Tales from the Trenches

This Tale from the Trenches is the second in our ongoing mini-series on permits for real estate. You know, those sometimes-nasty bits of paper that towns, cities, counties, and other municipalities require before you can do certain types of work on a property. From my perspective as a real estate lawyer, I think it’s fair to say that the permit landscape has changed over the last few years in Alberta (and elsewhere across Canada), so it’s good to survey recent developments. In this episode, a client of mine faces off against municipal bureaucracy to get a legal secondary suite approved, getting snagged up by rules and regulations for parking.

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Typically, you start with a development permit at the Planning Office in your municipality. The development permit reviews what you plan to do and secures a broad brushstroke approval or perhaps a conditional approval for your concept. That’s the first step.

The second—and more important—step is the actual building permit. Whereas the development permit is a more general document, the building permit gets into the details of your project.

Where permits, or the requirement for permits, were often ignored in the past, municipalities are now much more vigorous about enforcing permit requirements. As an example, the City of Edmonton formerly did not pay much attention to illegal secondary suites. They would only take action if someone complained.

Then, in the face of demand for more rental accommodation, the City changed the zoning bylaw to allow secondary suites in almost all areas of the city. That change from not allowing secondary suites, (or garage suites or garden suites) to allowing suites almost everywhere led the City to now enforce their bylaw. Instead of not really caring whether permits were issued, the City of Edmonton now actively pursues illegal secondary suites. On the other hand, the City is very cooperative about working with owners to legalize existing suites or add new suites.

Recently, a client emailed to tell me about his experience in trying to get a permit for his new secondary suite. Rather than me paraphrasing, I thought it would be better and more descriptive to hear about the issues from the horse’s mouth. Here’s what he said:

Subject: Permit experience

Good morning Barry,

I finally found a minute to sit down and write this out for you.

We came across a house in Fort Saskatchewan that we then discovered would be perfect for adding a secondary suite. It was on a corner lot and also had a double driveway with a double detached garage. The property had enough room to park plenty of vehicles before impeding on any neighbouring properties. I looked into the zoning, and it was zoned to accommodate a secondary home. Perfect because I have the experience and time to install the suite.

We purchased the house in June with a possession date of Aug 7th. While we were waiting for our possession date, I looked into getting all the permits set up and ready to go so we could start the renovation process on our possession day. After talking to the City, they said we did not meet the parking requirements, and we would need to add an additional double-size parking pad to get the permits approved. In addition, we could not apply for the permits until the day we owned it (Aug 7th), and then we could not start any construction until approval of the permits, which would be four to six weeks. I had a three-month timeline to complete the entire project, so this was a huge setback.

After looking into some other suited properties in Fort Sask, I found that very few of them had the proper parking requirements but were still legal. I looked into this a little further and found out that the last 20 permits had been appealed on the parking issue. They all won because of adequate existing parking and therefore did not require additional parking.

I talked to the City about appealing the parking, and they said it was fairly common and again said it would be about a six-week timeline and no work could start until permits were approved.

I went back to Planning & Development and we came up with a solution that would allow me to start construction on possession day as well as potentially save me money on adding additional parking.

What we did was applied for the secondary suite with the intention of it getting denied. Then we would appeal the additional parking requirement pretty confident we would win our appeal as the last 20 of 20 have won.

As well, we would apply for a basement development permit in order to start the construction. You can develop a basement to the same standards as a secondary suite, but you just can’t install the stove wiring until you have the secondary suite permit.
After 6 weeks of owning the property, I had my parking appeal. I went into it with all kinds of information including recent approvals in the area, the less strict parking guidelines in neighbouring cities, as well as photos showing how much street parking we have, showing the ETS bus stop out front and proof showing newer duplex developments have almost no parking.

I came out of the appeal feeling pretty confident I should win. I was shocked when I got my denial a week later!

As you have taught us at your Focus Workshops, “always have a Plan B.” Very glad I did have a Plan B, because when I lost the appeal, I was already prepared.

So off to plan B I went. I would just meet the parking requirements and get a standard permit. No issues, or so I thought.

I called the city and asked what the minimum parking requirements would be so I could obtain the permit and move forward. Then they dropped a bomb on me when they said that, because I lost my appeal, I cannot reapply for the same permit for 6 months!

This didn’t make sense, because now I was just asking for a permit where I would meet all requirements. Not asking for any relaxations whatsoever. I kept asking questions because I really thought that if I was going to comply with all requirements, there must be something that could be done. Firm NO!

I tried again by talking to the Manager of Planning & Development, and he said he would talk to the Director. But he wasn’t sure if there was anything that could be done. A week later, I got a call from the Director, and he said the only thing I can do was again reapply for the permit. Once they denied the new permit application (based on their rule that once a permit is denied you can’t apply for 6 months), then I could file another appeal. This time my appeal would ask for a relaxation on the six-month clause.

In the meantime, I actually constructed the parking pad, which met the additional on-site parking requirement.

On Nov 7th, exactly my three-month mark, I was sitting in front of the appeal board once again asking them to allow this permit. I showed them that I had built the parking pad and now comply.

The next week was a little stressful not knowing which way they would decide to go, but they went in my favour, and I won my appeal.

So now for the third time (at almost $600 each time), I was able to reapply for the secondary suite permit and wait for the approval.

The approval just came in on Nov 27th and I had the final inspections on Nov 28th.
Long story short, I learned a lot about how the permit process works—the hard way.
I hope you can share this story with others in hopes that they don’t make the same costly mistakes that I made.

Thanks again for all your help Barry!
Sam and Wendy (names changed).

So, to some extent, all is well that ends well. But it would’ve been so much better had the municipality agreed with how my client proposed to deal with the parking issue. It just seems so obvious that the application should have resulted in an approved permit just like so many similar permit applications before his. And he wouldn’t have had to go to the effort and major expense of pouring concrete for the extra required spaces.

I think that final bill was about $8,000 for the parking spot, but what about the extra time, big stress, and two extra permit application fees at $600 each?

“Building Permits – Planning and Zoning” image by Teofilo used under CC Attribution Generic 2.0

This episode of Tales from the Trenches is shocking! A client had retained my legal services to help with purchasing her dream home in Edmonton, Alberta. The seller provided a brand-new real property report (RPR) to my client, who in turn sent the RPR to me for review. There were a few red flags, but not even decades of experience as a real estate lawyer could prepare me for what happened…

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Here’s the background. According to the current version of the Alberta Real Estate Association (AREA) contract, it is the seller’s obligation to provide the buyer with a current RPR and evidence of municipal compliance or non-conformance. The AREA contract also has a seller warranty that there are no encroachments for which there is not already a registered agreement or an agreement in writing allowing the encroachment.

The seller didn’t have a current real property report so he obtained one from his surveyor. Then, before sending the RPR to the City of Edmonton for the compliance application, he sent it to my client. I took a look at the RPR and identified at least three issues.

The seller told his realtor that he realized there were two encroachments. The retaining wall really fit with and complemented a concrete patio on the neighbour’s property. He had a cooperative neighbour, and it would just make no sense at all to get out the concrete saw and start sawing off the 2 inches. He sent photos, and I took a look. Yes, it appeared that the retaining wall and neighbour’s patio complemented each other, and it would be silly to make any adjustments. So, I wasn’t too worried about the private, encroaching, retaining wall.

Now, the fence that encroached into the alley was a different matter. It was only 2 feet of fence. The worst-case scenario is that the City could come along and say they were going to do some work in the alley. If my client didn’t remove the offending 2 feet, the City would do it for her. Not a real big deal, but still, this is the seller’s problem, so why accept it?

There is a process at the City of Edmonton to apply for an encroachment agreement. The City charges an application fee and then an encroachment fee plus GST, which I believe is in the range of about $500 plus GST in total. My advice here was that we should require the seller to make the encroachment application for the back-alley fence with the City and get that encroachment agreement registered on the title so it wouldn’t bother my client in the future.

For the hot tub, I told my client that the City requires permits. Hot tubs, like swimming pools, are attractive to children and perhaps other adults or children that do not live in the property. The City is pretty careful in their permitting of hot tubs, because anything with water in it has drowning potential and is therefore a safety issue.

My careful client had retained a top-notch home inspector who commented that the hot tub was a good brand and well installed. He didn’t see any issues from the inspection side. Further, the home inspector said that the house was really in great shape and had been taken care of well. Based on this inspection, my client felt reasonably confident that a permit from the City wouldn’t be a problem.

My client said to me, “what should I do?” I told her that the best bet was to tell the seller he would have to apply for the compliance, get it to us for review, and then we could move forward. So, we told the seller through his realtor, and that’s what the seller did.

He made his application for compliance and when the City replied, guess what? That’s right, they noted the fence encroachment and the non-permitted hot tub. As usual they made no comment on the private encroachment of the retaining wall, because they view that as an issue between neighbours and not something they regulate. Again, my buyer client was just not worried about this 2-inch retaining wall encroachment that complemented the neighbour’s concrete work and patio.

My client agreed with me that our best bet was to have the seller make applications for an encroachment agreement for the fence and permit applications for the hot tub. The seller hemmed and hawed. He didn’t have the time. He was leaving town, so it was too much trouble. He countered, how about if my client took a $1,000 price reduction?

Again, my client said to me, “what should I do?” I explained that reducing the purchase price of the home by $1,000 would cover the costs of the encroachment agreement or moving the fence if that was required in the future, as well as the costs of the hot tub permits with a little money to spare. But, the big, hidden issue is that we don’t know what the City’s requirements are for the hot tub development and building permits. Until you actually make those permit applications and give the City all the detail they require (they require a lot of detail), then you just don’t know what it will take to get those permits or how much it will cost.

My client again spoke to her home inspector, who confirmed the hot tub was a good brand, well installed, and that there were no issues from the inspection side of things. She checked with the City to confirm that having a hot tub was allowed, and so the development permit would not be an issue. It was really just a matter of the building permit, so my client thought “what could go wrong?”

In the end, my client decided to accept the RPR and dubious compliance provided by the seller, along with a $1,000 reduction in the price of the home. The purchase closed on that basis. After closing, however, my client said to me that she wanted to do the encroachment application and the hot tub permit applications. She felt that those were outstanding issues that she should get settled now while the transaction was still fresh in her mind, and she had the money to do it from the price reduction. Then she could carry on knowing that when she sold the property, unless she had made other changes during her ownership, she would have the RPR and compliance issue all sorted.

The encroachment agreement went smoothly for the fence in the alley. The City provided the usual encroachment agreement, which my client signed, and we registered it against the title.

The hot tub permit applications were more difficult. As expected, the development permit was granted, no issues. But the building permit? That was a different story. My client retained an electrician to help her make the applications.

One of the City’s requirements was that the electrician had to confirm for the City how much load all of the home’s electrical requirements would draw. Once the electrician had provided his load review, the City said that the existing 100-amp electrical panel was not sufficient.

The electrician went back to the City and said, “listen, the only way the existing 100-amp panel won’t be sufficient is if every appliance in the home plus the electric mower and block heater are all being used at the same time. That’s never going to happen, not even close.”

The City stuck to their position. As the saying goes, you can’t fight City Hall. The solution was a new 150-amp panel, which required a heavier, upgraded power line into the home provided through EPCOR.

And the cost of all this, are you ready for it? $3,600!!!
That’s right, THREE THOUSAND SIX HUNDRED DOLLARS!

“Whirlpool, Hot Tub, Garden, Summer” image by Pezibear used under a Pixabay License.

Like all things tax related, non-resident tax is complicated when it comes to buying and selling real estate in Canada. In February, 2016, I posted a lengthy blog on non-resident tax and how it can affect buyers, sellers, and realtors. Lots of liability and dangerous situations here, folks, so don’t treat non-resident tax lightly. If you have a non-resident tax situation, please read the previous post (link), and then dive into the case study below. This follow-up blog post provides a recent example from Edmonton law firm (RMLO Law LLP), which I’ll use to show some principles that can be applied to non-resident tax issues in general.

Download the audio file HERE.
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In brief, the Canada Revenue Agency (CRA) says a buyer of real estate from a non-resident seller is responsible for the non-resident seller’s tax, if any, that might be due on sale of the property. Why does the CRA takes that position?

The reason is that non-Residents have basically no restrictions on them when they buy non-farmland property in Canada. And, even then, only a few restrictions in a few provinces. So, a non-resident comes to Canada and buys a property, no problem. What happens if that same non-resident pulls up stakes, sells their property, and leaves Canada? If they made some money on the purchase, but didn’t deal with any tax that might be payable, it leaves the CRA chasing a non-resident who has left the country. Not a good situation if you are the CRA.

To get around the problem of having to chase non-residents in foreign jurisdictions, the CRA has placed the liability for the seller’s tax squarely on the shoulders of, guess who, the buyer! Depending on whether the sale is of non-depreciable property or depreciable property, the tax can be 25% or 50% of the gross sale proceeds. Nope, that’s not the equity in the property or any profit the seller might have made, but rather it’s the total sale price. Yikes!

For example, I acted for a seller in the recent sale of a principal residence, which was a non-depreciable property with a price of $580,000 and a remaining mortgage balance of $475,000. The CRA rule states that 25% of the sale price of $580,000 ($145,000) must be held back by the buyer until the seller produces a Certificate of Compliance from the CRA stating that the seller has paid all applicable tax, if any. My seller believed that he would have no tax to pay, because not only had he suffered a loss on the sale, but he was also selling a principal residence and could take advantage of the principal residence exemption. The buyer said that was all well and good, but they wouldn’t know for sure whether the CRA agreed with the seller until they received CRA’s Certificate of Compliance. Therefore, the fact that the seller is selling his principal residence at a loss does not affect the buyer’s responsibility to withhold 25% of the sale price.

You can see the problem. A sale price of $580,000 with expenses of $475,000 to pay out the seller’s existing mortgage, $24,400 for real estate commission, and $1,500 for the seller’s legal account leaves about $79,000. If the buyer is obligated to hold back $145,000, the seller won’t receive enough sale proceeds to pay off his existing mortgage—let alone his other expenses. And, of course, the buyer wanted a clear title with the old seller’s mortgage paid in full. My seller could not make up the shortfall, because he had no access to extra funds. All his money was tied up in the property.

To add to the problem, the seller cannot apply for the Certificate of Compliance from the CRA until he has an unconditional deal with his buyer. This tax problem was preventing the deal from becoming unconditional.

The CRA takes variable amounts of time to process Certificate of Compliance applications. But a pretty good guess is a minimum of three months in a relatively simple situation to get a favourable answer in the form of the Certificate of Compliance.

What to do? The two realtors involved worked hard to find a resolution. Could the completion date the postponed for three months? That would give the seller time to make his Certificate of Compliance application to the CRA. The buyer loved the home, but circumstances wouldn’t allow waiting another three months. Plus, everyone was fixated on the fact that the CRA rule said the buyer should hold back $145,000 and there wasn’t $145,000 to hold back. What if the tax payable was more than $145,000?

The next proposal was that the buyer would rent the property for three months while the seller made his application to the CRA. The buyer would have the right to close sooner or extend the lease depending on the CRA response. Again, the uncertainty of the situation prevented this scenario from becoming the solution to the problem.

In the end I drafted an addendum to the real estate purchase contract. That addendum contained all the facts around the seller’s original purchase price, including substantial upgrades, and comparing it to the sale price, which showed the seller was losing $130,000 on the sale. All paperwork was available for the buyer’s review. The seller confirmed that he had retained chartered accountants to prepare his application for the Certificate of Compliance for this sale of his principal residence. As the seller’s lawyer I agreed to hold the net sale proceeds of about $79,000 in trust until the CRA had responded to the Certificate of Compliance application. Should any tax be payable, I further agreed to use the holdback monies to pay the tax.

This solution worked because the buyer was able to see all the background and all the numbers, providing strong evidence for the seller’s position that there was no tax to pay.
Will this solution work in other similar situations? It depends.

In the case study above, my client’s deal was difficult to close because of the required CRA holdback. The success factors for my resolution of the problem could be applied to many other non-resident tax situations.

1. Be aware of the non-resident tax rules,
2. Get to work early on the problem,
3. Get the seller’s accountants involved,
4. Seller must fully disclose all relevant financial information, and
5. Hope for a reasonable and/or flexible buyer

Lastly, folks, it goes without saying, but I’m going to say it anyway: tax issues are always complicated, so don’t try to do this on your own. Get advice and get it early from your trusted realtor, accountant, and lawyer.

“Tax” image by Phillip Ingham on Flickr. Used under Creative Commons Attribution-NoDerivs 2.0

Special one-hour dive into the trenches of Creative Real Estate in Canada… and Africa! Barry has gathered a panel of experts, veritable rock stars of Creative Strategies, to share their experiences and answer questions from the audience. 

The essence of Creative Real Estate Investing is knowing strategies and recognizing opportunities. Sometimes deals come along that don’t work for your usual approach. Knowing alternative strategies like Agreements for Sale or Rent-to-Own (a.k.a. Lease Options) allows you still to turn a profit.

For many investors, Creative Strategies are a supplement to regular Buy & Hold—but they can also become a full-time real estate business. Listen now to get insight into how a bit of creativity opens up all kinds of opportunities!

Download the audio file HERE.
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Register now for Barry’s Rapid Cash Program!
Next event: Toronto, ON, Canada on June 1–2, 2019
http://rapidcashprogram.ca/

“Be creative” image by Ramdlon used under CC0 Public Domain. 

Damaging floods are on the rise, whether as sewer backups, swollen rivers and lakes, rising ocean levels, or overland flooding. As a result, water related insurance claims have been rising, triggering changes to policies and premiums. If you own property—and especially property with a basement—it’s time to re-evaluate your preparedness. This blog post considers climate change and what it means for Canadian homeowners and real estate investors in terms of maintenance, prevention, and insurance against water damage from flooding.

Download the audio file HERE.
Read a written version below or download the handout HERE.
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Extreme weather events are more common now than they used to be. Is this all about climate change? All I know is what I read. I’m a lawyer not a climatologist or meteorologist. But I read a lot. And, I’ve been concerned, actually worried for a considerable period of time about climate change. Sure, history tells us that the Earth’s climate is forever changing, but for almost all of the billions of years of geological time, mankind was not involved.

Recently, and by “recently” I mean in the last several hundred years, mankind has really started to accelerate climate change. There is real concern that accelerated climate change is having potentially catastrophic consequences for many parts of the world. The UN Intergovernmental Panel on Climate Change (IPCC) released a report in October 2018 saying we really only have about 12 years to stop global warming—or climate change may be irreversible.

Here’s the macro picture. Scientists say we must reduce global emissions to prevent average annual temperatures rising more than 1.5–2 degrees centigrade (depending on what climatologist is predicting the temperature) or we are definitely hooped. The discussions about what that will take worldwide are hugely complicated with an unbelievable number of moving parts that require amazing cooperation between huge numbers of countries, businesses, interest groups, and the general populace. I find it hard to get my head around the size and scope of what needs to be done to meet the challenge set out by the IPCC.

I’m not going to solve climate change in this blog post, so let’s deal with the micro picture. What might climate change mean to you and your property?

Climate change means extremes of weather. Dryer periods, wetter periods, more snow, less snow, hotter, colder. Winter snow packs are melting across Canada, and many regions are experiencing flooding, so let’s talk about wetter. As Globe & Mail personal finance columnist Rob Carrick writes (with a nod to Game of Thrones), “water is coming.”

Inundations can be hard to forecast, so is there anything to be done? All levels of government are becoming aware of the increasing need to stockpile resources (e.g., sandbags) and to build infrastructure (e.g., dykes) in flood-prone areas.

Keeping this micro and on a personal level, yes, there is plenty that you can do. Here are a few suggestions culled from the “Flood Protection Resources” webpage offered by the University of Waterloo’s Intact Centre on Climate Adaptation:

Of course, some flooding is more extreme, requiring water retention walls or even emergency evacuation plans. I hate to say it, but a lot of folks are going to need to look for new housing if the current climate change trends continue.

Unexpected flooding is a serious risk to property for Canadians across the country. Some might say, “I’m not worried, I have insurance.” But does your insurance actually cover full-on flooding or does it just cover excess water from a leaky roof or pipe? If your insurance does cover flooding, do you have enough coverage to insure against significant damage? As a real estate lawyer, I know how important it is to read the fine print, and some people might be surprised that they don’t have the amount of coverage they thought.

According to Craig Stewart, Vice-President of Federal Affairs at the Insurance Bureau of Canada (IBC), “[T]he fact is that most Canadians are not financially protected against flooding, and they may not realize it. Climate change is not a future threat – it’s happening now. Over the past three decades we have seen an increase in insured damages, and it is up to all of us – the insurance industry, governments and citizens – to do our part in responding to the effects of climate change.” The IBC also says that for every $3–$4 of damage there is often only $1 of insurable coverage. Ouch!

Insurance claims have been rising and that means insurance companies are paying out more claims. More claims equal more dollars and less profit. Insurance companies, like all companies, are in business to make money. If insurance claims and payouts rise, premiums increase. 

As an example, let’s take the floods of 2013 in Alberta. Calgary was particularly hard hit, but the full impact across the province has been assessed at approximately $5 billion. Coupled with the recent and disastrous fires in Fort McMurray and Slave Lake, insurance companies aren’t very happy with their profitability in Alberta. Anecdotally, clients have said that on receipt of their renewal notices from their insurance companies, some premiums have doubled. Yes, doubled! And, along with substantially increased premiums, coverage has been declining. So, Albertans may be paying more money to have diminished coverage. 

Lastly, and very importantly, you have to know what insurance coverage you actually have. The last couple of years, the annual renewal information on insurance for my home in Edmonton has referred to, “changes to serve you better.” On a detailed reading of the policy itself, however, water damage coverage has more limitations, deductibles have increased, and premiums have gone up.

Despite being a lawyer, I still found it difficult to read the correspondence from my insurance company and reconcile it with the changes to my policy. Insurance policies are just very complicated and tough to read. Still, it was worth my time because the changes do not serve me better—despite what the letter from my insurance company suggested.

To get some reassurance, you might want to make an appointment with your insurance agent and have a face-to-face meeting. Have a general discussion about insurance trends and a particular discussion about you, your policy, any changes to your policy over the last 3–5 years, and what those changes mean to you. Get some real, common sense discussion and coaching from a trusted insurance agent.

Make sure you understand what coverage you have now and whether or not, between you and your insurance agent, you think that coverage is adequate. If it isn’t adequate, can you purchase extra coverage by paying an increased premium? Remember, typical insurance policies often come in three categories with increasing amounts of coverage: basic, broad, and comprehensive. Sometimes comprehensive coverage doesn’t cost that much more. 

Implementing the suggestions above and getting a firm grip on your insurance coverage will go a long way toward diminishing insurance surprises and unexpected losses.

For all your Alberta real estate legal needs, Contact Barry now!

“2017 Quebec Floods – Montreal” image by Coastal Elite used under CC Attribution Share-Alike 2.0.

Across Canada, there is an ongoing discussion about the lack of affordable housing. In some areas, developers won’t build rentals because building condos is more lucrative, because there are rent controls, or perhaps a combination of both situations. Some Canadians are completely priced out of the housing market—especially in the Great Toronto Area and the Lower Mainland of British Columbia. Even in Alberta, where I live and work as a real estate lawyer, affordable housing is an issue. One solution is increased urban density. This podcast/blog post is about the legal challenges of subdividing a single lot into two or more skinnier properties. If there is a mortgage on title, watch out!
 

Download the audio file HERE. Download the handout HERE. (control click or right click + save as)
 

A big part of the ongoing housing discussion is often around the never-ending growth of suburbs. Continual growth of mostly single-family housing chews up vast amounts of land, often prime, irreplaceable farmland. Huge pressure is placed on municipal resources. Servicing the new subdivisions costs more and more as suburbs expand. Developers pass on costs to homebuyers, which increases the cost of housing. This is an ongoing problem in many municipalities across Canada where there is room to expand.

Many municipalities, supported by provincial governments, believe that part of the answer is to allow increased inner-city density. If there are more and better housing choices available downtown and in the near suburbs, the theory is that suburban sprawl will be contained or at least slowed down. As part of the plan to increase density, some municipalities are allowing large lots to be subdivided. For example, a 50-foot lot could be split into two 25-foot lots. Upon subdivision, the existing house would be demolished and two new homes built. The existing property would then hold two homes rather than one, thus doubling the density. Whether or not this increases the stock of affordable housing is an arguable point, but that’s a discussion for another day. Very quickly, the homes built on the 25-foot lots came to be known as ‘skinnies.’
 

Recently, I had a client who purchased a home on a 50-foot lot, financing the purchase with Bank A. The plan was to subdivide the lot and build two skinnies. He found a builder, worked out his costs, and decided that he could make some money if he subdivided and built two new houses. The next step was to get financing for the two new builds, and off he went to Bank B. They loved the idea and fairly quickly approved him for two new first-mortgages. Happy guy that he was, our client told his surveyor to go ahead with the subdivision. Next, he obtained a demolition permit from the City of Edmonton and knocked down the existing house.

At this point the law firm, RMLO Law LLP, enters the picture. We get two sets of first mortgage instructions from Bank B, call our client, figure out what’s going on, and get two new files open. The subdivision had been completed, so there were two new lots and therefore two new titles. As we always do, we get copies of those titles and immediately noted that the same mortgage to Bank A was on each of the them. Why?
 

When you subdivide a property, unless you deal with the existing lender, the existing mortgage that was on one lot now appears on both new lots. Let’s say the existing property had been a really big 75-foot lot that ended up divided into three 25-foot lots. That same original mortgage on the one un-subdivided lot would now appear on the three new titles.

Let’s go back to an earlier part of this Tale. You will recall that Bank B sent us two new sets of mortgage instructions with a key requirement. Bank B wants to be first on title. They want their mortgage, their financial charge to be first in priority. But, they can’t be first in priority because Bank A is already on both titles.

As soon as we discovered the titles, I immediately call our client to ask, “Did you talk to Bank A about getting rid of their first mortgage?” “No,” he says, “I thought that once the two houses were built, I would use the profit to pay off the old mortgage.” He was already negotiating with two new buyers and, indeed, the draft contracts showed that the purchase price the new buyers were paying would generate sufficient funds to pay off that old mortgage.

Bank B had offered what are known as ‘draw’ mortgages, meaning they would advance funds to our client at various stages of construction with a final draw on completion. The difficulty is that Bank B wouldn’t advance any funds unless they were first on title. They wanted first mortgages on both lots.

Off our client goes to talk to Bank A. You can imagine how this went: “What do you mean you demolished our security?” “Why didn’t you come to us for your new financing?” “No, we won’t discharge or postpone our first mortgage.” Bank A was royally upset. They were not in any mood to make life easy for our client.
 

Our client was left with a huge financing problem because he could not get a draw on his new mortgages without the old mortgage disappearing. Luckily, we were able to help him find a workaround.

The solution, after much lost sleep, was to convert one of the two new mortgages from a draw mortgage into a completion mortgage. His builder agreed to build first and be paid when construction was completed. Only one new sale contract was firm, so we started with that one. Once that first new home was built and sold, our client was short $200,000 to pay out the old mortgage after paying the builder. He begged and borrowed to come up with the money, incurring heavy financing costs and using up much goodwill with friends and family. Now he is fine to build the second home because the old first mortgage has disappeared from both new lots.
   

1. If you subdivide a property with an existing mortgage, the full amount of the existing mortgage will appear on the title of all new subdivided lots.
2. If you need new financing to build on the new lots, check with your existing lender first.
3. Carefully work through what it will take to get rid of old financing. It’s tricky, with lots of steps.

  “Seely Skinny House Mamaroneck” by NOTABENE for Wikimedia used under CC Attribution Share-Alike 4.0.

I got an email recently from an unhappy investor about problems with his property manager in Edmonton. Real estate investing is all about relationships, and you need to be able to rely on the people in your team. Property managers are supposed to find tenants, collect rent, and deal with maintenance, among other things. The following Tale is an example of what can happen when you hire the wrong property manager—and how to do it the right way. The email is so descriptive I’m passing it along verbatim. See below:

Download the audio file HERE.
Download the handout HERE.
(control click or right click + save as)

Hello Barry,

We own a rental house in Edmonton. We found a guy to look after this rental property as our property manager.

He is a registered realtor and has no property management license. At the beginning, he mentioned his girlfriend had a property management license and would look after the property. But for the whole 7-month rental time, we never got a chance to see and talk to his girlfriend. We talked about signing a property management contract with him but he never got back to us. The only evidence we can provide are text messages about rental issues and receipts (we paid him 8% of monthly rent). These could prove he did management work for our rental and received the management fee.

The tenants did horrible damage to the house. Lots of scratches on the hardwood floor, holes/stains on the wall, heavy dark oily stains on the carpets, missing lighting covers for all lights, cigarette butts everywhere in the front/back yards, missing hardwood on stairs, broken hood fan and curtain. The whole handrail from the second floor to the first floor was loose because tenants grabbed the railing when they made the turn running down fast from second floor to first floor. Often, tenants texted our property manager about house issues, he just passed the message to me and I had to find somebody to fix issues.

He rented the house out without any walk-through with tenants. Because of his poor & unprofessional management conduct, we suffered substantial losses. Currently we have paid over $18,000 (damage renovation fee $12,000 plus 3-month vacancy). Please advise how we can, or even if we can recover the money losses.

Thanks,

Victor
(name changed for privacy)

Victor wants to know how he can recover his losses. First, with the greatest respect, Victor needs to learn about property management if he is going to continue to be an investor. Second, Victor can sue the dastardly property management due in Small Claims Court. If Victor has kept records and has photos/video, he should be able to prove to the court that they did not do their job. If the realtor and his “property manager” girlfriend are even still around, Victor has a decent chance at collecting his Small Claims Judgement.

This is certainly a nightmare for the investor who sent me the email! Here’s my take-away for all of you folks out there who own investment properties and rely on property management.

1.    Hire a licensed property manager.
The Real Estate Council of Alberta requires property managers to be licensed. The requirements for licensing vary by jurisdiction, so find out what the rules are in your own area. In Alberta, you don’t need a license to manage your own investment real estate.

2.    Use a property management agreement.
This document should set out the duties and expectations. Make sure that both parties read, date, and sign it.

3.    Meet with, check on, and give instructions to the property manager.
Although having a property manager can be a big help, it doesn’t mean that the landlord isn’t involved. You need to manage your manager. In this example, landlord Victor never even met the realtor’s girlfriend who was supposed to be the property manager.

4.    Don’t ignore warning signs.
A professional property manager would not just text the landlord that there are issues; they would generally fix the issues within the authorized monetary limit set out in the property management agreement. The email I received from Victor is a little vague on what those fixes were, but the fact that there were probably quite a number of them should have been a warning sign.

5.    Landlords should always do their own inspections.
Even with a property manager running the rental, it’s important for the landlord to see how tenants are treating their property. Don’t just leave this duty to your property manager. In this case, all the warning signs should have had Victor inspecting early and often. He could have stopped the damage before it got too bad.

The kinds of problems, issues, and trouble that Victor experienced were caused by failing to hire a licensed property manager, not doing that hire by the book, never inspecting the property, and not managing the manager. Of course, if you have a good property manager, you don’t need to micro-manage them. But stay on top of them until you are confident that they know what they are doing.

These are hard lessons. Hopefully my readers can learn from Victor’s mistakes. Don’t let this happen to you!

“Hands Home Protection Protect Guard Concerns Care” image by geralt used under CC0 Public Domain.

This edition of the Tales from the Trenches podcast features special guest Arden Dalik, a senior advisor in the Calgary office of Global Governance Advisors. Her Tale concerns a real estate investment project in Alberta presented to the REIN Group by a REIN member. Quite a number of REIN members invested in the project, including Arden. Unfortunately, the deal went bad, but I was able to come to Arden’s rescue as her real estate lawyer (aka Legal Eagle).

https://barrymcguire.ca/wp-content/uploads/2018/08/Deal-Goes-Bad-and-Lessons-Learned.mp3

Download the audio file HERE.

As always our purpose in Tales from the Trenches is to educate and be educated, getting better at real estate investing by learning from experience. This Tale is not a “poor me” story all. It is all about education, sharing, and, as Don Campbell so often tells us, “being in that tiny percentage of people who face adversity and push through it rather than run from it!”

At the time that this Tale started, Arden had been a REIN member for about 1 year. She owned 4 revenue properties, having purchased using realtors, from FSBO’s (For Sale by Owners), and through other REIN members. Arden also had a couple of joint venture partners. She was definitely a little beyond the rookie stage at that point—but still not an expert.

What Was the Real Estate Deal?

What Was Required to Invest?

Sellers Marketing Ideas:

How Was the Deal Structured?

Anyway… as part of the wholesale purchase agreement, the purchaser cleverly negotiated a financing plan that would make the properties more attractive to the investors. They all had assumable mortgages on them. He then negotiated a second mortgage as a vendor take-back in order to minimize the front-end cash closing costs required for investors to participate. This vendor take-back was for 6 months, which was designed to allow the investors time to renovate, market, and sell the property before they had to pay out the second mortgage.

How Did Arden Approach It?

What Went Wrong and How Could It Have Been Prevented?

It didn’t quite turn out the way we planned. (None of the Board Members have so far been nominated for the Miss Congeniality Award!!)… This was, as Oprah would call it, one of those Ah-Ha Moments! We have all learned an incredible amount about Condominium Corporations, which will help our present and future investments including:

Þ   Reading and understanding Reserve Fund Studies,

Þ   Understanding Condo Bylaws including pet and rental restrictions,

Þ   Balancing the needs of all owners in a complex,

Þ   Assessing the potential issues with the surrounding area, not just the immediate complex,

Þ   The cost of desired improvements to a large structure, and

Þ   Structuring special assessments.

The group of investors was incredible about sharing with each other. (Even with the “unpopular” Board Members). So in addition to learning about condos, out of creative necessity we also learned about:

Þ   Selling with wraps,

Þ   Structuring Lease Options,

Þ   Qualifying the condominium for CMHC financing, and

Þ   RRSP mortgages.

Then I called the seller and he tried to get a hold of the lawyer. He got back to me right away and said that there had been a problem in the lawyer’s family so he was “falling behind with his cases.”

6 weeks after many unreturned phone calls to the lawyer and some returned calls but unfulfilled promises, I finally had a “duh moment” and realized that I needed my own independent legal advice.

Real Estate is what happens while you’re making other plans! If you do your due diligence properly, then you can avoid a lot of problems before they become serious. But you should still be ready for Plans B and C; they may just turn out to be even more profitable than your original plan. Don’t panic, use your creativity, and call a real estate lawyer! If you need legal counsel for Alberta real estate, Barry is just a message away.

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“Real Estate Deal” image by Mohamed Hassan used under CC0 1.0 Public Domain dedication.

September 2016 (with mild tweaks in July of 2017) brought numerous and meaningful changes to the existing 2014 residential purchase documentation approved by the Alberta Real Estate Association (AREA). These changes affected both the Residential Purchase Contract used for all homes and houses and the Residential Resale Condominium Property Purchase Contract, used for condominiums. Existing wording has been modified and new wording added. As we go through our commentary, we will refer to the contracts as the 2014 contract and the 2017 contract. This podcast and the accompanying text explain the changes and what they mean for buyers, sellers, realtors, and lawyers dealing with real estate in Alberta.

https://barrymcguire.ca/wp-content/uploads/2018/05/Big-Changes-to-the-Standard-AREA-Contract.mp3

Download the audio file HERE.

20 years ago, the standard real estate purchases contract was one page and completely inadequate. AREA, with the help of the Multiple Listing Service, started a consultation process and spent a ton of money completely revamping the standard contract. Since that time regular revisions have been made, always with a view to making the contract better. Overall, we believe the changes are improvements in a continual improvement process that AREA has driven for near 20 years.

The results are improved contracts, schedules, addenda and notices. Buyers, sellers and realtors are all served well by this ongoing consultation process, which aims at better disclosure and plainer English for contracts that produce a clearer, more precise buying and selling experience. While I don’t expect you to be a lawyer, I do encourage you to read every scrap of legal paper that is put in front of you. Yes, it’s the standard contract, but the versions of the contract before this version were also the standard contract and things have changed. Read your documentation two or three times. Ask questions.

Our most successful clients never sign anything blindly; they know what’s in their contracts. Your best bet is to read this Tale along with copies of the 2014 and 2017 contracts. Ask your realtor for a copy. If you can’t get the 2014 contract, then at least read this handout along with the 2017 contract.

Alright, let’s get on to commenting on changes to the contract documentation. We’ll start with the Residential Purchase Contract for homes/houses. Separate comments will be made for condominiums. Some changes are of more interest to buyers and some more to sellers. Some should interest buyers and sellers equally. As we go through the changes, we will make supplementary comments on what is more important for whom.

The new 2017 AREA purchase contract replaces the old 2014 financial details clause that talked about deposits, assumption of mortgage, new financing, seller financing, and other value. The new clause 2.1 shows purchase price only. Clauses 4.3 and 4.4 deal with the initial deposit and additional deposits. Everything regarding new financing, assuming mortgages, seller financing, and other value has disappeared. According to AREA, the rationale for this change is that the portions regarding assuming mortgages, seller financing, and other value were rarely used. A buyer getting new financing is common but that required the buyer to insert principal amounts, interest rates, and other mortgage details that they weren’t sure about or that changed. This was a confusing clause.

Now, if buyers are getting new financing, it’s up to them to get their own new financing. The contract deals with their deposit(s) and the purchase price and the rest of the money is up to the buyer. This change is not a big deal but it changes the look of 20 years of previous contracts.

Should one of those rare situations show up where there is consideration of assuming a mortgage or seller financing or other value, then use the new financing schedule to provide details.

Vacant Possession: 2.3

If the buyer is accepting a tenant or tenants, there is a brand-new tenancy schedule where the seller discloses the details of the to-be-assumed tenancies. If the seller promises vacant possession but there is a tenant at the time of possession, then the seller attracts liability for his failure to provide the buyer what he promised.

Seller and buyer should work together to ensure that the appropriate notice has been given to the tenant with sufficient time pursuant to the Residential Tenancies Act and or the lease(s) that are in effect. Buyers might want to require the seller as a term of the contract to provide a copy of the Notice to Tenant.

Buyers might further want to speak with the tenants to make sure they have the notice and that they intend to leave. Yes, if a tenant doesn’t leave when they are supposed to, the seller has liability but that might require court action which is always time-consuming, stressful, and potentially expensive for both parties. Better to work on the practicalities of making sure the appropriate notice documentation has been given which the tenant acknowledges. Watch for any signs that they might be thinking of staying on when they should be leaving.

State of Property: 2.4

Comments: the additional words make it clear that the seller is representing and warranting the state of the property and the attached and unattached goods. This is a big change; previously the attached and unattached goods were not mentioned at all and the seller’s statements were not an enforceable representation and warranty that survives the closing. See s.6 for other seller representations and warranties.

Usually the kinds of things dealt with in this clause are what people referred to as “boilerplate” clauses and found at the end of contracts. 2017 emphasizes the importance of these things by moving them to the first page of the contract. This is an extensive clause.

Specifically:

1(d) clarifies the definition of ‘Business Day’ and specifically notes that Business Day includes all hours of the day.

1(f) strengthens the seller’s obligation to disclose ‘Material Latent Defects’. 2014 read, “except as otherwise disclosed, the Seller is not aware of any defects that are not visible and that may render the Property dangerous or potentially dangerous to occupants or unfit for habitation.”

Contrast this with 2017 3.1 (f) which reads, “the seller will disclose known Material Latent Defects. Material Latent Defect means a defect in the Property that is not discoverable through a reasonable inspection and that will affect the use or value of the Property.” There are at least three major changes in this changed clause.

Firstly, the word “defects” in 2014 is replaced by “Material Latent Defect” which is more precise and reflective of how courts look at this issue.

Secondly, “… Defects that are not visible…” in 2014 is replaced by “… A defect in the Property that is not discoverable through a reasonable inspection…”

Thirdly, the words “… may render the Property dangerous or potentially dangerous to occupants or unfit for habitation.” are replaced by “… that will affect the use or value of the Property.” Using the words “dangerous or potentially dangerous” in 2014 and adding that extra portion regarding “unfit for habitation” was too restrictive and subjective. It allowed sellers to make their own judgment about the meaning of “dangerous.” A defect that affects the use or value of the property is more encompassing and less subjective. Sellers should think carefully about agreeing to this general term.

1 (g) for 2017 states, “the seller and buyer are each responsible for completing their own diligence and will assume all risks if they do not.” While the clause refers to seller and buyer, this clause is really aimed at buyers. The seller might provide information but even if he does, it is up to the buyer to confirm to his own satisfaction. For example, the classic situation would be a seller saying a property is 1200 ft². The property turns out to be only 1060 ft², too bad for the buyer, he should have checked. Similarly, if the seller says the property is zoned for secondary suites and it turns out there is no zoning, then that is on the buyer. They should have done a further check with the municipality to confirm zoning.

1(h) is interesting. This clause requires the seller to put some effort into knowing and understanding the actual facts behind his representations and warranties contained in clause 6. Sellers often sign contracts without really considering their representations and warranties and then try to explain away later why those representations and warranties were not true.

This clause says that the seller will actually review his real property report, title to the property and registrations against that title along with determining his non-resident status for income tax purposes, determine dower rights, and actually do other research to be able to give informed representations and warranties. It’s tougher on the seller, but better for the buyer, if the deal goes sideways.

Failure to Pay Deposits: this is a brand-new section found in clause 4.5 of the 2016 Alberta Real Estate Purchase Contract. Here is what the clause says: “If the buyer fails to pay a deposit, by the agreed date, the seller may void this contract at the seller’s option by giving the buyer written notice.”

The new 2017 contract added these words: “The seller’s option expires when the seller accepts a deposit, even if late.”

Comments: The first change aims at certainty of deposits. The second change allows the buyer to still provide a deposit as long as the seller has not voided the contract. On balance, 2017 is probably a good change, as it would allow a buyer to keep the contract alive, especially if they were only a little late and the seller really didn’t object.

And, there is a brand-new one-page notice that assists the seller in voiding the contract. This change was put in place to get rid of uncertainty. When a buyer failed to pay a deposit, sellers were uncomfortable and uncertain if a contract would close. Deposits are often referred to as ‘good faith money.’

The theory is that, the bigger the deposit, the more serious the buyer. Now, especially in multiple offer situations, buyers who try and win the bidding process by putting up bigger deposits have more pressure to actually pay those deposits.

Release of Deposits: 4.8

“A trustee acting under this section will not be liable to the seller or the buyer for any loss arising from the disbursement of the deposits.”

Comments: This clause was in the September 2016 version but is gone from July 2017. I thought this was an excellent clause from my perspective of a lawyer who sometimes holds deposits as trustee or is on one side or another fighting to keep or have deposits returned. No trustee likes to be the arbiter of who is right or who is wrong in deposit return arguments. I’m not aware of the backgrounder on this but I would’ve preferred to keep the clause from 2016 in the July 2017 version.

Encroachments: 6(1)(e)(i):

Dower or Dower Rights refer to the requirement of Alberta legislation, (the Dower Act), that a non-title spouse consent to the sale of a property. So, if a titleholder is married, (not common-law), but on title by him/herself and if either of the spouses have ever lived in the property at any time since their marriage, the nontitle spouse has what they call ‘Dower Rights.’ The nontitle spouse has the ‘right’ to not give their consent and thus stop the sale. Clause 7 in the 2016 Alberta real estate contract makes Dower Consent a condition.

Previous contract versions only suggested that Dower Rights be considered and dealt with. Now, if the seller does not provide the Dower Consent from the nontitle spouse, the buyer can void the contract. This is a similar procedure to the seller’s right to void the contract if a buyer doesn’t pay deposits in a timely manner, (see paragraph 4 above). And, there is a specific one-page notice form for the seller to use in voiding the contract should the Dower Consent not be provided. Under clause 18 there is also a separate place for a non-title spouse to sign accepting the offer. This doesn’t do away with the requirement of Dower Consent but makes it clear that Dower must be dealt with.

The July 2017 version adds these words: “The buyer’s option expires when the seller delivers the Dower Consent and Acknowledgment form, even if delivered late.”

Comments: it looks like the reasoning for the addition of this clause is similar to that surrounding the deposit clause where the buyer can deliver deposit money late as long as the seller has not exercised his void option. Here the seller can deliver the Dower consent late as long as the buyer has not exercised his void option. Both the deposit and Dower changes are corrective and allow contracts to proceed with certainty as long as timelines are observed.

Now makes it clear that buyer and seller will each pay for the costs related to their own conditions. Occasionally some condition satisfaction situations resulted in one party claiming against the other, so this change should eliminate that potential dispute.

Not too long ago, anyone could hang out their shingle and call himself or herself a home inspector. Now, home inspectors must be licensed in Alberta. The new Alberta real estate purchase contract in clause 8.2 (b) requires inspections to be done by a licensed home inspector. No more having your brother-in-law the carpenter, or your grandpa who used to build houses, be your inspector. You are still allowed to do other diligence such as a furnace inspections or a sewer camera inspection.

September 2016 read, “the buyer will pay the Purchase Price by lawyers trust cheque, bank draft or electronic transfer.” July 2017 deletes “or electronic transfer.”

Comments: No background on this change, although I suspect that some lawyers objected to being obligated to accept an electronic transfer as those transfers are sometimes difficult to verify and can be subject to fraud. Perhaps some unrepresented sellers did not want to be obligated to accept an electronic transfer.

This is an un-numbered clause appearing right after 18. Previously, if an offer or counteroffer had been made, there was no mechanism in the contract itself for one party to advise the other that they were not accepting the offer/counteroffer. Parties would wait until a conditional time had passed without removing or waiving conditions, which automatically voided the contract. Or they would have to use an addendum and create their own words to say they were not accepting the offer/counteroffer.

This sometimes lead to unreasonable time delays where parties wanted to simply say they were moving forward but found it difficult to do that in the old contractual process. The new 2017 AREA purchase contract makes this easy by adding words at the very end of the contract on page 6.

“The following is for information purposes and has no effect on the contract’s terms:

      REJECTION

      I do not accept this offer/counteroffer. No counter offer is being made.

      Signature and date”

Nice and neat, timely and tidy. If one party doesn’t like deal, they reject and the contract is over.

The 2014 AREA purchase contract had a property inspection clause. The very subjective clause read as follows: “This contract is subject to the Buyer’s approval of a property inspection.”

Using this clause gave the buyer the option of using the Property Inspection Schedule. The schedule, if used, added some terms to this condition around how the buyer could refuse to waive the condition. Those terms were:

If the inspection revealed details not acceptable to the buyer. This was a unilateral clause allowing the buyer to reject the inspection for any reason. Careful or suspicious sellers saw this as an, “out” clause for a buyer. If the buyer doesn’t like the colour of the paint or the lino in the kitchen that’s all he needs to get out of the deal.

The defects revealed exceeded a percentage of the purchase price, or;

The defects revealed exceeded a dollar figure

This clause caused a ton of problems: before property inspectors were licensed, they often gave the buyer a quotation to fix the problem. Now inspectors can’t do that as part of their licensing regulations. If an inspector identifies difficulties buyers now have to get independent quotations. This results in a long condition period, which no one likes.

Buyers and sellers would fight about quotes. Sellers thought buyers often got quotes that were outside the percentage or dollar figure allowed just to get out of the contract.

The old Property Inspection Schedule required the buyer to give the seller a copy of the inspection report if the buyer did not remove conditions. However, the property inspectors’ regulations and insurance coverage often prohibited the buyer from providing their report to anyone else.

Some sellers didn’t like getting a bad inspection report that obligated them to then reveal material latent defects to their next buyer

Although the Property Inspection Schedule is not part of the current set of forms, buyers can still add their own financial or other restrictions on any property inspection condition. Buyers and sellers must take care that they don’t re-create the problems raised by the old Property Inspection Schedule.

Final Signing:

Basic contract law says that legal obligations begin when acceptance of a contract is communicated to the other party. To clean this up the 2016 and 2017 AREA purchase contracts deleted the Final Signing clause. The relevant words are as follows: “The legal obligations in this contract begin when the accepted contract is delivered in person or sent by fax or email…”

Email acceptance:

Clean ups:

overall the 2017 AREA contract entitled, ‘Residential Purchase Contract For Resale Condominium Property’ follows exactly the format of the 2017 AREA Residential Purchase Contract. The only adjustments are for issues specific to condominiums. Some of those issues are:

Property description:

Condominium documents:

Cost of condominium documents:

Condominium fees/contributions:

Special Assessments:

The 2017 contract deletes these words, “Unless the Buyer and the Seller otherwise agree in writing…” Now the clause begins with “Regardless of when a resolution is passed…” Buyer and seller could still agree in writing that the clause might not apply but the 2016 clause attempts to eliminate any discussion by simply saying who has what responsibility when.

The 2014 contract refers to a “special resolution” where the 2017 AREA condominium contract refers only to a “resolution.” This change ensures that the special assessment will be by resolution but eliminates the issue of buyers and sellers trying to guess whether the bylaws of a particular Condominium Corporation require a ‘resolution’ or ‘special resolution.’ As long as the special assessment is resolved, the responsibilities are as indicated in the clause.

Lastly, the 2017 AREA residential purchase contract for resale condominium property includes the word, “levied” in reference to a special assessment.

In other words, a Condominium Corporation might have resolved to implement a special assessment but for the seller to be responsible for a special assessment resolved prior to noon on the completion day, the Condominium Corporation has to actually have levied which means they have given official notice to owners of the special assessment and its terms of payment. This is a subtle but important change in responsibility for special assessments. And, it’s a great illustration of why new contracts need to be read in detail. It’s a one-word change that could mean a huge difference to both buyers and sellers when the special assessment is $60,000.

Overall the new 2017 AREA Residential purchase contract and its sister form for condominiums are an improvement over the 2014 area contracts.

The 2017 AREA contracts are strongly recommended for use by buyers and sellers with a further strong recommendation that all parties read the contracts a number of times and get a thorough explanation from both the realtors and their lawyers where required.

Barry McGuire is senior counsel at Field Law in Edmonton, Alberta. With over 40 years of experience as an attorney, Barry’s practice emphasizes buying and selling houses, homes, condos, townhouses, apartments, acreages, and more; send him a message today!

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“House renting, buying, selling contract” image by Mark Moz used under CC Attribution 2.0 Generic.

Real estate can cause all kinds of problems when a family member passes away. First, it can take a long time before the will is executed and the inheritor is actually in control of the property. Second, the person who inherits the property also inherits the financial responsibility (mortgage, taxes, etc.), which they end up responsible for even before they own the real estate! This Tale is about what happened when someone inherited a piece of property and almost went into foreclosure with it.

https://barrymcguire.ca/wp-content/uploads/2018/05/Estates-Are-Tricky.mp3

Download the audio file HERE.

Here’s a great story from Mike Parker (known simply as ‘Parker’) of Edmonton’s Mogul Realty Group about inheriting a piece of Alberta real estate. In his own words:

Hey Barry,

Parker here…

So a little background for my sister’s situation. We have the same dad but different mom—so my half-sister.

So her mom passed away and my sister inherited the property. 3 bed, 1½ bath condo townhouse right by West Edmonton Mall. It sat vacant for almost a year waiting for probate to go through, all the while her trying to keep up with the payments.

She fell behind and there was 126k owing on the mortgage, she owed about $1,200 in property taxes and $3,000 in condo fee arrears and $2,500 for the condo lawyer’s caveat. Plus the place was in terrible shape. Needed 30-40k just to bring it up to shape. The bank started knocking on the door and served her in January and said she had 21 days until she’d be foreclosed upon.

This was before I was officially licensed as an agent and I figured I could flip it. So I called Calvert Home Mortgage and I was gonna flip it. I was all lined up to flip it with a joint venture (JV) contractor but… he backed out last minute. 2 weeks until the bank forecloses on her. Clock is ticking.

I figured next step was to assign the contract. So I blasted it out to my list and, wouldn’t ya know, a REIN member calls me up and meets me at the property the next day. I was advertising it at 144k with me taking a $5,000 assignment fee, my sister gets 139k and gets out with a clean slate. He and his JV partner talk about it and are pretty happy.

However a little more digging and they can’t take it at 144k…the numbers just didn’t quite work. We figured out their bottom line was 138k.

Wouldn’t ya know it with all the bank’s lawyer fees (that my sister had to pay for), the mortgage, plus all the arrears, were about $138,400.

So I wanted to help my sister obviously and I wanted this REIN member to get the property. So I let go of the assignment fee and we got the property sold with 3 days to spare at $138,000. My sister was relieved to get out basically scot-free (and not get foreclosed upon!). And the REIN member should have a conservative after-repair value (ARV) of about $225,000 and be able to be in and out in 3–4 months!

And they now know I’m a licensed agent too, so it may be beneficial down the road in that way too!

So Barry… overall it was truly a win-win-win. It was pretty cool how it all came together. I hope this makes a great Tales from the Trenches story!

For all your Alberta real estate legal needs, Contact Barry now!

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“Last Will and Testament” image by Ken Mayer. Used under Creative Commons Attribution Generic 2.0