Tales from the Trenches

Download the audio file HERE.

Remember, it takes time to learn how to do anything—especially if you want to do it well. Real estate is no different. The most efficient way to learn is by acquiring the proper education. You might think I’m biased because I teach real estate investing workshops and sell home-study kits. But this episode of Tale from the Trenches shows how investing in your education can save you money in the long run.

Some people prefer to learn by using the “I’ll figure it out as I go along” method. As a lawyer, I can’t recommend that approach for anything to do with the law. Trial-and-error is not only a less efficient way to learn, but it’s always way more expensive when it comes to real estate!

Anyone familiar with my blog posts, podcasts, home-study kits, and workshops on Creative Real Estate Investing Strategies has heard of Agreements for Sale (AFS). But the key to learning is repetition, so let’s review.

AFS is a seller financing strategy. A seller becomes a buyer’s bank. The seller stays on the title and lends the buyer some or all of the sale price. The buyer makes payments to the seller on the loan as well as takes care of insurance, utilities, and maintenance on the property.

This can be a very attractive strategy for any buyer, but especially investor buyers. If the seller is your bank, you don’t need to qualify for a new mortgage!

With that background, back to our story. Our seller wanted $375,000 for his well-kept three-bedroom bungalow with a legal, two-bedroom secondary suite. The buyer offered the choice of $345,000 now, or $365,000 in 18 months if the seller would agree to an AFS as the sale mechanism. Remember, this was four months ago.

My client (the seller) and I chatted about the transaction. I forwarded him some information on AFS and then didn’t hear anything until just last week. What showed up was a real estate purchase contract, which is often referred to as an offer to purchase. I could tell immediately that my seller client had found this contract on the Internet, and I could further tell that it was an American contract designed for the sale of US properties. Not good!

Overall, trying to use an American contract in Canada causes way more problems than it solves. No one is familiar with it, and so Canadian lawyers have to go over every word, always requiring massive amendment. I suggested to my seller that he try and work with the buyer to craft an appropriate contract. Fortunately, the buyer was agreeable.

And, of course, my seller client had not created a financing schedule either. With the cooperation of the buyer, we worked out a new contract, created that financing schedule and nailed down all the details of the AFS deal. The buyer was then able to take the signed contract to his lawyer and, between the buyer’s lawyer and our Field Law office, we then finalized this AFS deal.

Getting to the stage where we had a proper contract and schedule took way, way more legal time and therefore created a much bigger legal account. My client’s bill was likely $2,000 bigger than it would have been if he had done any training in how to make an AFS deal. It would actually have saved the seller money to have invested in taking one of my AFS workshops or home-study kits before trying to do the deal.

Now we get to the point of this blog and the teaching moment. When you create a purchase contract to buy or sell by way of AFS, there’s a process to be followed. Taking the right steps in the right order protects both buyer and seller. It also takes less time and effort, which saves you money in lawyer’s fees.

First, start with the boilerplate contract that is specific to your area and will be familiar to professionals like lawyers and real estate agents. Here in Alberta, I suggest that you use the standard Alberta Real Estate Association (AREA) contract. Your friendly realtor can provide a copy.

Write up that contract the way you would write any purchase contract but with one key difference. You must add the following clause to the terms section: “This contract will proceed by way of Agreement for Sale.” Adding these words tells buyer, seller, and the respective lawyers that this is an AFS deal.

Second, whether you are a buyer or a seller, the financing schedule attached to the offer to purchase crucial. All of the most important parts of any AFS deal are found here, and they must be negotiated to the satisfaction of both parties.

The financing schedule sets out the details of the AFS transaction. It really is the nuts and bolts, with all pricing, deposits, how much money the seller is lending the buyer, other seller obligations, interest rates, maturity date, and renewal possibilities. Without this all-important financing schedule, no one knows what to do!

Read more – CAD $1,397.00

Add to cart – CAD $997.00

“Speaker Training Coaching Board  School” image by Geralt used under a Pixabay License.

Here’s another success story from the lucrative Creative Real Estate Investing space. For would-be Canadian real estate investors, two of the biggest obstacles are building up cash for a deposit and qualifying for a mortgage. This Tale is an example of how one of our students creatively solved a seller’s problems while also acquiring properties with a minimal down payment and no mortgage.

Sound impossible? We’ve taught hundreds of investors in our live Focus Workshops and through our online Home-study Kits all about this kind of creative problem solving! Read/listen on to learn more about how our student did this deal, and sign up now for our next Rapid Cash Program on May 7th and 8th, 2022, in Calgary, Alberta or snag the Rapid Cash Program Home-study Kit any time.

Download the audio file HERE.

One of the things that all investors face sooner or later is a head-on confrontation with tough financing rules. Over the last 20 years, the Canadian federal government has tightened the rules around getting a mortgage. These moves have been aimed at cooling Canada’s hot real estate market as well as protecting borrowers by attempting to ensure they will be able to afford their mortgage as interest rates increase.

There is a lot to unpack if you want to analyse interest rates and the ever-tightening mortgage qualification rules. But the bottom line is that, for most investors, you run out of new mortgage qualification room fairly quickly. It’s become very hard to qualify for more than three or four mortgages.

And, not only is it harder to qualify for a standard bank mortgage, what about that required down payment? For anyone buying a property and getting a conventional mortgage where your down payment is 20% (or more) of the purchase price, saving up that down payment can be incredibly difficult. For example, if you are purchasing a property here in Alberta for $400,000, then 20% of that purchase price is $80,000! That’s how much you have to put up as a deposit—assuming you can get a mortgage.

In the above scenarios we’re talking about long-term Buy and Hold. Long-term Buy and Hold is the bedrock strategy of most real estate investors and a strategy we certainly agree with. My wife Donna and I have the majority of our portfolio in long-term Buy and Hold. For investors wanting to buy a lot of properties, the two-pronged difficulties of mortgage qualification and accumulating big deposits make Buy and Hold tough.

But real estate investing is more than long-term Buy and Hold! There are many other approaches that I collectively call Creative Real Estate Strategies. These are viable investing methods that work across Canada. Under the Creative Strategy umbrella we have: Agreements for Sale (AFS), Rent-to-Own (RTO), Wholesaling (sometimes referred to as Assignments), Fix and Flip, and Joint Ventures. You can also combine these strategies for even more powerful and versatile real estate investing!

Whether you are a brand-new investor looking to get started in real estate, you already own property and can’t get more mortgages, or you’re wondering about purchasing property for little or no money down, and you want to educate yourself on Creative Strategies, we’ve got you covered. Our flagship, live education event, the Rapid Cash Program is coming up May 7 and 8, 2022 in Calgary. You can also access the next best thing by buying one of our online home-study kits.

For this Tale, our student found a tired landlord in a small-but-vibrant Alberta town. This landlord had a portfolio of six fully rented four-plexes. It was time to retire and enjoy life but the landlord wanted to maximize his cash from selling the six four-plexes. He had done the math. Between realtor’s commission at about $18,000 per four-plex and payout penalties on his recently renewed mortgages of about $15,000 per four-plex, he was looking at paying around $200,000 in commissions and penalties.

As much as the landlord wanted to sell, his problem was losing $200,000 right before retirement. The loss was way too big of a hit to sell conventionally.

Enter our student who proposed that the landlord sell to our student by way of the Creative Strategy called Agreement for Sale. AFS is a seller financing strategy, so the seller is your bank. You don’t have to go to your regular bank and qualify for new mortgage financing. Once the landlord understood that he wouldn’t have to pay $200,000 (or more!) in real estate commissions and payout penalties he was very interested.

However, having owned the properties for quite a while, the landlord had substantial equity in them, so he wanted a decent down payment. Now remember, the standard conventional mortgage financing deposit is 20% of the sale price. Our student negotiated a down payment of not 20%, but a much more manageable 10%!

And, because the landlord was retiring and wanted some income, our student agreed to pay the seller 3% per month on his remaining equity, which gave the landlord about 2.5% more income then he would have received if he put his sale proceeds in a normal savings account at a bank.

This deal turned out to be a classic win-win. And, folks, it’s best to always play for win-win! You’ll find more deals when you genuinely try to help people with their problems, and you can feel good about your real estate investing business

1. If you can solve someone’s problem, there are endless deals to be done.

2. Creative Strategies can solve your own financing and deposit problems

3. Solid real estate education is the key to real estate success!

Want to learn how to implement Creative Real Estate Strategies like our student used in this Tale? Take advantage of our upcoming Rapid Cash Program on May 7th and 8th, 2022, in Calgary, and you too can start buying properties without having to qualify for a mortgage!

Read more – CAD $3,497.00

“Home Equity” image by http://www.aag.com/ per their terms.

For a change of pace, here is a positive Tale about a massive success in Canadian real estate investing. Longtime readers/listeners know that my Tales from the Trenches series is mostly about how buyers and sellers of real estate get themselves in trouble. It doesn’t matter whether folks are homeowners or whether they are investors, all aspects of real estate are full of minefields ready to explode. We look at those individual Tales, examine what went wrong, and then move on to the Lessons Learned. The best teaching moments are often in situations where problems arose, but sometimes that’s a bit gloomy and doomy.

This Tale of success comes from the creative real estate space. I use that term on my blog, in my podcasts, and especially in my Focus workshops to mean real estate investing using different, alternative, or unusual strategies. As much as I love long term Buy and Hold real estate investing, that’s not a creative strategy. What I mean are strategies like Rent-to-Own (RTO), Fix and Flip, Agreements for Sale, Wholesaling/Assignments, and Joint Ventures, both on their own and as they combine with the other strategies.

Want to learn creative real estate investing? Our premier Focus Workshop, the Rapid Cash Program, is coming up May 7 and 8, 2022, in Calgary, Alberta. Or you can purchase the Rapid Cash Program Home-study Kit anytime from my webstore!

Download the audio file HERE.

Wholesaling is a very popular creative strategy that works across Canada. Relatively simple in concept and requiring little or no money, many investors get started with wholesaling and then move on to other strategies. Now, note I said “relatively simple in concept.”

The concept is that as an investor, you look for undervalued properties. You get that property under contract to purchase and, while the contract is still conditional, you search for someone who sees the value in the property. They want the property for themselves. Maybe they’re going to move in as a personal residence, or maybe they’re an investor. It doesn’t matter; they are willing to pay you some money and close on the property themselves.

Now, finding undervalued properties is the trick. There aren’t too many listed for sale by realtors. Most of those properties are listed at what realtors feel is the market price. Most undervalued properties are found where the sellers have some sort of problem to solve or are selling on their own. And, when you find someone to buy your contract, the ‘assignment’ fee that you earn is often in the $5000–$10,000 range, not bad.

This scenario is pretty common but earning much more than the usual $5000–$10,000 is achievable and does come up. Recently, one of my students who purchased our Wholesaling/Assignments Home-study Kit got in touch to say he had a possible wholesaling deal. Now, this student had absolutely no investing experience. He owns his own home, but that was the limit of his real estate knowledge. Like anyone doing something for the first time, there were lots of stops and starts and explaining and coaching and revising. But, he got to the point where he had a property under contract with a three-month closing date, meaning he had lots of time to find someone to take the property off his hands .

This strategy works very well in a busy real estate market, which is what we are experiencing here in Alberta in April 2022 as well as across Canada more generally. It actually only took one month for our student to find a buyer and negotiate the assignment (sale) of his purchase contract for, are you ready?

$30,000!!! That’s right, his assignment fee was $30,000 earned right now. In other words Rapid Cash!

Read more – CAD $3,497.00

“Home Equity” image by http://www.aag.com/ per their terms.

When searching for the ideal piece of real estate to buy, properties in foreclosure can be an interesting place to look. Are you an investor looking for a new rental property? Or maybe you’re a buyer looking for a dream home—or at least a property you can turn into your dream home. By considering foreclosures, you open up more options for yourself. Read or listen on to learn more about how timing a foreclosure deal can be tricky.

Download the audio file HERE.

In Canada (and jurisdictions with similar laws), foreclosure is when someone defaults on their mortgage payments, and the lender takes control of the property. Lenders will try to sell the property to recuperate the mortgage money. Foreclosures are regulated differently by each Canadian province. These comments are on Alberta foreclosures, so make sure you check to see how it actually works in the area where you are buying. Here in Alberta, a Judicial Foreclosure is most common, which is when the Court gets involved with selling the property.

So, there are foreclosure properties to be had, and they might fit your requirements. Sometimes you are searching the bargain bin for badly treated properties without many redeeming qualities. Sometimes a foreclosure property is in great shape; the seller just can’t make the payments.

But, here’s the thing. Generally, the buying public has a rosy view of foreclosure purchases. Somehow, they think that foreclosures are a bargain or will be easier to buy. The reality is there is lots of demand for properties in foreclosure and prices are competitive, so it’s not as easy as it might seem.

Judicial Foreclosures add another layer of complication. Buyers can’t just roll up and convince the judge to sell for a sack of magic beans! Sometimes the issue isn’t winning the foreclosure competition; it’s actually closing the deal once the Court approves your offer to purchase. (Sometimes in Alberta called just the ‘offer’ or ‘purchase contract,’ it’s more properly referred to as the ‘real estate purchase contract,’ but in other provinces it’s often called the ‘agreement of purchase and sale.’)

In a very recent foreclosure, my client fought hard, outbid three other buyers, and won the bid for what they thought would be an amazing property. The house had good bones, was in reasonably good shape, and was suitable for a secondary suite. The presiding Master in Chambers approved my clients unconditional offer on February 2 for a March 8 closing. (A Master is effectively a Judge that deals with repetitive, relatively non-controversial Court matters.)

Good timing, wouldn’t you think? About five weeks to close. Financing all lined up, let’s just close this deal!

Here’s what happened. The Master’s February 2 approval, as usual, took the form of a Court Order. To be effective, that is to be the ‘condition removal’ that every lender needs, the Order has to be signed by the Master and filed at the courthouse.

Because of COVID there is an ultra-slow down at the courthouse. It took until March 4 for the Order to be filed and returned to the foreclosing lawyer. The filed Order is required to make the deal unconditional. ‘Unconditional’ is an important point. Why?

For every real estate deal, including foreclosures, no paperwork goes out to the buyer’s and seller’s lawyers until the deal is unconditional. You can understand why. Paperwork sent to the lawyers before deals are unconditional can lead to confusion. Files get opened, work is done, client’s money is expended and then you get the news: “The buyer couldn’t get financing; this deal is dead.” Experience has shown that the only way to handle conditional real estate deals is to wait until they are actually unconditional.

All right, with that bit of explanation, and with this deal not being unconditional until March 4, only then did the listing realtor send out official real estate instructions. And, most importantly, only on Thursday March 4 was the mortgage broker able to tell the lender that the deal was unconditional and start finalizing the mortgage approval process. The mortgage broker was ready to go, had all the information from the buyer. But, only on March 4 would the lender start the mortgage application process.

So, there we are, this purchase is unconditional and ready to go on Thursday, March 4 for a Monday, March 8 closing, 1–2 days to close. Plus, my client lives out of province which always adds 2–3 days to the signing process. It didn’t take long for me to say to myself that this deal is absolutely impossible to close by March 8.

I immediately got in touch with the foreclosing lawyer to explain the situation and to ask for an extension. I wanted three weeks, he wanted to give me seven days. Back-and-forth we went with agreement that we had seven days to firstly confirm that mortgage instructions had been issued. If we got those mortgage instructions, the foreclosure lawyer would likely cooperate with a further extension. That further extension would give us enough time to prepare the mortgage documentation, send it out of province, get it signed, and get back to our office.

Every lawyer probably handles these things differently, but my approach when I run into this or any other tight timing situation is to immediately get in touch with the other side, which is most often another lawyer. In this case the ‘other side’ or other party is the foreclosing lawyer representing the lender. As much as timing on this deal was giving everyone a lot of heartburn, I believed that the foreclosing lawyer wanted the deal to go ahead. After all, it’s been a long slog for the foreclosing lawyer. First, in getting instructions from his lender, starting the legal foreclosure action, going through all the laborious processes that foreclosures take, finally getting into Court, sifting through the offers, and getting an offer accepted. That could have taken the foreclosure lawyer 6–12 months. At this point, he wants the deal to close. I want to make it easy for him to be cooperative and give us the time extensions we need. So, lots of communication, lots of explaining why the deal is going to close, and why they should listen to our extension requests. This approach generally brings good results where there isn’t really much controversy over what will happen, just the amount of time it will take.

My buyer’s mortgage broker did a great job and got us mortgage instructions before the seven-day period was up. I then negotiated a further extension with the foreclosure lawyer who, I have to say, was reasonably cooperative throughout the whole process. The deal closed 10 days later.

Contact Barry today if you’re buying a foreclosed property in Alberta!

“Sign of the Times – Foreclosure” image by Jeff Turner. Used under Creative Commons Attribution Generic 2.0

Negotiating an Offer to Purchase for a piece of real estate is about more than just the price. In this blog post, I’ll start by looking at two key points that must be worked out between buyer and seller: unattached goods and material latent defects. Then I’ll include a third topic that can be very important—but is often overlooked.

Download the audio file HERE.

Hey… They Took the Bidet!

I was acting for a buyer purchasing her dream home. She was allowed a walk through 24 hours before the closing/possession day and, you guessed it, I got a call. “They’ve taken the bidet,” said my very upset client. I immediately called the seller’s lawyer but had to give my client the bad news that the bidet was gone and wasn’t coming back.

The bidet was an unattached good (what used to be called a chattel) and was not included in the sale. You can buy these products at Costco or Home Depot or online. It’s very simple: take off the old toilet seat, add a new splitter valve so water can get to the toilet tank and the bidet, plug it in, and voilà! an operating bidet. More importantly for this discussion, removing the bidet is just as easy. The seller removed it, replaced the old toilet seat, and, regrettably, my client is out of luck.

Getting this call reminded me that there are some basic principles that govern many parts of buying and selling a home, such as our bidet example. What is attached and what is unattached, in other words, what has to stay and what can the seller legally take?

Thinking about my client’s issue led me to other key topics for discussion when you are buying and selling homes. The other two things we’ll look at in this blog post are about knowledge. What does the seller know and isn’t telling you? What are they responsible to disclose upfront vs. what will the buyer have to ask about? What is the seller required to tell the buyer when asked?

Here is some basic information on buying and selling regarding what stays and what goes as well as who has to say what to whom. Let’s look at the guidance on those issues provided by the Real Estate Council of Alberta, to which I’ll add my own commentary.

Attached & Unattached Goods

Attached goods are items you cannot remove from the property without causing damage or that are physically attached to the property via pipes, screws, bolts, or nails. Attached goods stay with the property unless there is a specific exclusion in the listing agreement or in a buyer’s offer to purchase. These include:

• garburator

Unattached goods are movable items. Sellers usually take unattached goods from the property before the buyer takes possession. These include:

• wall art

Attached goods are typically included with the property while unattached goods are not.

https://www.reca.ca/consumers/property-considerations/attached-unattached-goods/

Inclusions/exclusions: Inclusions are unattached goods that are packaged with the sale of a home. Naturally, exclusions are the things that aren’t part of the deal. Both buyer and seller must be specific with inclusions/exclusions in any offers and counter-offers.

If as buyer you want any unattached goods to be bundled into the transaction, make sure to list them as an inclusion on the Offer to Purchase.

If you are the seller, you can either agree to the inclusion when you accept the offer or else you need to remove the unattached good in your counter offer. You can also specifically list exclusions to make it clearer.

Material Latent Defects

A material latent defect is a physical defect that is not discernible through a reasonable inspection, and makes a property:

• dangerous or potentially dangerous to the occupants

These are defects that may not be discoverable during a reasonable inspection of the property, even by a professional home inspector.

Material latent defects may also include:

• defects that would be very expensive to repair

https://www.reca.ca/consumers/property-considerations/material-latent-defects/

It’s illegal for a seller to hide the above kinds of problems. The seller’s realtor wouldn’t know about these details unless told, and so they must be disclosed during the listing process. If the buyer discovers defects during a home inspection or document review that should have been disclosed but weren’t, it could sink the deal.

Property Stigma

A property stigma is an unfavourable quality in a property or one that makes the property less attractive or unattractive, but that is unrelated to the physical condition or features of the property. Stigmas may include:

• a suicide or death that occurred in the property

What one person finds unacceptable may not be a stigma to another.

https://www.reca.ca/consumers/property-considerations/property-stigma/

As a seller you are not legally required to disclose stigma to potential buyers because they are not material latent defects. Buyer’s may ask about possible stigma, but sellers are not required to answer. But if you as seller choose to answer, you must be honest. If you refuse to answer, the buyer will have to decide if they’re comfortable proceeding without the information…

Contact Barry today if you’re buying or selling a home in Alberta and get the help you need with (un)attached goods, latent defects, and stigmas!

“Japanese Toilet Controls” image by Rob Lee used under CC Attributions-NoDerivs 2.0 with a few pixels cropped away.

Dishonest, fly-by-night, or even inexperienced renovators can leave a trail of heartbreak. Buyers happily move into their newly-purchased, freshly-renovated home, but problems often don’t show up till later. Here are three recent scenarios from my real estate law practice in Edmonton, Alberta. First, I’ll discuss the problems, then I’ll talk about how best to avoid them.

Download the audio file HERE.

The common thread is that each property had a nicely done, completely renovated basement. These are all previously owned homes where the seller supplied a current RPR and compliance, no issues shown. There were no secondary suites, just family rooms, bedrooms, bathrooms, and storage. Our first two examples had a property inspection. The third one didn’t.

After the problems revealed themselves post-closing, further investigation showed that none of the properties had permits. And, of course, no permit means no final approved inspection by the City.

Now, all these problems occurred in Edmonton, Alberta, where I have my law practice. The City of Edmonton has its own rules around renovations and permits. I’m pretty sure that every municipality and county all across Canada and in the US have their own requirements. Make sure you investigate your own local requirements if you are planning renovations or if you are trying to recover from a bad renovation.

According to the City, a finished basement requires a development permit, a building permit, and separate permits for HVAC, plumbing, and electrical. In some circumstances they might issue a home improvement permit, which fulfills the function of the development permit and the building permit.

From the City of Edmonton’s website (accessed 11 Nov 2020):

Do I Need A Permit?

Important Information About Permits

Now, back to our three scenarios. If a home inspection doesn’t reveal problems (maybe it should have in the third scenario), what should buyers do? What might help but may not be a final solution is for any buyer and the real estate professional assisting them to recognize the potential problem.

My conclusion is if you as a buyer or a realtor see or know about a finished basement, especially a recently finished basement, the only potential way to protect yourself is to start the conversation about permits. Ask for copies of permits and final inspections. Show these to the home inspector before they do their inspection.

Copies of permits or not, tell the home inspector to carefully consider what they can say about the state of the finished basement. Sometimes inspectors can’t really say anything because they can’t see anything. If your inspector always does non-destructive testing, is there anything else they can do on the non-destructive side? What about minor destructive testing that can be repaired? Ask the inspector what they would do if they were concerned about permits and inspections?

If the seller doesn’t have permits or doesn’t know if permits have been obtained, then you seriously have to consider whether to insist that a term or condition in the offer to purchase such as:

Condition: “Subject to seller providing all permits required for basement development along with final, approved City inspection on or before, (pick a date well before completion date)”, or

Term: “Seller will provide copies of all permits required for basement development along with final approved City inspection three business days before the completion date”

If after going through this kind of review and negotiation, it turns out there are no permits or the seller refuses to provide permits, are you going to take the chance? It’s wishful thinking to believe permits were not required, and that the work was properly done, and there will never be any blow-back or problems for you to face. Even if the seller seems like a decent person, it’s wise to trust but verify.

And, one last thing, the City of Edmonton is much more aggressive about following up on permits and permit issues lately. If permits were applied for but a final inspection was never done, I’ve had clients tell me the city has banged on their door five years after they purchased the property wanting to do the final inspection. That will be the subject of another post.

Contact Barry today about terms and conditions for your purchase contract of a home with a renovated basement.

“Building destroyed destruction” image by Free-Photos used under a Public Domain dedication.

Recently, some Alberta homeowners finally ran out of patience when their property was flooded—again. They lived on the lower end of a sloped street, and water flowed down the block from the higher end when it rained. The curb had slumped in front of their home, allowing water to run over it, across the neighbour’s driveway, and onto the homeowner’s property, causing damage. After the third occurrence (yes, that’s right, three floods!), the homeowners decided to sue the municipality. This Tale discusses the ensuing court case and why people usually lose against City Hall.

Download the audio file HERE.

The homeowners claimed damages of $7,160.97. In court, they were able to establish that rainwater did, at least partially, flow along the curb and then up and over the curb and across the neighbour’s driveway onto the homeowner’s property, and that they suffered some erosion to their property with resulting damage. They also established that the municipality knew of the slumping curb but decided not to repair it. Further, they were able to show that they tried to resolve the problem the first two times flooding occurred. They also proved that, before launching their lawsuit, they had gone directly to the municipality to talk to them about the problem, trying to get the municipality to fix the curb.

So, what’s your guess? Do the homeowners win their lawsuit? They do not! In a nutshell, here’s what the court said: the homeowners failed to prove how much water came from the rainwater that flowed up over the curb versus how much water came directly from their neighbour’s property. Moreover, they also couldn’t prove the City had acted negligently or in bad faith.

You see, Section 530 of Alberta’s Municipal Government Act gives immunity to municipalities in relation to how they maintain their property or don’t maintain it. That immunity protects the municipality unless the homeowners can prove that systems/inspections were implemented negligently or not in good faith. The plaintiffs failed to prove either.

Losers in court cases usually have to pay the winner’s court costs, which can be substantial. The Court threw the homeowners a bone and said that the municipality had to pay their own costs and could not collect from the homeowner. Cold comfort when to any objective eye, it looked like the homeowners did everything right and were very patient.

Contact Barry today with all your Alberta real estate concerns.

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

Seems like I’m always finding examples to write about regarding real property reports (RPR) and how they fit into a real estate transaction in Alberta. Land surveys, as RPRs are also known, should be simpler than they are. The standard AREA/MLS contract says that the seller will provide an RPR showing current improvements on the property along with written evidence of municipal compliance or non-conformance. Pretty straightforward, right?

Regrettably, no. There are an endless number of circumstances and questions surrounding provision of that required RPR.

Today’s case study comes from one of my referring realtors trying to make sense of a particular situation: Title Insurance as a replacement for a current Real Property Report. This blog post works through some of the nuances in this specific case in order to make some broader recommendations. Let’s start with the email from my referring realtor.

Download the audio file HERE.

Hi Barry

I hope you are doing well and enjoying the new digs of Field Law.

I have a question about title insurance, and I want to make sure I understand the nuances of what title insurance actually covers.

My clients are interested in an up/down duplex built in 1977 in Richie. The sellers want to provide an RPR from 2007 with the acknowledgement that they added back stairs to the deck with no permits. They do not want to provide a new RPR.

Would title insurance cover my clients if the seller does not know whether the stairs comply or not?

Thanks for your help.

My answer comes from the perspective of what is best for the buyers. If it was the seller’s realtor asking the question, I would have a different response.

So, if the sellers did what the contract says they should do, or at least what would be best for the buyers, they would apply for permits for the stairs and get a final, approved inspection. Then they would call a surveyor, probably the one who did the original RPR, and have the RPR redone to show the stairs. Next, the seller would send the RPR to the City in an application for a new compliance.

But, if the seller doesn’t want to take this course of action and offers to pay for the buyers Title Insurance in lieu, what does this mean for the buyer? Is Title Insurance the same as, or just as protective/good as, the contractually required RPR and compliance?

Ah yes, Title Insurance (TI) is always a puzzle. It covers way less and works in fewer circumstances than most folks realize. Title Insurance, like all insurance products, is a contract that requires absolutely full disclosure.

When a seller says, “I will give you Title Insurance in lieu of an updated RPR,” the seller doesn’t order the TI policy. The seller’s lawyer gives the buyer’s lawyer a credit on the statement of adjustments for the cost of the policy. Then it is up to the buyer’s lawyer to order the policy. When the policy is ordered, the title insurance company quizzes the buyer’s lawyer/secretary, including asking if there are any known defects.

The steps without permit are a known defect that would have to be disclosed and the TI company would then likely exclude the stairs from coverage under the policy. So, if there is any future trouble over the stairs, no TI coverage.

The second thing that not too many folks understand is that TI only comes into effect if there is enforced removal of the offending structure/issue. All in all, TI doesn’t cure problems, it just covers them up leaving a tough insurance claim or a buyer having to deal with this situation when they sell somewhere down the road.

Wow, that was pretty negative! But it is the reality of TI.

Option 1: Perhaps the buyer is in a decent negotiating position and can take a harder line, demanding the seller get permits and a new RPR and compliance. Perhaps the seller’s realtor thinks TI is an answer to the problem, and, if they understand it isn’t, the seller might be a little more cooperative.

Option 2: Assuming that the stairs have at least been properly built and the City would likely issue an, ‘as built’ set of permits, the buyer could take on the permit application and RPR responsibility. If the seller is prepared to give the usual TI credit of about $250, maybe they would also add on a further credit for the permits… The permit apps, new RPR, and compliance are, if the stairs are properly constructed, probably in the $1000–$1200 range.

The buyer could ask for a credit of $250 for the TI and then some other sum (at least $350) for taking on the responsibility of the permits and RPR. With this approach, the buyer and seller are sharing the cost of the problem. Remember, this is based on the premise that the stairs are permit-able and well-built, not requiring any changes.

Option 3: Or, if the seller just won’t co-operate but the buyer wants the home, the buyer can take on the problem knowing about the issue. Post closing, the buyer can decide whether they want to fix the issue by getting the permits themselves and updating the RPR and compliance.

If the buyer doesn’t want to do that, then when it is time to sell in the future, first and really importantly, the buyer has to remember they have this problem! Once the problem is remembered at the listing stage, but before negotiations to sell get started, the buyer and buyer’s realtor have to discuss their approach. Is the problem going to be fixed now as part of getting ready for selling? If so, carry on with the process as set out above. Get the permits, get a new RPR, and submit that for a new compliance.

If the buyer doesn’t want to fix the problem, then the buyer has to be hard-headed enough to be able to do the same thing to their buyer in the future that the seller is doing to them now. This approach by a buyer when they turn into a seller usually works as long as the problem is known at the listing stage. The listing realtor and now seller need to be of one mind on how to attack it at that time in the future when the property is being sold.

Right now, for this deal, the buyer plans on getting as much of the credit for TI and anything else that they can on the statement of adjustments. The buyer will just keep the money without taking any action at this time. Then they’ll have to negotiate hard in the future when it’s their turn to sell.

Get legal help with Title Insurance and Real Property Reports in Alberta. Contact Barry today!

And now for the main event! This Real Estate Regulation League title fight is scheduled for five rounds in the heavyweight division. At stake is the Secondary Suite Championship Belt! The reigning, defending, undisputed champion, Restrictive Covenant, is the long-time king of title encumbrances, boasting a hundred-year track record of steamrolling opposition. The challenger is Calgary City Hall, sporting a feisty new bylaw that allows secondary suites in RC-1 zoning areas.

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

Often ignored—but hugely powerful—restrictive covenants are registrations against a title that prevent the titleholder from taking certain actions. They are described as ‘running with the land,’ meaning they bind the current owner and all future owners. Restrictive covenants can be very old, but they don’t usually expire automatically, so don’t ignore them because of age. While restrictions on title can be altered, it’s time consuming and tough to amend them—even tougher to remove them.

Restrictive covenants are common in new subdivisions where developers file them against all individual titles during the subdivision process. Restrictions on title can govern many aspects of what a homeowner can do with, or how they can use, their property. They can also specify what kind of siding, shingles, and landscaping are required (these are only examples, read a particular covenant for exact details). Every property owner can enforce them, as we will see in the following Tale, where some titleholders didn’t approve of legal secondary suites being built in a subdivision where a restrictive covenant prohibited them. First, let me set the scene.

In Edmonton where I practice law, City Hall fairly recently turned their secondary suite policy upside down. By secondary suites, I mean self-contained living spaces in basements, garages, back gardens, etc. The City is actively encouraging legal suite development and the legalization of currently illegal suites.

Old Policy: no secondary suites allowed in most areas.

New Policy: secondary suites are allowed in most areas.

Calgary resisted Edmonton’s wholesale rezoning by taking a more cautious approach. Applications for secondary suites were dealt with on a one-off basis. With many applications and much demand for safe secondary suites, Calgary made a number of attempts to find a comprehensive policy that would satisfy numerous stakeholders. Tough sledding for Calgary! There was huge opposition to any wholesale rezoning. In March 2018, the City of Calgary finally took the bull by the horns and amended its bylaw to allow land zoned as RC-1 to have secondary suites.

Set in Calgary, here begins our Tale from the Trenches. In a very recent Court of Queen’s Bench decision from April 2020, we have two parties. Defending are the Suite Owners/Landlords, pensioners who in September 2019, shortly after the bylaw changed, applied for and were granted permits to install a secondary suite in their University Heights property.

Suing we have one Homeowner representing a group of University Heights residents who are united in their opposition to secondary suites. The Homeowner says the secondary suite is contrary to the restrictive covenant. He asked the Court to grant an interim or permanent injunction requiring the Suite Owners/Landlords to comply with the restrictive covenant, halt any further construction on the secondary suite, and to stop renting the secondary suite. 

The parties are in court, because the first appeal by the Homeowner to Calgary’s Subdivision and Development Appeal Board (SDAB) was denied. The SDAB said they didn’t have the authority to enforce or determine the validity of a restrictive covenant. So, off to the Court of Queen’s Bench for further argument.

In defending, the Suite Owners/Landlords said there was no clear breach of the covenant, and that the restrictive covenant has not been enforced previously or was largely ignored. In the alternative, they argue that the character of the University Heights community has changed. They say that both non-enforcement or change of character of the community render the restrictive covenant unenforceable.

After much legal argument, Justice C. S. Anderson said, “I find that the applicant (Homeowner) has met all parts of the tripartite test for an interim injunction requiring the respondents (Suite Owners/Landlords) to comply with the restrictive covenant pending the outcome of trial.” Translation: The Suite Owners/Landlords have to get rid of the secondary suite. 

But, just as in the world of combat sports, no defeat is the end of the line and retirement is rarely permanent, Justice Anderson postponed enforcement of the interim injunction for six months. Why?

Because the Suite Owners/Landlords are applying to the City of Calgary to discharge or modify the restrictive covenant. Furthermore, there is a tenant with a six-month lease.

First round to City Hall and its flexible new bylaw. But the Secondary Suite Championship Belt is still at stake! Does Restrictive Covenant have the endurance to outlast bylaw changes? Or will City Hall pull off a tricky submission to take the title?

Stay tuned for an update once the parties move on to the next step.

p.s., A great case to read. It’s only seven pages long and very instructive on how restrictive covenants work: http://canlii.ca/t/j6fdf

“Cage Fight to Fight” image by Streetcombatsystem used under CC Attribution-ShareAlike 4.0 International.

This is the third Tale in my recent mini-series on Real Property Reports (RPR), municipal compliance, and building/development permits. Our first two Tales dealt with the maze of bureaucracy that surrounds permits and the dangers of not getting a clean RPR with compliance when buying real estate. As per usual, my examples are from Alberta, because that’s where I practise law, but these issues are relevant across Canada and beyond. My third and last instalment is actually three Tales in one, full of RPR/permit related situations or circumstances that turned up for some of my clients. I’m going to talk about how the City isn’t always right, what happens when a seemingly correct compliance is wrong, and why old inspection issues can come back to haunt you…

OK, let’s get started.

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

Recently, I acted for a client selling her beautiful home. One of the many attractive features was a large deck on the south side of the lot. My client was a widow, and when I visited her to get documents signed at her long-term care facility, (pre-COVID), she spent some time telling me how much she and her husband and her family enjoyed their times in the backyard on their deck. This was a custom-built home that they lived in for 25 years.

Her husband had passed away, the house was too big, and it was time to sell. Today’s standard real estate purchase contract requires the seller to provide the buyer with a current Real Property Report (RPR) and written evidence of municipal compliance. My seller did not have a real property report. Her realtor, having established that when taking the listing, ordered a new RPR from an Alberta Land Surveyor. On receipt, she sent it to the City of Edmonton for compliance.

The Compliance Certificate from the City said that the house and garage were fine, but there were no permits for the deck. The City went on to say how to apply for the permits and what those permits would cost, which is substantial. (I’m not putting that information in this post because the process and the cost changes frequently at the City. Whenever you need to get permits, check in your own municipality for up-to-date information.)

My seller is elderly and was not up to the task of all the things that permit applications require. She definitely did not want to do construction drawings, take pictures, perhaps get an engineer’s report, or fill out all the paperwork and pay the substantial fees that the City would require. She said to me, “Barry, this was a new home and the deck was part of our new home built at the same time.” She told me the name of her very reputable builder and something didn’t seem right.

I discussed the situation with my client’s top-flight realtor and she said, “Barry, I think our client has the blueprints to the property.” Guess what? When our realtor looked at the blueprints, there was the deck, part of the original plans.

Back down to the City, roll out the blueprints on the development officer’s desk, noting the big, bold, APPROVED stamp from the City and voilà! A new compliance certificate was immediately issued fully approving the property, no issues.

No city, town, or county office is perfect. Mistakes are made in the best run municipal offices. Any time you make an inquiry, if the answer doesn’t seem right, it might not be. Don’t be afraid to do a little more digging to see if you can reverse an original, negative answer—especially if you have evidence to support your position.

Our client had bought a property in 2015. At that time, the seller provided a real property report and compliance letter that said permits were required for a partially covered deck. We required the seller’s lawyer to make the permit applications, and, in due course, we received a follow-up letter from the City of Edmonton indicating that the proper permits had been obtained and a final inspection done. We reported on that basis to our client.

In 2019, we heard from our client that the city had given them a violation notice indicating a lack of permits for an addition to the property being a balcony and exterior alterations to provide a separate basement entrance.

Folks, this is four years later, four years after the purchase! Our client has a nice clean compliance letter.

What’s going on?

On further examination, it appears that when the seller applied for their deck permits the City bylaw officer told them that they should also apply for the addition and they could do that on the same application as for the deck. The seller didn’t do that. 

Four years later the City reviewed their file, saw that there had been no application for the addition, sent the bylaw officer out to look and then without any further ado issued a notice that said unless the permits were applied for, work done, and final inspection fully approved in a very short period of time, a $1,000 ticket would be issued. Plus, the compliance officer reminded our client that city would charge double permit application fees because the structures existed without permits.

This is a tough one. If you get a Compliance Certificate saying that a property needs deck permits and then you get proof that permits have been granted, the structure approved, and a new, clean Compliance Certificate, why would you or how would you know to dig deeper?

Maybe you would know that creating a new basement entrance is an exterior alteration requiring a permit. More likely, you would not think of this as a permit situation. But it is—at least in the City of Edmonton.

To be really on your permit diligence game, I think you need to look more closely at any property being purchased. Has anything been done to the exterior? If so, does it need a permit? Some things do and some don’t. Remember, the RPR is a two-dimensional drawing of structures located on the property. The Compliance Certificate issued by the municipality is based on the RPR. The RPR doesn’t show anything on or about the interior and it wouldn’t show or tell you that a new basement entrance had been installed.

One way to help out in this difficult diligence situation is to ask yours home inspector if anything has been done to the property that requires a permit. You could also in the negotiation process, ask if the seller has made any changes or done any renovations whatsoever to the interior or the exterior of anything located on the property

Talk about mad!

Our client was absolutely incensed that, 14 years after he purchased a property, he got a notice to remove his addition (rear covered deck enclosure). The City said that, according to their records, no development permit had been issued, and that our client had to get the permits and have the property inspected and approved in one month or face fines starting at $1,000! (Just so you know, the City of Edmonton is much more aggressive in the lack of permit situations. I have a number of clients who have complained that a fine has been issued without even a warning.)

It was quite a nasty letter from the City.

In response, my client emailed me and said, “I purchased the property in question back in 2006, and have never built any additions to the property. So, I don’t know why this is a problem at this time, especially during the coldest time of year and 14 years after my purchase. The property is just like it was when I first purchased it and I never received any notice before regarding any addition or outside structure since I have owned it. Furthermore, they say they have inspected the property, but I am not aware they ever stepped foot on the property and I have no trespassing signs at the rear and at the front, so they are either lying or never came onto the property or they totally ignored the signs that would keep them from trespassing. Either way it’s not very professional or a safe way to conduct the affairs of the City.”

My client went on to say that he believes his neighbour complained, because his neighbour is always complaining.

If someone complains to the City, a bylaw officer usually goes out to have a look. Although my client thinks that the City could not have set foot on his property, they most likely just looked over the fence, saw the deck, checked the records, saw no permits, and then issued their violation notice…

Although I act for this particular client now, I didn’t act when he purchased 14 years ago. I asked him about his real property report and compliance. What did the compliance certificate from the City say? Answer, “I didn’t get an RPR and compliance, I got title insurance”.

The immediate answer to my client’s problem with the City was to down and speak to a development officer in person. They agreed that if he would apply for permits right now, he would just have to pay the normal permit application cost and not the double charges that would normally be in place. He got the permits and had a final inspection done, which approved the deck as built. So, this problem is now not an issue and will not cause my client trouble when he sells sometime in the future.

• There is no limitation on the timeline for the requirement to get appropriate permits.
• Title insurance did not assist our client. It only covers enforced removal. Since the deck stayed, there’s no help from title insurance.
• When purchasing, a current RPR and clean compliance certificate is your best bet, even if not 100% protection against bylaw and permit problems.

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