Tales from the Trenches

Sometimes a “sure thing” can come apart at the last minute. In this Tale, we have a buyer who found her dream home and was all ready to purchase. Or so she thought! Unfortunately, an inspection revealed major problems with the foundation. She was able to negotiate a reduction in purchase price, and so she went unconditional on the deal. But then the bank pulled her fully approved financing and left our buyer scrambling to save her dream home—as well as her $60,000 deposit. In the end, she found a solution, but this could have gone better if she had kept her financing condition on the deal until she was surer of the situation.

Download the audio file HERE and the text/handout HERE.

This Tale starts in 2014 when my client was moving from Airdrie to Edmonton. Married with a couple of kids, the Airdrie property was in her husband’s name. This was a good job transfer for her and her husband. They came up to Edmonton on a couple of weekends and looked around. It didn’t take long to find their dream home at a price of $690,000.

They put an offer in at $680,000, which was accepted. They were pre-approved for an 80% mortgage. Once they had an actual real estate purchase contract to look at, the bank reviewed that contract and quickly gave them an unconditional mortgage on their new home. With that unconditional approval in hand, they removed their financing condition. They had not yet removed their inspection condition.

Their dream home took a big kick when the inspector said that the home had foundation issues. They hired a contractor who told them the repair would be about $80,000. A second opinion confirmed that number. Back to the seller they went with the inspection in hand. After much negotiating, the price was reduced from $680,000 to $600,000. Whew, problem solved! Enough of a price reduction to allow for fixing the foundation and they breathed a sigh of relief as they removed their inspection condition… not so fast!

As part of full disclosure, their mortgage broker provided the big bank lender with a copy of the revised offer showing the price reduction. The bank wanted to know, “ why the reduction?” After being provided with the inspection reports. Guess what? The bank did not like the situation and yanked the financing.

Closing was only five days away and they had an unconditional deal and no financing. Their $60,000 deposit was at risk. The seller gave them a one-week extension, but they couldn’t get new financing approved in that short time frame. The seller refused further extensions.

With only a few days to close, they were frantic. The only lender who could work with such a short time frame was a private lender. Private lenders charge big interest rates; in this case it was 10% for a one-year term. However, the alternative was losing their dream home and their $60,000 deposit, as well as potentially being sued by the seller. So, they signed up with the private lender and closed the deal.

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

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“Financing on Chalkboard” image by GotCredit used under CC Attribution 2.0 Generic.

Did you know that a land survey certificate of building locations on a property is no longer valid if there have been improvements like a deck or a garage? In the Canadian province of Alberta, an up-to-date Real Property Report (RPR) is a requirement built into the standard sales contracts used by realtors. As a seller, you either need to get a current RPR or find a way to amend that clause. In this Tale, we have two sellers who had to deal with their RPRs being out-of-date.

Download the audio file HERE and the text/handout HERE.

Most jurisdictions have a form of property description document that is prepared by a professional land surveyor. In Alberta, it is a ‘Real Property Report’ (RPR), which is is what we used to call a ‘survey’ or a ‘building location certificate.’

Land surveyors have extensive post-secondary education that trains them to prepare that document. The surveyor uses his/her training and sophisticated instrumentation to draw the boundaries of a particular property. Then, within those boundaries, s/he locates and draws in representations of all the improvements to the property. Very quickly you can see the house, the garage, the hot tub, decks, fences, planters, and all other improvements. Each of those improvements is measured for its own dimensions and its relationship to the boundaries of the property. How far is the house from the side boundary? How big are the side yards? How close is the garage to the alley?

Why is this important to you as a seller? Well, let’s go back to when you were a buyer. Alberta is different from most other provinces in Canada. In Alberta, the standard Alberta Real Estate Association (AREA) contract is used by most realtors. That contract says that the seller will provide the buyer with a current RPR and evidence of municipal compliance. Most other provinces say that if the seller has an RPR, he has to give it to you, but if he doesn’t have it then it’s up to you as a buyer to decide whether you want to get an RPR as part of your diligence.

When a seller says, for example, that s/he does not have a current real property report because the new garage is not on that old RPR and would you as buyer accept Title Insurance in lieu of an RPR? The answer is NO! When you are buying, stick to your guns. Get that current RPR and compliance if you possibly can.

Remember, we were talking about why this is important to you as seller. When you are selling, the obligation is on you to provide a current RPR and compliance. So, if you got these documents when you bought and if you have made no changes to the outside footprint of the property, then, no worries. Almost always, you can simply pass along what you got when you bought to your new buyer when you sell.

But, what if you didn’t get an RPR when you bought, or if you accepted an RPR that showed some difficulties with the property or if, after you bought, you added to the outside footprint of the property? Now, as seller, you have a problem. You are faced with the standard seller’s obligation to provide a current RPR and written evidence of municipal compliance. If you didn’t get this when you bought, you have to be very careful when you sell.

What to do? Here are two examples of how this affected sellers.

In example number one, our investor accepted an RPR when he bought that did not show a small deck at the rear of the property. He kept the property for three years and then sold it. He did not modify the standard AREA contract and simply promised to provide a current RPR and written evidence of municipal compliance.

The buyer’s lawyer quite rightly said, “this RPR doesn’t show the deck. Please have the RPR updated and then submit it to the city for compliance.” The city, of course, noted that there were no permits for the deck and that some of the construction was offside city bylaws. By the time permits were applied for, the deck corrections made, and the RPR re-submitted to the city for compliance, this was a $2,500 bill!

In our second example, our seller got a nice new RPR and compliance when they bought. Six months after taking possession, they added fencing to the property. Instead of simply signing the contract with the standard RPR clause, they called me to discuss the situation. My advice was to delete the standard RPR clause (currently 4.11 in the AREA contract) and to delete some of the warranty clauses (namely 6.1.d, e, and f). Then, add these words to the terms section (currently 7.6) of the contract: “Seller will only supply and buyer accepts that RPR dated March 25, 2009.”

Here’s the thing. I totally get it that RPRs and compliances are not something anyone deals with every day, not even me. So, expecting anyone to remember what RPR information they received when they bought and balance that off against the intricacies of contractual RPR obligations three years after they bought is simply asking too much. So, what can you do?

Fortunately, this is an easily solvable problem. The trick is, you just have to remember that it’s an issue.

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

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In my 40-plus years of experience as a lawyer, I have observed many common situations that real estate investors have the same questions about. My answer is: it’s all about The Basics. One of those questions is how to be a landlord. As an attorney, I suggest that one of the most important parts of being a landlord is carefully following the legal rules for renting properties. In order to do this, you need to know the law in your area. Luckily, governments usually have all kinds of resources to help people who aren’t lawyers to learn the rules. You also need to have a system in place that makes sure you can consistently do things by the book. In this Tale from the Trenches, we have a property manager who unlawfully evicted a tenant, and a landlord who paid the price.

Download the audio file HERE and the text/handout HERE.

As real estate investors, our perfect world would be something like this:

That would be a perfect world, but real estate investing—and life—aren’t perfect… anything but…

Over the last 40-plus years of being a lawyer, and after having handled approximately 25,000 transactions, I have discovered that every mortgage application, every tenancy, and every deal has its own wrinkles, crinkles, ups, and downs. However, there are many situations that keep coming up, time and time again, which raise basic questions that real estate investors need the answers to.

Having answers to those repetitive, recurring situations will help you move forward with your business of real estate. These answers will be valuable tools in your real estate toolbox, enabling you to quickly deal with those ever-present puzzles and questions that come up constantly in the world of real estate investing.

So, where are your answers coming from? The answer is, from a great understanding of The Basics.

The Basics recognizes three realities.

Reality # 1:

Reality # 2:

Reality # 3:

We are going to look at those situations that keep coming up and get into the details. This Tale from the Trenches is all about the legal side of landlording.

There is a lot more to successful landlording than just the legalities, but understanding your legal obligations is very important. Why? Because, as a landlord, you are governed by the laws of the legislative district where you own property. I will focus here on the Canadian province of Alberta.

There are a number of laws that affect being a landlord.

The most important pieces of legislation that you should be very familiar with are the Residential Tenancies Act (RTA) and the Residential Tenancies Ministerial Regulation (Regulation). See other important regulations below. You can find these and other applicable laws on the Internet. You can view online, print, or order your own specific copies, but read and be ultra-familiar with these important laws.

Next, Service Alberta, an arm of the Alberta Government provides a wealth of information online. One very helpful resource is the RTA Handbook. Here’s what they say on the Service Alberta website (accessed April 12, 2016):

This Handbook is designed to explain the rights and responsibilities of all tenants, landlords, and agents involved in renting residential premises in Alberta under the Residential Tenancies Act (RTA) and regulations:

RTA Handbook – in black and white (pdf)

A Checklist for Tenants (pdf)

A Sample Cleaning List (pdf)

Inspection Reports (pdf)

RTA Offences (pdf)

What a great way to get up to speed quickly!! My strong, strong suggestion is that you read the RTA Handbook from beginning to end. Then read the frequently asked questions (FAQ) on the Service Alberta website. Between the RTA, Regulation, RTA Handbook, and the FAQ, you will soon have a very good understanding of how landlording works from the legal side.

Complying with the law

You just have to understand that if there is ever a problem and you are in Provincial Court or in front of the Residential Tenancies Dispute Resolution Service (RTDRS), the Judge or Hearing Officer will listen to the facts, look at your paperwork, and apply the law. It’s all there in the RTA and the Regulation, which is all explained in plain English in the RTA Handbook and the FAQ. The more exactly you comply with the law, the better your chance of having problems resolved in your favour will be.

RTA Offences

Don’t obey the rules?? You could be warned, fined, or taken to Court. There are lots of offenses. My perception and anecdotal understanding is that charges are rarely laid except in very serious cases and even fines are relatively rare.

Even though fines are rare, it doesn’t mean they don’t happen.

Here are just three examples. Beside each offence is the maximum fine on conviction of the offence as well as the specified penalty for a violation ticket.

As I said, charges and fines are rare, but don’t be the exception that proves the rule! Now, let’s have some more information with thanks and a tip of the hat to the RTA Quick Reference Guide.

The RTA does not apply to:

Fixed-term Tenancy Agreement Definition and Comments:

Periodic Tenancy Definition and Comments:

Implied Periodic Tenancy:

Inspection Reports

The Residential Tenancies Act (RTA), section 19, and the Residential Tenancies Ministerial Regulation section 4, speak to the topic of inspection reports. It is mandatory for landlords and tenants to complete both a move-in and move-out inspection report.

The following requirements apply to Inspection Reports:

Security Deposits (a.k.a. Damage deposits)

The Residential Tenancies Act (RTA), allows a landlord to ask a tenant to pay a security deposit (sometimes called a damage deposit). The deposit is held in a trust as a security for damage and cleaning costs, unpaid rent, and any other obligation of the tenant to the landlord.

Purpose of a Security Deposit:

Amount of Security Deposit:

Non-refundable Fees

The Residential Tenancies Act (RTA) does not prohibit a landlord and a tenant from agreeing to non- refundable fees and charges that are in addition to the security deposit and rent. The following points apply to additional fees and charges:

As you are getting started, it might seem like there is way too much information to figure out and really understand. But, it’s all pretty straightforward and, just like any other job or skill, the more effort you put into understanding how landlording works, the better you will get at it.

Now, let’s get out of the theoretical and into the practical. Following is the case of Krause v. Bonin decided in the Provincial Court of Alberta. I have edited the case for easier reading, but if you want to read the full version, you can view it in the CanLII database. For research on other landlord and tenant issues in the CanLII database, just enter “Residential Tenancies Act.” There is lots of interesting reading,

This real case illustrates what happens when landlords or their property managers don’t know the rules.

In the Provincial Court of Alberta

Between:

Plaintiff           Shelby Krause

– and –

Defendants      Robert Bonin and Kazacka Ltd.

Summary of the facts:  March 1, 2010 the tenant, Ms. Krause (‘the tenant”) and her friend, Ms. Arnold, entered into a “month to month” residential tenancy agreement with the landlord, through Mr. Bonin, ( the property manager) for a unit in an apartment in Red Deer, Alberta. The rent was paid in a timely manner until July 1, 2010 when it was paid late. The rent due August 1, has not been paid.

Beginning on August 1 at noon, Mr. Bonin’s office repeatedly left messages on the tenant’s cell phone and contacted her known friends and family instructing them to have her call. There was no response.

On August 6, Mr. Bonin attached a “two week” notice to the apartment door purporting to terminate the tenancy as of August 20 for non‑payment of rent. While not relevant for the purposes of this analysis, the notice was ineffective as it purported to require payment of administrative fees or penalties in addition to rent in order to nullify the notice (contrary to s. 29(2) of the Act), and did not properly calculate the required notice period, which is exclusive of the date of service and the date of expiry.

On August 9, another tenant complained of an odour coming from the suite. When Mr. Bonin attended, it appeared to him that no one had been in the apartment since August 6, as the previously posted notice remained in the doorjamb. He decided to enter to “take a look.” He says he that what he observed led him to conclude that the tenant had abandoned the suite. This included various scattered items of furniture, insects, and some spoiled food on the counter and in the fridge. Mr. Bonin belatedly posted a 24-hour notice of his intention to enter the premises on the apartment door, and returned on August 10. On that day he had the locks changed and sent a letter to the tenant decreeing that as she had abandoned the suite, her personal property was being stored or disposed of, she was responsible for the associated cost, and threatening that criminal charges may result if she returned to the building or her apartment. The letter was sent to her mailbox at the apartment.

As it happens, Ms. Krause was pregnant with her first child. Around the first of August, she began having difficulties with the pregnancy and was staying at her mother’s house. In June her roommate had moved out, leaving the responsibility for the rent in her hands. In early August her assistance cheque was not available on time to pay the rent. She went into early labour on August 6 and had her baby on August 9.

About this time she learned of the notice by the landlord purporting to terminate the lease on August 20. She could not afford the rent and the various administrative penalties that were being demanded. She returned to her suite on August 10, to pick up some of her property including her baby things. She found the locks had been changed and she had no access to the apartment or her personal property.

On August 12th, Mr. Bonin had the tenant’s property removed and the apartment cleaned. He disposed of any items he deemed a health hazard, and put the remainder into storage.

On August 25th, he met with the tenant and advised that in order to recover any of the remaining property she would have to pay the moving and storage costs, which he estimated at over $1,000. She did not agree with this demand, confirming in her letter of August 27 that she had not abandoned the suite.

On September 28, as the impasse had not been resolved, Mr. Bonin determined that the value of the items stored was under $2,000.00 and he disposed of them believing he had the authority to do so under s. 31 of the Act. Some items were taken to the landfill and some sold at what he decided was fair value to persons who assisted him with the cleaning of the apartment and removal of the property.

It should be noted that considerable effort was devoted by Mr. Bonin and his witnesses at trial to describe the dirty and unsanitary condition of the apartment. However the photographs taken by him did not show anything close to the conditions described. This seemed odd, as a landlord normally makes an effort to take photos that clearly depict the unsatisfactory condition or disorder of the premises. While I am satisfied that the apartment was not in a very sanitary or clean condition, when considered in light of the other findings in this case, one is left with the conclusion that this evidence was exaggerated.

Issue #1. Upon electing to treat the tenancy at an end, did the landlord have the right to change the locks and retake possession of the apartment on August 10, 2010?

Mr. Bonin took the legal position on behalf of himself and the landlord that the tenant had abandoned the apartment, or at the very least that he had reasonable grounds to believe that to be the case, and that this allowed him to break into the apartment and dispose of her property.

The Residential Tenancies Act SA 2004 (“the Act”) is a comprehensive statute outlining the rights as between landlords and tenants. A tenancy can only be terminated in accordance with the act. Any waiver or release by the tenant of the rights, benefits or protections of the Act is void (s. 3(1)).

Section 27 of the Act codifies the landlords rights when the landlord believes that the tenant has abandoned the premises or otherwise repudiated the lease.

27(1) If a tenant by abandonment of the residential premises or otherwise gives the landlord reasonable grounds to believe that the tenant has repudiated the residential tenancy agreement, the landlord may either

(a) accept the repudiation as a termination of the tenancy, or

(b) refuse to accept the repudiation and continue the tenancy.

(2) In the case of a periodic tenancy, for the purposes of subsections (3) and (7), the tenant’s acts of repudiation constitute a proper notice effective to terminate the tenancy on the earliest date that the tenant could have terminated the tenancy under this Act.

(i) in the case of fixed term tenancy, until it would have expired had the landlord not accepted the repudiation, or

(ii) in the case of a periodic tenancy, until the termination date.

Mr. Bonin changed the locks and removed Ms. Krause’s property ‑ acts which were consistent only with electing to terminate the lease. Upon an election to terminate the lease, s. 27(2) applies. Any acts of repudiation “…constitute notice effective to terminate the tenancy on the earliest date the tenant could have terminated the tenancy under this Act”. The earliest the tenant could have terminated would have been with a 30 day notice under s. 8(1)(a). Section 8(1) (a) provides that a periodic monthly tenancy has to be terminated by the tenant on or before the first day of a tenancy month to be effective on the last day of the tenancy month. As Mr. Bonin claims to have become aware of acts of abandonment or repudiation after August 1, 2010, notice to terminate the tenancy would have been effective on October 1. In other words, when there are facts sufficient to constitute acts of repudiation (including abandonment), the Landlord is in the same position as if he were provided with a 30 day notice by the tenant under s. 8(1).

Other than proceeding with the consent of the tenant, the Act provides for no right outside of a court order to terminate the lease or retake possession until the notice period in s. 27(2) expires. Mr. Bonin’s actions were not consistent with the statute. His retaking of possession on behalf of the landlord was unlawful, in breach of the covenant for quiet enjoyment under s.16 and the prohibition concerning the changing of the locks in s.24.

In the vast majority of situations where the rent will be in arrears concurrent with the tenant vacating or abandoning the premises and the landlord can terminate and if necessary get an order for possession on an expedited basis using the 14 day notice provisions. The situation is very different if the landlord wishes to terminate solely on the belief the tenant has abandoned or repudiated the lease.

Mr. Bonin’s entry for the limited purpose of dealing with the odour, any insect infestation, and to determine if there had been abandonment was justified under s. 23(2).

Issue #2: Did the landlord have the right to remove the tenant’s personal property, detain it and then dispose of it in accordance with s.31 of the Residential Tenancies Act?

No. Section 31 of the Act applies to abandoned goods. The tenancy here had not expired or been properly terminated. Further, Ms. Krause testified she had not abandoned the premises. Accordingly s. 31 does not provide any authorization for seizing her property.

Damages: The main purpose of damages in cases of trespass to chattels is to put the person who suffered the loss into the same position, as much as possible, as she was in before the loss occurred. The onus is on the person suffering the loss to prove the value of the loss on a balance of probability.

All of the circumstances should be taken into account. The loss is usually determined by assessing “actual value”. This is not the same as replacement value or market value, but the pecuniary loss suffered by the claimant. In coming to a conclusion about actual value, evidence respecting replacement value less depreciation and market value is admissible, but is not conclusive. It is simply considered along with any other evidence.

A second list of items prepared by Ms. Krause contained more items than the first list, more detailed descriptions and dollar values totalling $10,570.00. The evidence of Ms. Krause and Ms. Arnold was that when the court required a better accounting of the loss for trial purposes, they sat together and on a room by room basis, tried to recall what items were in the apartment. They looked up the cost of similar goods on a Wal-Mart website.

I am satisfied that an honest effort was made to list the property lost. I am not satisfied that the second list contains an accurate representation of the quality of the items. This was not due to any intent to deceive, in my view, but is attributable to the witnesses not being familiar with the technical difficulties encountered when calculating actual value for the purpose of damages.

It was, however, apparent from the exhibit photos that the furniture in the apartment was of low end quality, some in need of repair, and was generally consistent with furniture and belongings which were second hand and of a type collected by a young person just starting out on their own.

Further with respect to the issue raised as to whether some items, such as clothing, were present on the property, I would accept the evidence of Ms. Krause and Ms. Arnold over that of Mr. Bonin and his witnesses. The removal of the tenant’s property was conducted over a period of time when a number of people had access to the apartment. There was no impression gained from the evidence that the inventory by Mr. Bonin was carefully supervised.

Looking at all of the evidence, I determine the loss in favour of Ms. Krause to be $4,000.00.

In addition I find that an award for non‑pecuniary general damages is appropriate considering the emotional effects and inconvenience suffered by Ms. Krause. There were serious and ongoing breaches of the Act, and disposal of virtually all of her worldly goods, including those she was relying on to take care of her newborn. Replacement of the various individual items has or will involve considerable time, effort and inconvenience. The award in this regard is $2,000.00.

Counterclaim by the Landlord: Mr. Bonin submitted an invoice whereby the costs of the seizure and cleaning of the premises were calculated. It was apparent on cross examination that the invoice was not based on independent billing by third parties or records of actual time spent, but on Mr. Bonin’s ruling of what was appropriate. One invoice appeared to be from an independent company, but was calculated and issued by Mr. Bonin. Many of the persons involved in the seizure or cleaning were paid in cash or in kind, with no accounting record. Administrative fees and fines were assessed, apparently with no reasoning behind their quantum other than Mr. Bonin’s judgment of what he felt was fair. All in all, the amounts claimed were generally unverified, related to illegal or unauthorized activities, or constituted penalties for which relief from forfeiture would and does apply.

With respect to cleaning costs, while the apartment wasn’t in pristine condition after the Landlord’s agent retook possession, Ms. Krause was deprived the opportunity of cleaning the property by the Landlord’s breach of the lease. Therefore the cleanup costs, other than the sum of $50.00 for the work required to deal with the rotting potatoes, are not established.

The total owing for damage deposit offset against the rent, and the allowed cleaning costs is $495.68 ($775‑50‑229.32), in favour of Ms. Krause against the landlord.

The final total of the judgment in this matter is in favour of Ms. Krause as follows:

–   as against Kazacka and Bonin, jointly and severally, the sum of $6,000.00;

–   as against Kazacka only, $495.68.

In the event that any party wishes to speak to the issue of costs, they can bring the matter forward within 30 days for that purpose. Otherwise, Ms. Krause is entitled to a cost as against the Landlord and Mr. Bonin, jointly and severally, in the sum of $800.00, inclusive of all disbursements. While this exceeds the usual tariff, the trial was lengthy and involved.

Dated at the City of Red Deer, Alberta this 24th day of May, 2011.

 J.D. Holmes

A Judge of the Provincial Court of Alberta

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

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“Woodfall’s Law of Landlord and Tenant” image by umjanddoan and used under CC Attribution Generic 2.0.

It’s sad to say, but there are dishonest people out there. Some real estate buyers, sellers, lawyers, and realtors will try to pull the wool over your eyes. A classic trick unscrupulous people use is to slip a clause into a document or take one out without you noticing. Luckily you can protect yourself from this and keep them in check by making sure to read contracts thoroughly, as well as to reread them after every round of negotiation and/or amendments. Vigilance is a necessary aspect of due diligence.

Download the audio file HERE and the text/handout HERE.

Wha??? Barry, tell me it isn’t true!!!

Sorry, folks, it is true. I remember helping Don Campbell an apartment deal where was having a long, difficult set of negotiations with a seller. They went back and forth with numerous changes being made to the documents. When the final set of documents came to Don’s desk, he and I then gave that final version a very thorough going over. We discovered that the seller had reinserted a clause that we had removed from the lengthy contract three versions ago. The seller slipped it back in giving himself a huge advantage. However, we caught it, and we learned the hard lesson that some people are not honest. You have to read, reread, and check documentation especially when there are custom contracts.

One of our clients recently learned this lesson again in a Rent-to-Own deal. He had done a number of Rent-to-Own deals, and found that his legal accounts were quite a bit larger than they would be for a normal Buy-and-Hold deal. He completely understood that creative real estate takes more legal time, and therefore generates larger legal accounts, but he wanted to try to defray those legal expenses. His approach with a tenant buyer was to insert a term in clause 7.6 of the standard MLS real estate purchase contract to the effect that the buyer would pay the investor’s legal account to a maximum of $1,500.

When we sat down to review his most recent Rent-to-Own deal where the tenant was ready to buy the property, he gave me a copy of the signed contract. Then he took great pains to point out to me clause 7.6 where the buyer had agreed to pay our client’s legal account up to, but not exceeding, $1,500. “Duly noted” I said. “We’ll make sure that the buyer’s lawyer is aware, and we will advise them that $1,500 would be added to the price in the statement of adjustments.”

So, that’s what we did. In communicating with the buyer’s lawyer, we referred to clause 7.6 and indicated that $1,500 plus GST (of course) would be added to the purchase price and set out in the statement of adjustments. They didn’t say anything, and, in due course, we sent over our trust letter. On receipt of our trust letter, the buyer’s lawyer sent me a letter indicating that the buyer would not be paying the $1,500 because he wasn’t required to.

I was completely flummoxed; what was he talking about?

After some back and forth, the buyer’s lawyer sent me a copy of the page of the MLS contract that contains clause 7.6. His version had no reference to the buyer paying the seller’s legal fees not to exceed $1,500 plus GST. I phoned our client who was very surprised and didn’t have an answer. The next day he called me back and said, “You know, we went back and forth on a couple of things in the contract and in the scanning and faxing back and forth, when they finally signed off on the contract, they only sent me the signing page and not the other pages.”

So the arguments back and forth started. In the end, the buyer agreed to pay $800 of our client’s legal account, but not $1,500. To me, that just confirmed that they substituted their own page of the contract because they saw that they could. Why would they agree to pay $800 if they hadn’t agreed to pay anything? That just doesn’t make sense.

Our client decided this was just another tuition cost at REU (Real Estate University). He was making good money on the deal and he wanted to move on, so he accepted the $800 and we closed the deal.

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

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“Sherlock” image by HebiPics, used under a Public Domain Dedication, has been combined with the “money i’ll never spend” image by brian.ch under Creative Commons Attribution Generic 2.0.

Smaller municipalities can be an ideal place to invest in real estate. This is particularly true if you focus on an area where there might be many opportunities and little competition. Prices are often lower in small towns, and even medium-sized cities can provide an advantage over big metropolises if you specialize in one neighbourhood or region. The key is that you need to become a local expert. Leverage your small town advantage to become a big asset for you as a real estate investor!

Download the audio file HERE and the text/handout HERE.

When I first met one of my clients in 1995, he and his wife had just moved to a small town about 125 km out of Edmonton, a commute of about an hour and a half. Both of them had lived in the city but originally came from small towns. They were happy to find jobs in their areas of expertise and soon settled into small-town life.

Over the years they bought numerous properties, working their way up to a portfolio of approximately 20 doors. When I told them they were going to be featured in Tales from the Trenches because of the interesting Tale created when they acted as their own lawyer, they wanted to make sure I also recounted in Tales their success as investors. “Absolutely” I replied, because I always want to talk about successes as well as those piles of do-do that any active real estate investor risks stepping in.

When we talked about their very successful portfolio, they remarked that their best success had come by acquiring properties in the small town that they lived in. The first thing they noticed when they moved there was that real estate prices were way, way lower than in Edmonton. There wasn’t that much rental housing available. But, there seemed to be lots of renters. The town was small, but it served an active, agricultural community. It also had an agricultural college, the local county government offices, and some energy industry service companies along with a fair bit of tourism drawn to the nearby Provincial Park.

The next thing they noticed was that rents were not that much lower than in Edmonton, maybe $200 a month less for a three-bedroom bungalow. But, that same three-bedroom bungalow was only half the price it was in Edmonton. So, they dipped a toe in the water and bought two properties, both in reasonably good shape. A little bit of paint and carpet, and very quickly both of these properties were rented to great tenants and the positive cash flow was about $500 per door.

They sold their Edmonton properties and used the cash to buy more properties in their small town, all of them easy to rent with great positive cash flow. Then they came across what looked like a disaster, two fourplexes that were run down with only six of eight suites rented. The absentee owner was a terrible manager, alienated tenants, didn’t fix anything, and had decided landlording wasn’t his game. He was a classic motivated vendor: ready to sell and say goodbye.

Our clients didn’t rush it. They made sure to get proper inspections which revealed some sewer line blockages, roofs that desperately needed re-shingling along with furnaces and water tanks that were on their last legs with a couple of furnaces already kaput. Armed with their inspector’s report, they negotiated hard with the seller for price reductions, and ended up buying those fourplexes for $140,000 each.

Financing was with the local Alberta Treasury Branch (ATB) who already had the existing mortgage. This local ATB branch knew our clients well as they had already provided them with a number of other mortgages on their local portfolio.

When they went in to make their mortgage application, they presented their plans for renovations, a list of tenants who had already made applications at very good rental rates, and asked for a mortgage based on the after repaired value, which, at the time, would have been $200,000 per fourplex. The mortgage application was granted, the deal closed, and the renovations were completed using our clients’ own cash. Then ATB did another appraisal and funded the second portion of the mortgage based on the now established after repair value.

Since our clients bought these fourplexes about eight years ago, they have never had a vacancy and values have just gone straight up. When they sold they enjoyed a very nice rise in equity, and, of course, had great positive cash flow during their time of ownership for those properties. When we were discussing this particular deal, our clients told me that they couldn’t ever have done this well in Edmonton, not only on the fourplexes, but on the other parts of their portfolio as well.

“Once we knew the town and the surrounding area, we were the only actual real estate investors around. Sure, a couple of other people owned a couple of doors and there were actually some apartments, but, overall, we were the only ones with any expertise who were running our real estate portfolio like a business.”

Many clients have repeated this same story to me and it is almost the same story no matter what small town or even small city that they live in. Andrea Warkentin lives in Red Deer, and I consider her an expert in the surrounding area. Many other clients have done the same thing in their small town. I think small towns or cities, not always but often, give you an edge in the deal; lower priced real estate, competitive rents, and a non-competitive investing environment.

If you are not in a small town you can get many of the benefits if you specialize in an area. The classic example is Russell Westcott who specializes in condominium townhouses located in NE Edmonton. There isn’t much that goes on around townhouses in NE Edmonton that Russell and his long-time realtor don’t know about.

So, if you don’t live in a big city, utilize your small-town advantage; it’s way bigger than you think! If you live in a big town or small to medium city, make sure you are a specialist in a strategy tailored to your area.

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

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“Peace River Neighbourhoods” image by Mhalifu used under CC Attribution-ShareAlike 3.0 Unported.

Experienced investors sometimes do real estate deals without the help of a lawyer. But even knowledgeable people can miss things that a professional wouldn’t! In this Tale, we have a seasoned investor who acted for himself when he bought a property, but got help from me when he was selling. I found a couple of things registered on the title that he wasn’t aware of. Lucky for him, it was quick and easy to have these removed, but it could have been much worse. If you are going to be your own lawyer, make sure to be even more diligent because you’ll be dealing without backup…

Download the audio file HERE and the text/handout HERE.

A long-time client sold a property in small-town Alberta. Once the paperwork was ready, I gave him a call and he came in to sign. We had a great conversation about life, family, his portfolio, and plans for new real estate projects. I hadn’t seen one of my favorite clients for a couple of years so it was a great catch up.

Then it was time to sign documentation and go over the numbers. One thing your lawyer should always discuss with you is how to pay out your sale proceeds. Typically there might be realtor’s commission to pay, pay out on an existing mortgage, and perhaps some outstanding taxes along with a legal account. We got to this point in the paperwork and I said, “I see you sold this on your own so there is no commission. So it looks like the only two things to pay out are the mortgage and my legal account.”

His face went white. “Mortgage, what mortgage? I don’t have a mortgage.” I showed him the copy of the title, which indicated a mortgage to Alberta Treasury Branches (ATB). “I see that a mortgage is registered, but I paid cash. I don’t know what’s going on,” said our investor.

Then I pointed out another registration against title being an unpaid vendor’s caveat. He looked at the caveat and said, “Those are the names of the people I bought the property from.” Remember I said that this was a long time investor and client. At this point I asked him, “Did I act for you on this deal?” He looked a little sheepish and said, “No, it wasn’t a very expensive property and I knew the people selling… so I thought I would just do it on my own.” Without beating up this very nice man, I gently pointed out to him that this is why you hire a lawyer.

One of the many jobs your buyer’s lawyer does for you is to make sure that title to the property you are buying is completely clear of anything related to the previous sellers. The lawyer for the seller is put under trust conditions that once the purchase price is paid, the seller’s lawyer will clear the title of, in this case, the old ATB mortgage and the unpaid vendor’s caveat.

The happy ending is the ATB mortgage was paid out and our investor was pretty easily able to get a discharge of the mortgage from ATB. Similarly, the sellers were still in the small-town and signed a discharge of the unpaid sellers caveat.

Our member was fortunate that these two potentially very serious problems were easily solved!

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

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“Exercise That Diligence” image by Alan Levine used under CC Attribution 2.0 Generic.