by Janet Clarkson
On August 1, a new version of the residential offer to purchase became effective. It is important to note that these changes affect only the residential offer to purchase form and not the condominium offer to purchase.
So why was a new residential offer to purchase introduced and how does it affect buyers and sellers?
Early in 2008, the Manitoba government commissioned an independent review of current Manitoba law and practice concerning disclosure of the condition of homes during real estate transactions. It was initiated by the province following concerns raised with one of the homes damaged by the 1997 Red River “flood of the century.” The damaged home was moved under the 1997 Flood Protection Program and then resold by the buyer.
The review was conducted by John Neufeld, a real estate lawyer who is also a lecturer in real estate law at the University of Manitoba.
Neufeld submitted his report entitled, Vendor Disclosure in Real Estate Transactions: A Proposal for Reform, to the finance minister in November 2009. Three of the recommendations in the Neufeld Report were:
1. Encourage/increase the use of property disclosure statements in real estate transactions
2. Encourage/increase the use of home inspection reports in real estate transactions
3. Enhance public/industry education in the area of property condition disclosure
The Manitoba Securities Commission (MSC), which administers the Real Estate Brokers Act and licences all real estate practitioners in Manitoba, was directed to consult with affected groups on these recommendations and report back to the finance minister. The MSC solicited public input and consulted with a number of organizations as well as recent buyers and sellers of real estate. As a result, the Residential Offer to Purchase was amended and a new Property Disclosure Statement, or PDS, was developed — both becoming effective on August 1, 2011.
One might ask why the Manitoba government is involved in the development of a new offer to purchase. This is because the wording of both the residential offer to purchase and the condominium offer to purchase are prescribed by Manitoba legislation: the Real Estate Brokers Act and its regulations.
The two main changes are found in sections 7 and 8 of the offer which now read as follows:
“Seller to provide Property Disclosure Statement
“7. (a) The seller promises to complete a Property Disclosure Statement in the prescribed form attached as Appendix A and deliver it to the Buyer or to the Selling Broker within __ hours after acceptance of this offer. On delivery of the Statement, it forms part of this agreement.
“Or,
“(b) The Property Disclosure Statement completed by the Seller in the prescribed form and attached to this Offer forms part of this Agreement.
“(Strike out paragraph 7(a) or (b), whichever does not apply. Strike out all of section 7 if the Buyer does not require a Property Disclosure Statement.)
“Conditions benefitting the Buyer
“8. This agreement is terminated unless the following conditions for the benefit of the Buyer are fulfilled or waived:
“(a) That, within __ hours after delivery of the Property Disclosure Statement pursuant to paragraph 7(a), the Buyer be satisfied with that Statement.
“For the purpose of paragraph 10(d), delivery to the Seller or the Listing Broker of a copy of the Statement containing the acknowledgement of the buyer (each Buyer, if there is more than one) that he or she is satisfied with the Statement is deemed to be notice to the Seller this condition has been fulfilled.
“(Strike out paragraph 8(a) if paragraph 7(a) is struck out.)
“(b) That any mortgage shown as to be arranged can be so arranged by the Buyer by __ a.m./p.m. on the __ day of _____, ______.
“(c) That by __ a.m./p.m. on the __ day of ____ the Buyer obtain at the Buyer’s expense, an inspection of the Property, satisfactory to the Buyer, by an inspector chosen by the Buyer.
“(d) (Others — if no others, state “None”.)”
Another change is the inclusion of Appendix A which is a property condition disclosure statement.
This new form, which is Appendix A to the Offer, asks the seller 19 questions about his/her knowledge of the property during the time that he/she has owned the property.
Examples of the questions include:
• “Are you aware if the property does not comply with municipal or regulatory requirements such as zoning, building code, fire code, etc.?”
• “Are you aware of any additions or alterations that were made without the necessary permits and final inspections?”
• “Are you aware of any flooding or seepage affecting any portion of the property (i.e., into the house or garage or into low-lying area of the yard) from any cause or source such as rainwater, snow melt, sewage backup, flooding, etc.”
• “Are you aware if there has been any flooding or seepage into the basement, from the walls or windows, etc.?”
• “Are you aware of any roof leakage?”
• “Has an insurer cancelled fire insurance or refused to issue or renew insurance?”
If a seller chooses to complete this form, he/she is required to answer these questions truthfully and accurately based on his or her knowledge of the property.
When should a seller complete this form? It is probably a good idea to complete this form in the presence of the real estate salesperson who is listing the property for sale at the time the listing contract is signed.
Why? So that the form is available for prospective buyers to review prior to making an offer to purchase the seller’s property. Being able to review the seller’s representations about the condition of the property before making an offer can enable the buyer to make his or her offer unconditional upon the seller completing the form.
What if I as a seller don’t want to complete this form? That is your right, but it may raise questions in a potential buyer’s mind, such as, “What is the seller hiding?”
What if I, as a buyer, don’t need or want the disclosure statement? Or a property inspection? That is also your right. You can simply stroke out the clauses as indicated.
What happens in a real estate transaction?
1. A new form of the Property Disclosure Statement (PDS) has been added to the standard form of Offer to Purchase as a schedule Appendix A. The intent is to ensure that the PDS and the disclosure it can provide will be brought to the attention of buyers. The form will be reviewed periodically and amended from time to time.
2. The offer contains a reference to the PDS in clause 7(a), which allows a buyer to make the provision of a completed PDS by the seller a term and condition of the offer to purchase contract. The clause also states that the buyer will have a certain period of time to review the PDS following receipt. In those instances, where a seller has prepared a PDS in advance so that it can be reviewed by potential buyers before making an offer, clause 7(b) states that it forms a part of the agreement.
3. While it is referenced in clause 7 of the offer, the buyer does not have to request a PDS — he/she can stroke out the clause referring to the PDS as indicated.
4. If a PDS is requested by the buyer in clause 7(a), then the seller has the option of rejecting the offer or countering the offer with the clause deleted.
5. If the seller accepts the offer agreeing to provide a PDS and then later refuses to provide it, the buyer has the option of pursuing the seller for breach of contract, waiving fulfillment of the condition, or the buyer can treat the condition as not being fulfilled and the agreement is void.
6. If the condition is not satisfied or waived by the stipulated time, then like all other conditions, this condition is deemed not to have been fulfilled and the offer will be void.
7. If the PDS is provided and it is satisfactory to the buyer, then the condition is fulfilled. The buyer then signs on the last page of the PDS or provides a Notice of Conditions Satisfied form to the seller to indicate such. The PDS then forms part of the agreement and the representations contained in it will survive closing.
8. If the seller provides a PDS that is unsatisfactory to the buyer, the buyer can treat the condition as not being fulfilled, and then allow the time to lapse or provide a Notice of Conditions Not Satisfied form to the seller. The offer is then void and the deposit is returned. The buyer also has the option of waiving the condition by providing a Notice of Waiver of Condition form to the seller; in which case, the offer can be treated as binding subject to the fulfillment or waiver of any other conditions.
By including references to the PDS and property inspection in the offer to purchase, buyers will be able to see the type of disclosure that is available to them prior to submitting an offer. Including a request for a PDS in an offer will allow a buyer to be more informed about the condition of the property prior to closing of the real estate transaction. By reviewing the form completed by a seller, the buyer then has the opportunity to further investigate any issues raised.
By completing the form, a seller can acknowledge what he/she knows about the property at the time the form is completed thereby avoiding risk of non-disclosure of pertinent facts about the property and a possible claim of misrepresentation.
Failure to disclose problems or material defects in properties by sellers is a major source of complaints to the Manitoba Real Estate Association.
By reviewing a completed PDS form, real estate salespeople are also aware of any potential problems that may need to be investigated further.
(Janet Clarkson is the education consultant for the Manitoba Real Estate Association.)