The types of contracts and clauses you may see in typical real estate transactions

Buying or selling a home can be a complex and high-stakes process. As such, certain procedures and legal documentation exist to protect all parties involved while ensuring everyone is on the same page throughout the process.

Melissa Douglas — owner of Douglas Law Firm based in Bradford, Barrie, and Vaughan, Ontario, a practice focused on real estate law, wills, and estates — works with both buyers and sellers to review any critical documentation, including contractual agreements.

A good real estate lawyer is an asset in the buying and selling process. They can be used in combination with a professional REALTOR® to ensure the buyer or seller fully understands the jargon and contracts at play, and that you’re well-represented from start to finish. Your REALTOR® will be able to give you names of lawyers they’ve used in the past, but know you’re under no obligation to use their referrals.

Although contracts used in the real estate process tend to be standardized, Douglas explains a given contract can contain any number of conditions and clauses that must be accounted for before finalizing a transaction.

For home sellers

According to Douglas, the first step when working with a client with a home sale on the horizon is to review their Agreement of Purchase and Sale, which is a written contract between a seller and a buyer with respect to a particular property.

“We review the document in its entirety,” she says. “Then we just make important notes. Who’s selling? How much are they selling for? What’s the closing date? Is there anything in the property they need to leave behind? What’s the requisition date? We’re looking to see if there’s anything they need to do to the property before closing.”

She adds these types of contracts can often have amendments or conditions that need to be fulfilled — or in other cases, waived.

“Attached to the Agreement of Purchase and Sale, there’s a Schedule A, and that has all of the unique clauses to the agreement. So it might say, before closing, they have to fix some kind of leak, or maybe they have to replace appliances,” Douglas continues. Contracts may also include a financing clause, a clause that specifies instructions for the transfer of the deed, or — if the sale of the property is subject to the Harmonized Sales Tax — an HST clause.

In addition, when working with a lawyer, sellers can expect to be asked to sign a retainer, which is an agreement between solicitor and client respecting services.

“That’s just to acknowledge they’re going to be taking us on as their lawyer,” adds Douglas.

For home buyers

For buyer clients, Douglas notes the process is “pretty similar,” with the first step generally being for the lawyer to review the Agreement of Purchase and Sale.

“Again, we’re looking for the same legal documents. We’re looking for Schedule A, we’re looking to see if there’s any conditions that have to be fulfilled or waived, and we’re looking for all the same important clauses,” she says.

“If there are any conditions the seller needs to address before closing, we want to make sure we have proof of all of that before we close on the transaction,” says Douglas. “For example, maybe the seller was supposed to get a professional to repair a wall. We’re going to ask to see receipts and proof that it was actually completed before closing.”

In addition, the requisition date included on the Agreement of Purchase and Sale is particularly important to review on the buyer’s side, as that’s the date a title search should be conducted to ensure the title of the home has indeed been transferred to the buyer.

Buyers should also be aware that, in addition to the Agreement of Purchase and Sale, which certainly can include conditions relating to financing, a separate contract must be created to secure financing with a bank or lender. Similarly, this is a legally binding contract.

Condos, conditions, and other variables to consider

When buying or selling a home, the process is not one-size-fits-all. For instance, if the property changing hands is a condo, a lawyer will ask to review the status certificate, in addition to the Agreement of Purchase and Sale.

“The agreement would be conditional until the lawyer reviews the status certificate and gives it a clear reading,” adds Douglas.

It’s also worth noting that for new builds, the Agreement of Purchase and Sale tends to be between the buyer and builder, rather than the buyer and seller, with the exception of that pertaining to assignment sales.

Douglas adds it’s not uncommon for a lawyer to be brought into the process before an agreement is firm.

“Maybe the agreement was conditional on a home inspection, but the home inspector found an issue with the roof. So now, the buyer might want to do an amendment to the agreement to get a lower purchase price or require the seller to fix the roof before closing. That might require an extra document afterwards to change the initial agreement.”

Overall, Douglas urges buyers, sellers, and REALTORS® to be aware when it comes to writing clauses into an agreement — “you always want to make sure you’re protected.” In cases where an agreement needs to be customized with clauses and conditions, it never hurts to consult with an experienced real estate lawyer who can offer advice.

“Maybe have the agreement conditional upon lawyer review, if there’s anything that’s a little bit unusual about the house and you just want to take extra precaution,” says Douglas. “Sometimes it’s just a good idea to have a lawyer review it just before you go firm.”

A real estate lawyer is just one of the many professionals, including REALTORS®, that you’ll encounter when buying or selling a home. They’ll help make sure you’re protected when it comes to what will likely be the largest purchase of your life, and give you peace of mind as you work through the process.