By Brian Madigan LL.B.

If the purchaser fails to deliver the deposit, whose responsibility is this? What is the role of the agent?

The Real Estate Council of Ontario (RECO), the regulating body for real estate sales representatives and brokers recently had to consider such matters.

The sellers entered into a listing agreement for their property. They had recently moved out of the Province and a relative in Ontario was acting as a “go-between” with the listing sales representative and brokerage.

On September 23, 2005 the sellers accepted an offer of $140,000 for their property. According to the original Agreement of Purchase and Sale, the deposit to be made upon acceptance of the offer was $14,000. The only condition of the sale was that the buyers had to obtain financing by October 11, 2005. The transaction was to close on October 27, 2005.

On October 11, 2005 the buyers requested an amendment to extend the deadline to obtain financing to October 18, 2005, move the closing date to November 4, 2005 and amend the deposit amount from $14,000 to $1,000. The sellers signed the amendment agreeing to the changes, on October 11. The deposit of $1,000 was collected at this time.

The purchasers could not close on the 4th of November. The closing date was extended for another 10 days, and the deal still did not close. The sellers asked for the deposit and decided to list with another brokerage. The listing agreement, in their view had expired since they shortened the date to when they signed, however the brokerage still left it at 31 December, which was the date it had initially proposed.

Here are the allegations of misconduct made by RECO against both the sales representative and the supervising broker:

• failed to inform their client when the initial deposit was not received.

• failed to give their clients all the relevant information when the clients were asked to sign the Amendment in respect to the reduced deposit.

• when the buyers requested an extension of time to obtain financing, failing to make reasonable inquiries as to the circumstances and failing to relay these to their clients to enable their clients to make an informed decision.

• failed to make reasonable inquiries before making representations to the sellers about the credit-worthiness of the buyers without some proof thereof.

• failed to take reasonable steps to confirm that the buyer’s financing was in place.

• failed to ensure the arrangement for a Power of Attorney or other such document to document the role of the mother of one of the sellers and how offers, negotiations, etc. were to be handled.

• failed to confirm their role in the transaction with all parties particularly as there was inconsistency between the agreement and Confirmation of Representation form.

• failed to advise their client of the process to obtain the deposit when Mutual Consent was not given.

The Discipline Committee accepted the submission that the registrants had breached the following RECO Code of Ethics:

Rule 2 Primary Duty to Client

A Member shall endeavour to protect and promote the best interests of the Member’s Client. This primary obligation does not relieve the Member of the responsibility of dealing fairly, honestly and with integrity with others involved in each transaction.

Rule 3 Disclosure of Role

At the earliest practicable opportunity, but no later than when the Member accepts an Agency, a Member shall fully disclose in writing the role and nature of the service that the Member shall be providing to the person. The Member shall also disclose the Members’ role to others involved in the transaction where appropriate.

Rule 6 Written Transaction Agreements

A Member shall ensure that Agreements regarding Transactions are in writing, expressing the specific terms, conditions, obligations and commitments of the parties to the agreement. A copy of each accepted Agreement shall be furnished to each party upon its final acceptance.

Rule 11 Discovery of Facts

A Member shall discover and verify the pertinent facts relating to the Property and the Transaction relevant to the Member’s Client that a reasonably prudent Member would discover in order to fulfill the obligation to avoid error, misrepresentation or concealment of pertinent facts.

Rule 42 Competence

A Member shall render conscientious service with the knowledge, skill, judgment and competence, in conformity with this Code of Ethics and the standards which are reasonably expected of Members. When the Member is unable to render such a service, either alone or with the aid of another Member, the member shall decline to act.

The Discipline Committee assessed fines of $8,000 each as against the sales representative and the broker.

COMMENT:

This appeared to be a file wildly out of control. Perhaps they were beyond their depth of knowledge. The missing power of attorney was the first indicator. The got the wrong expiry date in the listing. Notably, this was to their advantage.

They failed to explain agency. Even if they were both new to the business, this is one of the essential elements in the basic real estate course. They didn’t get the deposit and fooled around with the mortgage approval and reduced deposit.

You might even think that they were motivated by the fact that they were getting double the commission on this deal?

And, when the deal didn’t go through, they feigned complete surprise. Actually, had they been on top of things, they would have known and they could have properly advised the sellers.

They had a significant conflict of interest. This was not really mentioned by the Panel, but it should have been.

Both the sales agent and the broker acted in cavalier disregard of the sellers’ interests.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

An agent is not able to simply discount the interests of the public. A real estate agent has a general duty to act professionally and protect the public from mortgage fraud.

That was the lesson learned by an agent recently who permitted certain parties to deceive the bank by “over-listing” the property.

The matter came before the discipline committee of the Real Estate Council of Ontario (RECO) which assessed a $7,000 fine on consent. The agent acknowledged the impropriety of the conduct.

How did this problem arise? The bank lent some money by way of a mortgage. It checked the MLS records and found that the property was listed for $229,000. Yes, it should have conducted its own due diligence. It should have retained its own appraiser. But nevertheless, it wasn’t expecting that the property was only worth $65,000. That, it found out when the property went into foreclosure.

The agent went along with a scam. The agent should have been smarter, more astute and a little less naïve. The agent was contacted by a client who introduced him to the seller. He inspected the property and thought it was worth about $100,000. The seller wanted to list at $229,000, a figure that would have grossly exaggerated the value. The agent went along with this and agreed to a six month listing from 17 November 2005 to 17 July 2006.

On 25 November 2005, the seller entered into an agreement to convey the property to a buyer for $225,000. It was not done through the agent or the brokerage. In fact, there had been no showings.

The allegation of professional misconduct was:

a) he listed the property at a price that he knew was overly inflated,

b) he did not do what a reasonably prudent registrant would have done to avoid allowing his services, including authorizing MLS listings that included grossly inflated property value to be used for improper purpose.

The disciplinary panel found that the agent was in breach of certain ethical guidelines, more particularly, breaching the following Rules of the RECO Code of Ethics:

Rule 1 – Ethical Behaviour

A Member shall:

(2) Endeavour to protect the public from fraud, misrepresentation or unethical practice in connection with real estate Transactions.

Rule 10 – Misrepresentation or Falsification

A Member shall not make any statement or participate in the creation of any document or statement that the Member knows or ought to know is false or misleading.

Rule 42 – Competence

A Member shall render conscientious service with the knowledge, skill, judgment and competence, in conformity with this Code of Ethics and the standards which are reasonably expected of Members. When the Member is unable to render such a service, either alone or with the aid of other Members, the Member shall decline to act.

Rule 46 – Unprofessional Conduct

A Member shall not engage in an act or omission relevant to the practice of the profession that, having regard to all the circumstances, would reasonably be regarded by Members or the public as disgraceful, dishonourable or unprofessional.

It should be noted that although this matter was not considered until December 2008; the applicable rules of conduct applied to the facts were those that were in effect prior to the revisions to the Real Estate and Business Brokers Act, 2002 and the Code of Ethics passed as a Regulation under the Act.

There are similar but slightly different provisions that would apply today.

The point is quite simple if you are a real estate agent: Don’t get duped! You are a professional. You are supposed to act professionally in an independent capacity. Others could rely to their detriment upon your “advice”. And, while this agent never actually told any particular person that the property was worth $229,000, he in effect told the whole world that such a listing price was within the realm of an appropriate listing price. In fact, it was simply a crazy number picked out of the air. Moreover, it was selected by the seller for the purposes of perpetrating a mortgage fraud on the bank.

So, be careful. Do not participate in such foolishness, otherwise you will be subject to disciplinary proceedings.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

You may wish to consider the Seller’s obligations to indemnify under the standard form Listing agreement prepared by the Ontario Real Estate Association (OREA).

Here’s what the clause looks like:

“8. INDEMNIFICATION: The Seller will not hold the Listing Brokerage responsible for any loss or damage to the Property or contents occurring during the term of this Agreement caused by the Listing Brokerage or anyone else by any means, including theft, fire or vandalism, other than by the Listing Brokerage’s gross negligence or wilful act. The Seller agrees to indemnify and save harmless the Listing Brokerage and any co-operating brokerage from any liability, claim, loss, cost, damage or injury, including but not limited to loss of the commission payable under this Agreement, caused or contributed to by the breach of any warranty or representation made by the Seller in this Agreement or the accompanying data form.”

Unlike the Indemnification clause contained in the Buyer Representation Agreement (BRA), this particular paragraph really does contain an indemnity.

Reasonably, the paragraph can be broken into two parts: a disclaimer, and an indemnity.

The Disclaimer

Let’s look at this statement in more detail:

• The Seller will not hold the Listing Brokerage responsible
(this is a disclaimer or limitation on liability)

• for any loss or damage to the Property or contents
(note: there is no reference to personal injury)

• occurring during the term of this Agreement
(this is the listing agreement period and does not include the additional holdover period)

• caused by the Listing Brokerage or anyone else
(this refers to obviously everyone in the entire world)

• by any means, including theft, fire or vandalism, other than by the Listing Brokerage’s gross negligence or wilful act.
(and the cause is irrelevant, with the notable exception of a wilful act or gross negligence)

I should make it clear that the term gross negligence likely has no meaning in law in this context. Ordinary negligence probably means the same thing as gross negligence.

So, the listing Brokerage is not responsible for people setting fires. That’s probably reasonable. But, it is also unlikely. What’s more important is the matter of theft. This is far more likely to occur and a much more difficult problem. How can the agent ensure that no one takes anything? This is almost impossible! Thieves can be very clever.

The Indemnification

This paragraph actually includes an Indemnity, which we can break down as follows:

1) Indemnity: The Seller agrees to indemnify and save harmless

2) Who: the Listing Brokerage and any co-operating brokerage

3) From What: from any liability, claim, loss, cost, damage or injury,

4) Commission Included: including but not limited to loss of the commission payable under this Agreement,

5) Triggering Event: caused or contributed to by the breach of any warranty or representation made by the Seller in this Agreement or the accompanying data form.

So, this statement truly is an indemnity. It operates in favour of the brokerage and any co-operating brokerage. That means everyone else on the MLS system or any brokerage which might participate in a transaction.

There must first be a loss to either the brokerage or the co-operating brokerage before this statement will become operative. It covers any liability, as well as other claims etc. Notably it does not mention judgments, orders, pre-judgment and post-judgment interest which are usually mentioned in this type of provision.

More specifically, if for some reason the commission is lost, then this statement will come into play.

The triggering event before the seller will incur liability is a direct or indirect causal relationship between the loss and a breach of either a warranty or representation made by the seller. However, that breach relates specifically to this Agreement (meaning the listing agreement) and the data form which sets out details about the property.

Now, you might think that the two most likely causes of a breach in a transaction would arise out of the Agreement of Purchase and Sale, or the Seller Property Information Statement (SPIS) and you would be right.

The problem, at least, for the two brokerages that might seek to benefit from the terms of this provision is that both such documents are not mentioned.

In terms of legal interpretation, the “contra proferendum” rule would apply. That means that any ambiguity or uncertainty in a document will be construed as against the interest of the person who drafted the document. A Court would be unlikely to extend the meaning to include the agreement of purchase and sale and the SPIS when they were omitted. That’s interesting! Obviously, there should be a better indemnification provision from the perspective of the brokerages. This particular one contains some rather large holes. Oh, well, litigation is probably too expensive anyways! But, the point of this is that if you are going to have an indemnity clause, you should have a good one.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Ben Wicks was a political cartoonist and satirist. He had amassed over 3,000 cartoons by the end of his lifetime.

The issue under discussion is who owns his cartoons.

Here’s what happened. Ben had them stored in boxes, garbage bags, desks etc. They were simply everywhere! They were never organized or properly catologued despite their value. But, when he started out, he never realized that he was going to be famous.

Some of the cartoons had been “stored” in plastic garbage bags and left with his son and daughter-in-law. They were moving out west, and left the bags in the garage for the movers. The movers thought they were garbage and so they were left behind. The new purchaser found them, and at first did not think they had much value. However, he soon came to realize that they were of sigificant value so he tried to sell them. The Wicks family brought an action in the Superior Court for their return.

So, who owns them?

Richard Harnett claims that he owns them. They were abandoned as garbage which he found in his own garage. He simply could have taken them to the curb. But, he looked in and found something which turned out to have value.

The trial Judge quoted with approval the folowing summary of the law:

Ownership

“An understanding of the applicable law begins with an appreciation of the importance of ownership. This has been expressed as the duty we owe to our neighbour, who is the owner of goods.

At common law, one’s duty to one’s neighbour, who is the owner, or entitled to possession, of any goods is to refrain from doing any voluntary act in relation to his goods, which is a usurpation of his proprietary or possessory rights in them. Subject to some exceptions which are irrelevant for the purposes of the present case, it matters not that the doer of the act of usurpation did not know, and could not by the exercise of any reasonable care have known, of his neighbour’s interest in the goods. The duty is absolute; he acts at his peril.”

Abandonment

Ownership can be lost where the owner abandons the goods. Abandonment has been defined as:

Abandonment occurs when there is “a giving up, a total desertion, and absolute relinquishment” of private goods by the former owner. It may arise when the owner with the specific intent of desertion and relinquishment casts away or leaves behind his property…”

Failure to Seek

Failure to look for property that has been unintentionally lost is one factor that, depending on the particular facts, may contribute to the inference of an intention to abandon.

Onus of Proof

Once ownership has been established, the onus of proving abandonment rests with the defendant:

The facts

In this particular case, the trial Judge noted the following facts:

• Ben Wicks was disorganized, but he maintained ownership

• The movers made an error (their instructions had been clear)

• The boxes and bags were stored out west and were never abandoned

• It was not evident that cartoons, in fact, were missing

• The widow of Ben Wicks went out west to retrieve the cartoons

Judge Lederer concluded: “the evidence, taken as a whole, does not, on a balance of probabilities, demonstrate any implied intention to abandon this material.” Consequently, he ordered the return of the cartoons.

It should be noted the the Wicks family then donated these cartoons to York University.

Note: The cartoon in the caption is an example of one of Ben Wick’s many fine works.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

The markets have shown a significant sign of recovery this Spring, particularly during the month of April which saw a 6.51% increase in average prices for single family homes in the GTA.

This follows a substantial stock market crash, a worldwide financial crisis, and elections in both the US and Canada during the last quarter of 2008.

I set up the ORES Real Estate Index last year. In many ways it is like the CPI (consumer price index) in the sense that it is designed to track values over a period of time.

The Index commenced 1 January 2004. All related prices were converted to 100, so everything to be compared would have a common starting point.

Single Family Housing in the GTA

When you are looking at house prices for single family homes in the GTA, you will find the following:

129.80…..30 April 2009
123.28…..31 March 2009
123.08…..28 February 2009
117.93……31 January 2009
122.85……31 December 2008
124.80…..30 November 2008
120.38…..31 October 2008
124.60…..30 September 2008
131.53….. 30 June 2008
132.11……31 May 2008
132.24 …. 30 April 2008
127.42….. 31 March 2008
127.86….. 29 February 2008
125.63….. 31 January 2008
126.31….. 31 December 2007
130.76….. 30 November 2007
130.98….. 31 October 2007
100.00….. 1 January 2004

This means that the average price for single family homes in the Greater Toronto area has increased 29.80% in 64 months. So, this is 0.46% per month or 5.59% per year. You will also see that the height of the market was reached in April 2008. Traditionally, the peak is reached in May.

There were several remarkable factors that occurred in the month of October 2008:

• Worldwide stock market crash
• Worldwide liquidity crisis
• Commodity price declines in every sector
• Expectation of a worldwide recession
• expectation of numerous bank failures

These factors were very unusual, with media reports noting comparisons to the Great Depression in the early 1930’s. So, all of these numbers have to be viewed in the context of the world markets and the international media in the month of October.

The year ended at 122.85 and trended lower in January to 117.93. Sales volumes were off substantially: down by half in January, one third in February, one fifth in March and only by 7% in April. The good news was that the average price increased by 5.14% in February to 123.08, and slightly more in March to 123.28. There was a 6.51% increase in April to 129.80.

Condominium Market in the GTA

Here are the comparable statistics for condominiums throughout the GTA:

112.80……30 April 2009
113.56……31 March 2009
112.65……28 February 2009
112.53……31 January 2009
122.61…. 30 April 2008
123.17….. 31 October 2007
100.00….. 1 January 2004

You will notice that the overall performance is less than the comparative single family home. The condo prices dipped slightly during the month. The performance continues to trail the single family homes.

Central Condominiums

Let’s have a look at the parts of the condo market. The numbers for centrally located condos illustrate a very notable decline. These are the ones in downtown Toronto:

140.00……30 April 2009
135.32……31 March 2009
134.89……28 February 2009
136.76……31 January 2009
152.99…. 30 April 2008
153.06….. 31 October 2007
100.00….. 1 January 2004

There has been a trend to downtown centrally located condos over the last four years. That appeared to be changing over the last few months. While the overall downtown condo market seems vulnerable due to increased product supply, last month the short term trend subdued and the market rebounded.

East Condominiums

These are the condos in the eastern areas served by the Toronto Real Estate Board. Here’s the performance:

121.98……30 April 2009
122.58…..31 March 2009
122.08…..28 February 2009
122.62…..31 January 2009
130.07…. 30 April 2008
121.04….. 31 October 2007
100.00….. 1 January 2004

This market generally has performed quite well. The performance has been very stable and has shown both increases and decreases in line with single family homes.

North Condominiums

Here the numbers here are somewhat lower:

104.50…..30 April 2009
117.12…..31 March 2009
116.33…..28 February 2009
112.42…..31 January 2009
111.09…. 30 April 2008
125.36….. 31 October 2007
100.00….. 1 January 2004

While the north condos continue to show relatively poor performance, you will notice that it had been showing stability. I should point out that the few months following inception of the index were not kind to the north condos. They dropped about 30% in value. If the index were changed to 48 months rather than 64 months as it is now, the performance here would be considerably different. However, that does not account for the dismal April performance.

West Condominiums

The west condominiums increased slightly over the month and overall the performance is demonstrating reasonable stability:

122.52…..30 April 2009
119.89……31 March 2009
117.68……28 February 2009
118.18……31 January 2009
127.50…. 30 April 2008
119.39….. 31 October 2007
100.00….. 1 January 2004

This market is now generally in line once again with other markets.

Market indicators, factors and conclusions

There are a few general conclusions that may be drawn:

• You were better to have a downtown Toronto condominium over the last 5 years (actually 64 months) than other property (140.00)

• Single family homes provided a reasonable benchmark rate of return (129.80)

• West condominiums seem to be reasonably stable (122.52)

• East condominiums performed reasonably well (121.98)

• West condominiums seem to be reasonably stable (122.52)

• North condos continue to be the poor cousin in the market (104.50)

The downtown Toronto Condominium market is the best performing residential real estate over the last five years in the GTA. By comparison, it rates particularly well in relationship to other financial and economic benchmarks. But, that does not make it a “buy”. It has recently been showing its vulnerability to the market forces. It is probably overbuilt now, and further declines may be expected. Essentially, there is too much new product coming onto the market. But, that doesn’t account for its superior performance in the month of April.

Mark Twain once said “Buy land, they’re not making it anymore”, but that’s really not the case particularly when you are talking about downtown condos. And, while quoting Mark Twain don’t forget that he also said “Get your facts first, then you can distort them as you please.”

Other Market Comparisons

Sometimes, it is wise to look at some other market factors. So, I have converted some popular indexes and commodity prices to the ORES format. Basically, that means that all other indexes (and commodity prices) are given a base level 100 starting point as of 1 January 2004. To illustrate the current trend, the March, February and January 2009 numbers follow in brackets. Here is the comparison:

184.80……(188.41)…….(190.62)….. (188.55)….. gold (per ounce)
172.96…….(169.13)…….(148.11)….. (151.21)….. ..oil (per barrel)
129.80…….(123.28)……(123.08)….. (117.93)….. ORES
117.89……..(110.73)…….(97.29)……. (108.16)….. TSX
94.58……..(82.16)…….(66.61)…….. (78.09)……..Nasdaq
85.59………(74.10)……..(60.25)……. (75.35)……. S&P 500
82.87………(75.38)……..(62.87)……..(77.66)…….Dow Jones Industrial

For most of the last five years, you were best to speculate in the price of oil, however you will now see that with all the recessionary forces in play that gold is the number one performer.

The real estate index has moved up, and despite dropping prices is now well ahead of the stock market. As an asset class, it is now third, whereas six months earlier, it would have been fourth. This fact reinforces that real estate is a good long term performer.

Our own stock market has faired pretty well compared to the substantial declines in the US. At the lower end of performance is the US stock market with all three indices at the bottom of the overall performance scale.

Real estate seems to be about where it should be: not too high and not too low. As I have often stated, real estate generally shows a 5% long term return, and right now the numbers show 5.59% as measured over the last 64 months.

You will notice that when it comes to prices and a recession, real estate is a relatively strong performer.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Everybody I know seems to understand just exactly what this means. I really don’t have any idea, but “they” all seem to know. My only problem is that everyone seems to have a slightly different interpretation, and in the event of a problem, this certainly is not helpful.

In a commercial lease, the Landlord will not fix up the property until he has a new Tenant. So, if you’re a Tenant looking for a good property, you will need to have a good imagination, otherwise, you’re in trouble.

No sooner does the Landlord rip out all that expensive plumbing that goes with a dental office, when along comes another dentist who wants the same thing. That basically means that the Landlord will leave the dentist suite “intact” until the new Tenant signs an Offer.

Let’s consider a quick scenario. Donald, the dentist rents 1,500 square feet from Larry the Landlord. He enters into occupancy on 1 June 2000. Larry runs some basic plumbing, but Donald pays for all the expensive fixturing. His business goes so well, that he needs to double the size of the space, since he is taking on a new partner. Larry has some space on an upper floor in the same building, and agrees to “permit” Donald to move.

Larry offers the space for rent. Along comes Bora, a lawyer, who agrees to take the space together with another 500 square feet.

Bora views the premises before Larry leaves. He thinks that this space will work. He inspects the plans and sends them to his space designer. He likes the space, inspects them one more time with the Landlord. He signs an Offer and negotiates for Larry to do some of the work. Larry agrees, and they agree on the balance of the terms of the lease.

One of the terms of the lease stated that Bora was to take over the premises in “as is, where is” condition.

One thing is certain, the premises were at some point in time to be static. But, at what time?

There are some possibilities here:

14 May ~ Bora’s first inspection date
15 May ~ Bora’s receipt of the plans date
16 May ~ Bora’s second inspection date
20 May ~ Bora’s meeting with the Landlord
22 May ~ Bora’s Offer submission date
23 May ~ Larry’s signback date
24 May ~ Bora’s and Larry’s actual agreement date
30 May ~ Bora’s right to enter and make changes date
14 June ~ Larry’s completion of work date
15 June ~ Bora’s right to occupancy for business purposes date
24 June ~ the commencement date mentioned in the Offer
15 July ~ the commencement date mentioned in the Lease
16 July ~ the commencement date in the Amended Lease
16 Sept ~ Bora’s first payment of the lease date (2 month’s free)

The problem is that work was undertaken by each of the parties for some reasonable period of time over several months. Donald’s contractors were there, Larry’s contractors were there, as were Bora’s.

Each day actually made a difference. There were daily changes to the premises. The actual condition can be quite important. You can appreciate that the condition could be quite relevant for a variety of reasons:

1) to know the start up condition,

2) to determine when the premises are available for Bora’s contractors,

3) to determine when Bora can use the premises for business,

4) to determine when the lease starts,

5) to determine when Bora must start paying rent,

6) to calculate the end of the lease term,

7) to determine the work that must be done the end of the lease term,

to determine the commencement of any renewal periods.

As a consequence of the lease arrangement coming to an end, Bora may have to restore the premises. But to what condition? Obviously, the correct answer is to the “as is, where is” condition.

However, what date do you use for this purpose? Also, how do you prove the condition on a specific date?

Let’s try to document a good solution:

1) inspect the premises on the specified date,

2) make notes,

3) get both parties to sign or initial,

4) get an independent third party to sign as well,

5) the third party could be an Architect, contractor, real estate agent,

6) take videos of the premises,

7) take photographs of the premises,

make sure both parties have copies,

9) make sure the third party also has a copy,

10) get the third party to agree to be an arbitrator,

11) if the other side is not co-operative, go through these steps yourself,

12) arrange for at least one independent third party.

Where do you get the third party? One of the best choices would be a “home inspector”. They are already in the business and know what to look for. The have an organized checklist and they will document their findings. If need be, at sometime in the future, they can be called upon to testify in Court concerning the condition of the premises on a particular date. And, that’s their business.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Actually, it depends upon where you live. If you live in Ontario, you can keep this to yourself. But, one little problem, your agent may have to tell.

Listen, this is a mess! It is very difficult to solve. I know you don’t want to be the “bad guy”, but if you live next door to the neighbours from _ell, then you’ll never sell your house.

However, don’t forget about the English common law. Here, it’s coming to your rescue. You don’t have to say a thing. Just keep quiet. Remember that business about “buyer beware”? Well, that principle is alive and well, and applies in this case. Say, nothing! And, as long as you keep silent on the issue, there’s nothing that they can do.

But, once you decide to speak up, you have to tell the truth. Half truths, and vague, evasive answers can all be interpreted as “lies” from a legal perspective. They can all amount to fraudulent representations intended to deceive the buyer and induce him to purchase your property. If you’re trying to limit your legal exposure, this isn’t the route.

So, you might say, “I’ll tell my agent, and just let her handle it”. At first, there appears to be some wisdom in that approach. The difficulty is that the agent is governed by the Real Estate and Business Brokers Act, and there are some important provisions that come into play. The Code of Ethics under the Act states:

Fairness, honesty, etc.

21. (1) A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earliest practicable opportunity, shall disclose the material facts to the client.

Note: This applies no matter the legal arrangement between the agent and the prospective purchaser (client or customer status).

And here’s the definition of material fact:

“material fact means, with respect to the acquisition or disposition of an interest in real estate, a fact that would affect a reasonable person’s decision to acquire or dispose of the interest.”

So, all in all, a serious issue involving a nasty, noisy neighbour would likely constitute a material fact. That means your agent might have to tell, even if you don’t.

Now, the obligations of the legal profession are quite different. This time, your lawyer is there to protect you and no one else. If you don’t have to tell, then, they don’t either. In part, this is solicitor-client privilege. You can be perfectly candid with your lawyer, tell all, you can even admit to murder, and your lawyer is sworn to secrecy.

This leads to a very simple conclusion if you have a serious issue with the neighbour. Seek legal counsel first. And, be careful about what you say to your agent. Also, if the problem is so self–evident that your agent will discover it on her own, then maybe you should consider selling this property yourself.

In Ontario, there is a document called a Seller Property Information Statement (SPIS). It is not mandatory or compulsory. It deals with a whole host of issues related to property ownership, physical condition, the structure, zoning and other matters. However, it does not touch on the issue here, namely, the disclosure of the noisy neighbours.

If you live in another jurisdiction, things might be different. A similar document to our SPIS may be mandatory and one of the questions may deal specifically with noise, and another with the social behaviour (or anti-social behaviour) of the neighbours.

So, as long as you live in Ontario, you can keep this secret to yourself. If, your conscience gets the best of you, and you feel obligated to provide complete disclosure, consider:

• Lowering the price

• Negotiating a truce with the neighbour

• Seeking a mediator

• Constructing noise attenuation walls

• Reporting the noise violations to by-law enforcement

• Reporting the noise violations to the police, if more serious

• Seeking damages by way of a civil action in nuisance

This final step may in fact be your best remedy. If you obtain a judgment for damages, you can get the neighbour’s insurer to pay. You can rest assured that they won’t like to pay you more than once. So, they will cancel the home insurance, and without home insurance, the mortgage goes into default. This all starts a vicious circle, but this time it is all to your benefit.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

That should be good news. Warren Buffet, the world’s most successful stock market investor, investment guru, and economic philosopher is looking to buy. That’s what he told 35,000 shareholders who attended the annual meeting of Berkshire Hathaway, the investment holding company that he manages.

And, the price of admission isn’t cheap. Anyone who bought shares in Berkshire Hathaway likely spent over $100,000 to buy one share.

The recent trend for the stock has not been good. Investments in the oil business immediately before the sharp drop in oil prices were not helpful. Yes, even “gurus” make mistakes! The trend in 2009 has not improved much: Berkshire shares are down 5% this year and 31% from a year ago.

Here are a few quick comments made at the AGM by Warren Buffet, Chairman and Charlie Munger, the Vice-Chairman:

• Berkshire Hathaway is ready to make a deal at the right price

• B-H has nothing in its shopping cart right now

• Berkshire has $20 billion in cash and is “perfectly willing to make a deal that’s compelling”

• Buffet expects the troubles that laid the markets low last year to pay off for Berkshire shareholders in the future

• Munger said that those judging the firm’s performance by short-term swings in its stock “are acting like fools”

• “If you think we’re in trouble because the stock price went down, you don’t understand what’s going on,” (Munger)

• Berkshire has been running what he described as “Andrew Carnegie’s playbook” – referring to the steel tycoon’s practice of grabbing market share from weakened competitors that run short of cash during economic downturns

So, all in all, that’s fairly good news. Berkshire Hathaway has a war chest and its looking for good deals NOW.

Note: The AGM comments were made 3 May 2009.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

This particular clause in a lease can be quite problematic.

Ordinarily, you’d think that the Landlord would want to keep all those valuable improvements that were made by the Tenant. Well, not always!

Sometimes, what is valuable to the Tenant has little or no value to the Landlord, no matter what it cost.

Think perhaps of a small jewellery store in a shopping mall. The premises have been fully upgraded with expensive fixturing, marble floors and oak walls. You might think that the Landlord would have a “windfall” if this store went out of business. But, perhaps not. It went out of business because it was too high end. A store that catered to the rich, however, the mall really served the middle class, and the real upper end stores were all located in another mall downtown.

On the closure on this jewellery store, the next Tenant might be selling discount T-shirts. The oak and the marble are just not a fit. Perhaps, the Landlord needs the space to assemble sufficient space to house a large lower end clothing store, such as Old Navy, with its polished cement floors. The marble on a small portion of floor would look rather silly.

So, here’s the “removal and restoration” clause to the rescue. When the Tenant vacates, the Landlord has an option:

1) keep the premises intact, or

2) remove and restore the premises to their original condition.

So, the Landlord if another jewellery store is the likely Tenant, will take the premises intact, but if Old Navy is the new Tenant, then the Landlord will likely insist upon the removal and restoration option.

What does this mean? Actually, it means just what it says. The Tenant is obligated to remove everything that was installed, both by the Tenant, and previous Tenants at its own expense. The obligation is to strip the premises right down to the bare walls. This means, rip out the marble floor, and rip out the upgraded plumbing fixtures.

This requirement to remove leasehold improvements and restore premises
on lease expiry could indeed be a very expensive provision. It is designed to offer some compensation to a Landlord faced with a departing tenant. And, it’s the Landlord’s choice.

It may also provide some incentive for the jewellery Tenant to renew rather
than relocate. If the Landlord is undertaking a spatial assembly, to accommodate a larger Tenant like Old Navy, then the Landlord will likely offer to move the Tenant for free.

Astute Tenants will usually include a clause in their offers relieving them from this requirement. Landlords generally respond by requiring Tenants to remove certain improvements such as stairwells (in two floor office towers), raised flooring, cabling, vaults, trade fixtures and similar items.

It is important that this clause and its potential costs be considered at the outset, and prior to the Tenant moving in. Sometimes, the costs associated with the removal can exceed the costs of tenant’s improvements upon entry into the premises in the first place.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

So, you thought you had an agent?

Only one little problem, your agent takes all your secrets and immediately tells the other side. And, it’s legal. At least, that’s what the real estate industry thinks.

How does this work? Well, let’s look at the following scenario. One day you drop into an Open House on the spur of the moment. This house is in good shape, but it’s a little too expensive.

The agent seems nice and asks you some questions about what you’re looking for. He takes your name and address and calls you the next day. He has something that fits your requirements. You agree to see it.

The agent pulls out some papers for you to sign before seeing the house. These papers would commit you to deal with him and pay him a commission. You decline, simply saying that you’re “just looking, and not really sure whether you want to buy a house at this time”.

Then, you view the house without signing any documents. The home fits the bill. It’s listed at $499,000 through another agent at her office.

You are very interested and say that you “would like to put in an Offer at $459,000, just to try out the vendor in these uncertain economic times, but you could go up in $10,000 increments and you would be prepared to pay $489,000 to get the deal done”.

So, you might be quite surprised to find that the agent immediately tells the listing agent in the office that the prospective purchaser:

“would like to put in an Offer at $459,000, just to try out the vendor in these uncertain economic times, but you could go up in $10,000 increments and you would be prepared to pay $489,000 to get the deal done”.

That kind of information is really not going to help you negotiating. It certainly looks like you’re being played for a fool and you’re right.

But, here is the rationale. Your agent was under a legal obligation to the vendor. She worked for the same brokerage as the listing agent and the contractual obligation was owed to the vendor.

Your agent was not your agent. You were foolish and foolhardy to think that was the case. You’re out in the cold. No one is acting for you. You are on your own.

Now, if you had signed those documents in the coffee shop, you would have been a client too. So, the brokerage and the two agents would not be able to take advantage of you. Now, they are just helping you out.

The bottom line, of course, is that you end up negotiating a purchase price of $489,000 for the property. Interestingly enough, that was the top end of your price range. So, who knew that was your top price:

• The agent, you thought was your agent
• The listing agent, and
• The seller

Well, that’s a great team! And, guess what? They all want you to pay the most amount of money for the property.

No one is acting for you. You are on your own.

So, that’s the general theory: both agents and the brokerage owe legal duties to the vendor, the client.

What they owe to you is “fairness, honesty and integrity”. Those are three simple obligations set out under the Real Estate and Business Brokers Act, 2002.

Clearly, reporting confidential information is considered by the real estate industry as quite appropriate, completely ethical and legally required. In fact, this matter arises frequently.

What do you think? Does this make any sense? Most people would say “no”. Many would think that it’s a breach of confidence and that it should not be permitted.

I should point out, that not every agent thinks this way. many believe that the law is changing. They have confidential information, and they should not disclose it. Unfortunately, there have not been many reported legal cases dealing with this type of issue. What do you think the law should be in such circumstances?

Was there an expectation of privacy? Was confidentiality expected? If you told something to someone else’s lawyer, would you not expect that they would provide that information to their client?

Do you think that the documents in the coffee shop bear heavily on the later negotiations? That was your opportunity and you missed it?

Who knows for sure, but one of these days we will see a case that outlines the law in these circumstances. And, if you are a realtor, you don’t also want to be a defendant.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com