking for a new personal residence, so he took a look. It was just what he wanted, and he wrote an offer, conditional on inspection and financing. The purchase price was $2 million and, between frenzied boom times and a substantial portfolio, financing was taking longer than expected.

Our investor got an urgent call from the seller’s wife saying that if they didn’t remove conditions on their new house, they would lose it. Could our investor please remove his financing condition? Of course, they said, if he couldn’t get financing, they would never hold him to the deal.

After some thought, our investor agreed and promptly forgot about it. Condition day was Friday. On Monday, he had a panicked call from the seller asking, “where was the subject-to removal?” “Sorry, I forgot, I’ll send it today.”

You can probably guess the rest of the story. Financing took another two months, prices had dropped, and the bank said the property was worth $1.3 million… not $2 million! Therefore, unsatisfactory financing. Long story short, the sellers held our investor to the signed contract.

A lawsuit was launched, and, at the end of a three-day trial, the judge found for the sellers. He believed the seller’s wife that she never said anything about not holding our investor to the contract. The judge was also upset with our investor for participating in mortgage fraud.

Damages were assessed at $500,000. Even if the judge had believed our investor that the sellers said, “don’t worry, we’ll never hold you to it,” the he would likely have applied an ancient rule of law known as the Parol Evidence Rule:

Verbal evidence is inadmissible to vary or contradict the terms of a written agreement.

In Wheeler, Kelly, & Hagny v Curtis, cited at 158 Kan 312, the Supreme Court of Kansas, in 1944, adopted these words, with extensive quoting from other cases:

“Parol evidence of an agreement consisting of mere oral promises made previously or concurrently with the execution of a written contract of sale of land is inadmissible to charge the vendee with the payment of more than the expressed consideration, when the amount to be paid plainly appears from the face of the instrument.

As a general rule all prior oral negotiations are deemed to be merged in a written agreement, and the terms of such agreement cannot be contradicted, altered, added to, or varied by parol proof.”

In Canada, where the rule is also applicable, the Alberta Court of Appeal, in Gainers Inc. v. Pocklington Financial Corporation, 2000 ABCA 151, published at The Canadian Legal Information Institute, described it as follows: “When the deal is complete in the written contracts…., other evidence (parol evidence) is inadmissible to vary or contradict a clear written contract.”

When it comes time to make an offer to purchase in Alberta, get strong legal counsel to protect your interests. Contact Barry now!

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This podcast tells the sad Tale of a real estate investor who tried too hard too avoid tax by contributing to a charity. Tax schemes that promise deductions much larger than the charitable donation are almost always found to be shams and disallowed by the CRA. You will almost certainly lose your deduction and the charitable donation itself along with spending huge amounts of money on legal and accounting fees.

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One day, a real estate investor saw an ad promoting a way to help the less fortunate and save on taxes.  “Just what I need,” thought our investor. It had been a busy couple of years. Over 20 properties purchased and refinanced during the boom. His accountant had been warning him about the looming giant tax bill.

He attended an information meeting and was very impressed with the slick presentation. Handsome men in suits explained clearly and logically why a charitable donation of $20,000 to a registered charity would allow you a $100,000 tax deduction. The idea was that the charity would purchase software licenses on a wholesale basis. Those licenses and the ability to buy the underlying software would then be donated to worthy recipients on a retail cost basis. Essentially that is the reason why a $20,000 donation would turn into a $100,000 deduction.

Our investor was impressed. As a businessman with a senior position, he was accustomed to doing rigorous analysis. The concept and numbers made sense. There was an accounting opinion from a national firm attesting to the bona fides of the plan. The $20,000 cheque was written and the $100,000 deduction taken by our investor’s accountant at tax time.

All went well until a nasty tenant dispute over an $800 security deposit.

The unhappy tenant cleverly called the Canada Revenue Agency (CRA) and said that our investor had unreported income. This resulted in a CRA audit. Our investor naïvely told his accountant to deal with the CRA. When the CRA requested information, the accountant simply took all of our investor’s neat, tidy, and well-organized information—every bit of it—and gave it to the CRA auditor.

On examination, the auditors found no evidence of unreported income. What he did find was the $20,000 charitable donation and the $100,000 tax deduction. This triggered a more extensive audit and analysis of the donation by the CRA’s Aggressive Tax Planning section. Did you know the CRA had such a section ? Our investor quickly hired a lawyer and a tax accountant, but the damage was done. The last two years have been extremely stressful and have included many expensive meetings with lawyers and accountants.

The CRA’s opinion is that this donation scheme and most others like it are shams. Their recent opinion is 12 pages long and very heavy on technical, legal argument and interpretation. In the end, they disallowed both the $100,000 deduction and the $20,000 charitable donation.

In hindsight, our investor understands that the CRA is a giant, faceless, and remorseless bureaucracy that can grind granite into sand. It’s best not to give them any reason to look into your affairs!

Get expert legal advice on real estate and/or tax from Barry McGuire and the team at Field Law.

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Usually, the Tales from the Trenches podcast is about how people mess up when buying and selling real estate, showing what we can learn from their mistakes. But this Tale turned out just fine! It looks at things to consider when moving from a buy and hold strategy to a fix and flip strategy. Consider private financing if your bank doesn’t like your plan to fix and flip. Your ability to perform will produce private lending opportunities impossible to get in the public marketplace.

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Two investors partnered up and thought they would like to try the ‘fix and flip’ strategy. It was their first step outside their previous portfolio of three conservative ‘buy and hold’ properties.

They were a little nervous about the usual things. Can we find something with enough hidden value? What about contractors? How do you find reliable tradespeople who will bid jobs at reasonable cost and finish on time? When do you start to market and should we do it on our own or use a realtor? How do we finance this? They did as much diligence as they could and started looking for properties.

They found a condo in a decent area in a decent building. The 20-year old unit was tired and dirty. Not one thing had ever been changed or painted by the previous owner. When viewing the unit, the owner’s fuzzball of a dog happily greeted them by running around the unit and showing them her favourite scratching places on the rugs and woodwork. This condominium unit did not show well, but our investors thought it had real potential. They went away, did some numbers and more diligence on this particular building. $20,000 worth of renovations would give them an estimated $40,000 profit.

Before making an offer they had chatted to their banks about a mortgage to buy the property and do the fix ups. They got the usual answer of 80% of the lower of purchase price or appraised value. The bank didn’t want to talk too much about doing a loan based on the after repaired value with hold-backs until those repairs were done. In fact, the bank wasn’t too enthusiastic about the concept at all.

One of our investors ran into a close relative who was bubbling over about his bank offering a line of credit at an introductory rate of prime minus one. The trick was that the line of credit had to be borrowed immediately and not repaid for at least three months. “Really,” says our investor, “I can help you with this problem!”

They quickly came to an arrangement for a loan big enough to buy the unit and pay for the renovations, essentially 120% financing. Since they expected the whole process to take about four months anyway, they agreed with the relative they had to pay four months worth of interest. That gave the relative some certainty about how much money he was going to make and satisfied the bank’s minimum three-month borrowing requirement. The loan was set up as a 1st mortgage at 75% LTV at 7% and a second mortgage at 10% for the balance.

Our investors paid legal fees but no other lender fees. Anyone who has borrowed private money knows this is an excellent deal. But our investors are cautious types, so they chatted with their financial advisor to see what he thought of the deal. Here’s what the financial advisor said.

“This looks good; you guys have a track record in property ownership. If this renovation works out, tell me about the next one and I will provide the financing. If that second one works out, I will seriously consider advising my client base that they can invest with you guys and make some money.”

With financing in place the offer was made, accepted, and the renovation progressed smoothly.

Contact Barry McGuire now. Alberta real estate needs an Alberta lawyer.

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In this podcast, you’ll hear about issues to watch out for when purchasing a condominium unit with an existing tenant and a rental pool. There is a formal process to join the rental pool and lots of paperwork!

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Here’s another e-mail I got from a member about a Rental Pool issue:

“Hi Barry. I closed on a condominium in Fort McMurray on October 1. We had an original closing date of December 1, but my joint venture partner decided that an October 1 date would work better. There was an existing tenant. So, due to tenant’s rights we had to assume the Rental Pool tenant and the balance of her lease for the months of October and November. That’s why I wanted a December 1 date, so we didn’t have to assume the tenant.

Anyway, the tenant moved out in the middle of November and left a carpet and the unit in very dirty condition which was what I thought she would do and that’s why I wanted a December 1 closing date, the end of her lease. I’m going to have to be firmer with my joint venture partner.

There is a clause in the Rental Pool agreement that says, “Property Manager to ensure that the property is cleaned and carpets are steamed cleaned as per the lease agreement with the tenant”. But, the On-Site management is now saying that their responsibility as manager ended once we assumed the lease. The management company did not access the unit at closing and are refusing to access and clean it now. What can I do to encourage them to implement the details in their agreement?”

Rental Pools and Rental Pool Agreements are tricky. In this particular case what happened was that our member did not join the Rental Pool. That is a formal process and involves signing the extremely detailed Rental Pool Agreement with the Rental Pool manager.

Since the Rental Pool Agreement wasn’t signed, no one was managing our members unit and there was no agreement to implement. They were on their own. If our member did not want to be part of the Rental Pool they should have obtained their own property management and had that property manager do a formal transition on management of the unit from the Rental Pool to the new manager. This involves getting assignments of existing leases and making sure that security deposits are properly transferred to the new manager.

As an aside, and not relevant to this Tale but important, many Rental Pool Agreements say that if you list your property for sale while a member of the Rental Pool, as soon as your unit goes vacant the rental Pool manager will not re-rent it. Remember this one if you are going to list your Rental Pool unit for sale.

Protect your Rental Pool interests with advice from an experienced Alberta real estate lawyer. Contact Barry now!

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In this episode, Barry tells a tale of failure to pay a special assessment, which allows the Condominium Corporation to file a caveat against your title. If you don’t pay, the next step is what amounts to a foreclosure. Plus, you will pay both party’s legal fees…

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This is the text of an e-mail I got from a member:

“Hi Barry. I have a question I hoped I could get a quick answer on. I have an outstanding special assessment on a condominium unit and I am overdue on paying that special assessment. Money is a little short right now and I am trying to find enough to pay the assessment but haven’t done so yet. The lawyers for the condo board sent me a letter and said they have already filed a caveat on the property. The letter says that they will start foreclosure proceedings shortly unless I pay the special assessment and all their legal fees and costs which are already $800! I thought only a bank could foreclose on the property? I am paying the mortgage, so does the Condominium Corporation have the power to do that? I don’t mind paying penalties and still have the caveat in place until it is paid, but I will need to take other action if the foreclosure is imminent. Can you please let me know your quick thoughts?”

Here’s what I told them:

Well, it’s not exactly like a normal mortgage foreclosure, but in the end it’s near enough that you don’t care about the difference.

If you ignore the legal action launched by the Condominium Corporation, the end result will be that they can sell your property to pay the costs claimed and collect all of their legal fees and other expenses for launching the court action. If that isn’t just like a foreclosure, I don’t know what is. And, they can do this if you are one month behind on your condominium fees. It’s a very powerful tool, probably the sharpest arrow in the Condominium Corporation quiver.

Mortgages, foreclosure, caveats, and corporations; of my! Contact Barry now for expert legal counsel on all things Alberta condo.

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