Purchasing real estate in Toronto involves understanding numerous legal terms and conditions. A well-crafted purchase agreement is crucial for protecting your interests and ensuring a smooth transaction. This comprehensive guide explains 175 common terms found in purchase agreements for real estate transactions in Toronto, Ontario. Whether you’re a first-time buyer or a seasoned investor, this resource aims to clarify the legal jargon and help you navigate your next purchase with confidence. For personalized assistance with your agreement, check out our Agreement of Purchase and Sale Review Service.
Key Terms in Purchase Agreements
Purchase Price
The total amount the buyer agrees to pay for the property, including the initial deposit and balance due at closing. This amount is clearly stated in the agreement and is crucial for both parties to understand the financial commitment involved.
Deposit
An upfront sum of money paid to show the buyer’s commitment, typically held in trust. If the buyer fails to fulfill the agreement, the seller may keep the deposit as compensation. This deposit provides security to the seller and shows the buyer’s serious intent to purchase.
Closing Date
The date when the title of the property is officially transferred from the seller to the buyer. On this date, all conditions outlined in the agreement must be fulfilled, and the remaining purchase price is paid.
Contingencies
Specific conditions that must be met for the agreement to be binding, such as financing approval, a satisfactory home inspection, or the sale of the buyer’s current property. Contingencies protect the buyer from unforeseen issues that could affect the purchase.
Title
A legal document proving ownership, which must be free of liens or encumbrances. The seller must provide a clear title to the buyer at closing, ensuring the buyer’s undisputed ownership.
Closing Costs
Fees and expenses associated with the transaction, including legal fees, title insurance, land transfer tax, and property taxes. The agreement should outline which party is responsible for these costs.
Possession Date
The date when the buyer takes physical possession of the property. This date is often the same as the closing date but can be negotiated to allow the seller additional time to vacate the property.
Fixtures and Personal Property
Fixtures are items permanently attached to the property, such as built-in appliances, which are typically included in the sale. Personal property, like furniture, may be included or excluded based on the agreement.
Land Transfer Tax
A tax paid by the buyer at closing, with potential rebates for first-time homebuyers. The amount varies based on the purchase price and location of the property. Both the province and city of toronto levy land transfer taxes.
Legal Description
A precise description of the property, including lot and plan numbers, necessary for legal documentation and registration.
Adjustments
Prorated expenses that need to be settled between the buyer and seller at closing, such as property taxes, utility bills, and condominium fees that have been prepaid or are due after the closing date.
Representations and Warranties
Statements made by the seller regarding the condition of the property and their ability to sell it, including assurances that there are no outstanding legal issues, such as zoning violations or unpaid property taxes.
Default and Remedies
This section outlines the consequences if either party fails to fulfill their obligations under the agreement, specifying the remedies available to the non-defaulting party, which can include retaining the deposit or seeking legal action for damages.
Survey
A detailed map showing the property boundaries and any structures on it, ensuring that the property matches the legal description and revealing any potential encroachments or boundary disputes.
Chattels
Movable items not attached to the property, like appliances and furniture, specified in the agreement.
Encumbrances
Claims or liabilities attached to the property, such as mortgages, liens, or easements, which the seller must clear before transferring the title to the buyer.
Conditions Precedent
Specific conditions that must be met before the agreement becomes binding, such as the buyer securing financing or the property passing a home inspection.
Right of First Refusal
A clause giving a specific party the right to purchase the property before the seller accepts other offers, affecting how the property is marketed and sold.
Assignment
The buyer’s ability to transfer their interest in the purchase agreement to another party, often requiring the seller’s approval.
Amendments
Changes or additions to the original purchase agreement, requiring both parties’ consent.
Waivers
Voluntary relinquishment of a right or condition in the agreement, such as the buyer waiving their right to a home inspection to expedite the purchase.
Notices
Instructions on how and where formal communications between the buyer and seller should be sent, ensuring that both parties receive important information in a timely manner.
Governing Law
The jurisdiction’s laws that will apply to the interpretation and enforcement of the agreement, typically Ontario for Toronto transactions.
Condition of Property
A clause stating the property’s condition at the time of sale, often “as is,” indicating that the seller makes no guarantees about the property’s state, or alternatively “in good working order”.
Home Warranty
Details about any warranty provided by the seller for the home’s condition and systems, offering the buyer protection against certain defects.
Inspection Clause
A provision allowing the buyer to conduct inspections and address any issues found before finalizing the purchase, crucial for uncovering hidden defects.
Financing Terms
Specifics about the buyer’s financing arrangements and requirements for the transaction to proceed, including mortgage details and approval conditions.
Force Majeure
A clause that releases both parties from, or extends time to perform obligations due to unforeseen events beyond their control, such as natural disasters or significant legal changes.
Environmental Assessments
Requirements for environmental inspections or assessments to ensure the property is free of contaminants and complies with environmental regulations.
Seller Concessions
Agreed-upon incentives or contributions by the seller toward the buyer’s closing costs or repairs, often used to facilitate the sale.
Disclosure Statement
A document that may be provided by the seller disclosing known issues with the property, such as defects, legal matters, or past renovations.
Purchase and Sale Agreement Addendums
Additional documents that modify or supplement the original agreement terms, requiring both parties’ agreement.
Tax Proration
The allocation of property taxes between the buyer and seller based on the closing date, ensuring fair distribution of tax responsibilities.
Broker Commission
The fee paid to real estate agents, usually by the seller, for their services in facilitating the transaction, typically a percentage of the sale price.
Title Search
An examination of public records to verify the property’s legal ownership and uncover any potential title defects or encumbrances.
Mortgage Clause
Details about any existing mortgages on the property and the requirements for their discharge before closing.
Leaseback Provision
An arrangement where the seller leases the property back from the buyer for a specified period after closing, often to allow time for relocation.
Termination Rights
The rights of either party to terminate the agreement under certain conditions, such as failure to meet contingencies or breaches of contract.
Right to Inspect
The buyer’s right to inspect the property before closing to ensure it meets the agreed-upon condition, allowing for any final negotiations or repairs.
Property Maintenance
Obligations for maintaining the property in its current condition until closing, ensuring no significant changes or damages occur. This provision protects the buyer from unexpected issues arising after the agreement is signed.
Closing Holdback
A portion of the sale proceeds held in trust to cover any unresolved issues or repairs, released once the conditions are satisfied. This ensures that the necessary work is completed before finalizing the sale.
Contingent Offer
An offer that is dependent on certain conditions being met, such as the sale of the buyer’s current home. This provides flexibility for buyers who need to meet specific criteria before completing the purchase.
Counteroffer
A response to an offer with modified terms, requiring the original offerer to accept or further negotiate. This is a common part of the negotiation process, allowing both parties to reach mutually agreeable terms.
Mutual Release
A document releasing both parties from the agreement and any related obligations, typically used when the deal is terminated by mutual consent. This ensures that neither party can claim damages or enforce the agreement once it is nullified.
Subdivision Requirements
Conditions related to the division of a larger parcel of land into smaller lots, often involving local government approval. These requirements ensure that the subdivision complies with the planning, zoning laws, and development standards.
Warranty of Title
The seller’s guarantee that they have the right to transfer ownership and that the title is free of undisclosed encumbrances. This protects the buyer from future claims against the property’s title.
Zoning Compliance
Confirmation that the property complies with local zoning laws and regulations, affecting its use and potential for development. Buyers should verify zoning compliance to ensure their intended use of the property is permitted.
Utility Transfer
The process of transferring utility services (water, gas, electricity) from the seller to the buyer. This ensures that the buyer has uninterrupted access to necessary services upon taking possession of the property.
Compliance with Laws
A clause stating that both parties must comply with all applicable laws and regulations related to the property transaction. This ensures that the sale is conducted legally and ethically.
Seller / Vendor Take Back Financing
An arrangement where the seller provides financing to the buyer, often with a promissory note and mortgage. This can be an attractive option for buyers who have difficulty securing traditional financing.
Deposit Return Conditions
Conditions under which the earnest money deposit will be returned to the buyer, such as failure to meet contingencies. This protects the buyer’s deposit in the event the purchase cannot be completed.
Home Sale Contingency
A clause allowing the buyer to withdraw from the agreement if they are unable to sell their current home. This provides security for buyers who need to sell their existing property to finance the new purchase.
Liquidated Damages
A predetermined amount of compensation payable if one party breaches the agreement. This provides a clear remedy for breach of contract and discourages parties from defaulting.
Dispute Resolution
Methods for resolving conflicts arising from the agreement, such as mediation or arbitration. This helps avoid lengthy and costly legal battles by providing a structured process for resolving disputes.
Title Defects
Issues that affect the clear title of the property, such as undisclosed liens or easements. Addressing title defects is crucial to ensure the buyer receives a clear and marketable title.
Legal Fees and Costs
Expenses associated with hiring legal representation to draft, review, and enforce the agreement. The agreement should specify which party is responsible for these costs.
Mold Disclosure
Information provided by the seller about any known mold issues in the property, ensuring buyers are aware of potential health risks and remediation requirements.
Termite Inspection
A provision for inspecting the property for termite infestations and damage. Ensuring the property is free of termites protects the buyer from potential structural issues and costly repairs.
Title Insurance Premium
The cost of purchasing title insurance, which protects the buyer and lender against potential title defects. This insurance provides peace of mind by covering legal expenses and losses from title disputes.
Pre-Approval Letter
A document from a lender indicating that the buyer has been pre-approved for a mortgage, subject to certain conditions. This strengthens the buyer’s offer by demonstrating their financial capability.
Buyer’s Agent Commission
The fee paid to the buyer’s real estate agent for their services in finding and negotiating the purchase. This commission is typically a percentage of the sale price and is often paid by the seller.
Seller’s Agent Commission
The fee paid to the seller’s real estate agent for their services in marketing and selling the property. Like the buyer’s agent commission, this is usually a percentage of the sale price.
Property Tax Disclosure
Information about the property’s current and past property taxes, helping buyers understand their future tax obligations. Accurate tax disclosure is essential for financial planning.
Rent Roll (for multi-unit properties)
A document listing all tenants, rental rates, and lease terms for a multi-unit property. This helps buyers evaluate the property’s income potential and tenant stability.
Due Diligence Period
A specified period during which the buyer can inspect the property, review documents, and secure financing. This period is critical for ensuring the buyer is fully informed before finalizing the purchase.
Special Assessments & Local Improvements
Additional charges levied by a condo corporation or homeowners association or local government for specific projects, such as road improvements. Buyers should be aware of any special assessments and local improvements that could affect their financial obligations.
Easements
Rights granted to others to use a portion of the property for specific purposes, such as utility access. Easements must be disclosed and understood, as they can affect property use and value.
Deed / Transfer
A legal document that transfers ownership of the property from the seller to the buyer. The deed must be executed and registered to finalize the transfer of title.
Covenant
A binding agreement in the property deed that restricts or requires certain actions, such as building restrictions. Covenants can affect property use.
Leasehold Interest
An interest in real property that grants the lessee rights to use and occupy the property for a specified term. Leasehold interests differ from freehold ownership and affect the buyer’s rights and obligations.
Encroachment
An intrusion onto neighbouring property, such as a fence or building. Encroachments can lead to disputes and must be resolved to ensure clear property boundaries.
Right of Way
A type of easement that allows passage through a property for specific purposes, such as road access. Rights of way must be disclosed and understood by the buyer.
Grantor / Transferor
The party transferring ownership of the property. The grantor must have the legal authority to transfer the property and provide clear title.
Grantee / Transforee
The party receiving ownership of the property (usually the buyer). The grantee’s rights and responsibilities begin upon transfer of the title.
Lis Pendens
A notice of pending legal action affecting the property’s title. Lis pendens alerts potential buyers and lenders of ongoing disputes that could impact ownership.
Cloud on Title
Any claim, lien, or encumbrance that affects the clear title of the property. Addressing clouds on title is crucial for ensuring the buyer receives a marketable title.
Building Codes
Regulations established by local governments outlining the standards for construction and safety of buildings. Compliance with building codes is essential for legal use and resale of the property.
Historic Preservation Restrictions
Limitations on property modifications to preserve historical significance. Buyers should understand these restrictions to ensure compliance with preservation guidelines.
Riparian / Water Rights
Rights to use water from a source such as a river, stream, or well on the property. Water rights are important for agricultural and residential use and should be verified during the purchase.
Construction Loan
A short-term loan used to finance the building of a property, which converts to a mortgage upon completion. Buyers should understand the terms and conditions of construction loans.
Property Management Agreement
A contract between the property owner and a management company outlining responsibilities for managing the property. This is important for investment properties where professional management is required.
Certificate of Occupancy
A document issued by local authorities certifying that the property meets building codes and is safe for occupancy. This certificate is required for legal occupancy of newly constructed or significantly renovated properties.
Pre-Closing Walkthrough
A final inspection by the buyer before closing to ensure the property is in the agreed-upon condition. This step is critical for identifying any last-minute issues that need to be addressed.
Option to Purchase
An agreement granting the buyer the right to purchase the property at a later date, usually for a specified price. This provides flexibility for buyers not ready to commit immediately.
Rent-to-Own Agreement
A lease agreement that includes an option for the tenant to purchase the property. This arrangement can be beneficial for buyers who need time to arrange financing or build credit.
Lease Purchase Agreement
A lease agreement where the tenant is obligated to purchase the property at the end of the lease term. This binds the tenant to buy the property after a set period.
Subordination Agreement
An agreement that changes the priority of existing liens on the property, usually making a new mortgage take precedence. This is important for refinancing or obtaining additional loans.
Subdivision Plan
A map showing the division of a larger parcel of land into smaller lots, including details like boundaries and easements.
Building Permit
Official approval from local authorities to construct or renovate a building, ensuring compliance with building codes. Obtaining a permit is a legal requirement for most construction projects.
Occupancy Agreement
An agreement outlining the terms under which the buyer or seller can occupy the property before or after the closing date. This provides clarity on responsibilities during the occupancy period.
Possession and Use Agreement
An agreement specifying the terms of property use and possession, often used when the seller remains in the property after closing. This ensures both parties understand their rights and obligations.
Status Certificate
A document from the condominium coporation detailing the property’s compliance with condo rules and any outstanding fees. Buyers should review the status certificate to avoid unexpected costs and obligations.
Smoke Detector Compliance
Certification that the property complies with local regulations for smoke detectors and fire safety. Ensuring compliance is essential for safety and legal occupancy.
Well Inspection
An inspection of the property’s well to ensure it meets health and safety standards. This is crucial for properties relying on well water for their water supply.
Septic Inspection
An inspection of the property’s septic system to ensure it is functioning properly and meets local regulations. This is important for properties not connected to municipal sewer systems.
Municipal Lien Search
A search for any liens or outstanding debts owed to the municipality, such as unpaid taxes or utility bills. Identifying these liens is essential to ensure they are cleared before closing.
Survey Affidavit
A sworn statement by the seller or a licensed surveyor verifying the accuracy of the property’s survey. This affidavit ensures that the survey reflects the true boundaries and conditions of the property.
Quitclaim Deed
A deed transferring any interest the seller may have in the property without any warranties. This type of deed offers the least protection to the buyer and is often used in transfers between family members or to clear title defects.
Title Guarantee
An assurance from a title company that it will cover any losses arising from defects in the title. This guarantee provides peace of mind to buyers and lenders by protecting against unforeseen claims.
Purchase Money Mortgage
A mortgage issued by the seller to the buyer as part of the purchase transaction. This type of financing is often used when the buyer cannot secure traditional financing.
Blanket Mortgage
A single mortgage covering multiple properties, often used by developers or investors. This type of mortgage allows for flexibility in managing multiple properties under one loan.
Wraparound Mortgage
A junior mortgage that includes the remaining balance on an existing mortgage. The seller provides financing to the buyer and continues to make payments on the original loan.
Convertible Mortgage
A mortgage that can be converted from an adjustable-rate to a fixed-rate loan. This provides borrowers with the flexibility to change their mortgage terms based on market conditions.
Open-End Mortgage
A mortgage that allows the borrower to increase the loan amount after the initial loan has been paid down. This type of mortgage is useful for financing future improvements or needs without refinancing.
Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on an index. ARMs typically start with lower initial rates, which can increase over time, affecting monthly payments.
Fixed-Rate Mortgage
A mortgage with an interest rate that remains constant throughout the loan term. This provides predictable monthly payments and protects borrowers from interest rate fluctuations.
Irrevocability
A clause stating that the offer cannot be revoked for a specified period, ensuring the seller has time to consider the offer without risk of withdrawal.
Completion Date
The date by which all contractual obligations must be fulfilled, typically the same as the closing date. This ensures that both parties complete their responsibilities in a timely manner.
Harmonized Sales Tax (HST)
A federal & provincial tax that may apply to the sale of new homes in Ontario. Buyers should understand whether HST applies to their transaction and how it affects the purchase price.
Rental Items
Items included in the property sale that are subject to rental agreements, such as water heaters or propane tanks. Buyers should be aware of these agreements and their associated costs.
Title Search Date
The date on which the title search is conducted to identify any liens, encumbrances, or defects. This date is critical for ensuring the buyer receives clear title to the property.
Buyer Information
The section of the agreement detailing the buyer’s legal name, contact information, and other pertinent details. Accurate buyer information is essential for the legal validity of the agreement.
Seller Information
The section of the agreement detailing the seller’s legal name, contact information, and other pertinent details. Accurate seller information ensures the correct parties are bound by the contract.
Option to Terminate
A clause allowing one or both parties to terminate the agreement under specified conditions. This provides flexibility in case of unforeseen circumstances or changes in the buyer’s or seller’s situation.
Signatures
The section of the agreement where all parties sign to indicate their acceptance of the terms. Signatures are essential for the legal enforceability of the contract.
Property Tax
Information on current and past property taxes, helping buyers understand their future tax obligations. Accurate property tax disclosure is essential for financial planning.
Financing
Details about the buyer’s financing arrangements, including loan terms and approval conditions. This section ensures the buyer has the necessary funds to complete the purchase.
Property Information
Detailed information about the property, including address, legal description, and size. Accurate property information is crucial for the legal validity of the agreement.
Seller’s Affidavit
A sworn statement by the seller attesting to certain facts about the property, such as no outstanding legal issues. This affidavit provides additional assurances to the buyer.
Buyer’s Affidavit
A sworn statement by the buyer attesting to their financial capability and intent to purchase the property. This affidavit supports the buyer’s commitment to the transaction.
Property Inspection Contingency
A condition allowing the buyer to have the property inspected and address any issues before finalizing the purchase. This protects the buyer from hidden defects.
Home Insurance Binder
Proof of insurance coverage for the property, required before closing. This binder ensures that the property is protected against potential risks from the moment the buyer takes possession.
Rent Control Compliance
Confirmation that the property complies with local rent control laws, if applicable. This is crucial for properties with rental units to ensure legal compliance.
Municipal Compliance
Verification that the property complies with local municipal codes and regulations. This ensures that the property can be legally used and occupied.
Home Inspection Report
A document prepared by a professional inspector detailing the condition of the property, including structural components, systems, and any defects. This report helps buyers make informed decisions and negotiate repairs or price adjustments.
This concludes the comprehensive guide covering common terms in purchase agreements for real estate transactions in Ontario. These definitions should help you navigate the complexities of buying or selling property with confidence.
Understanding these terms is essential for a successful real estate transaction in Toronto. For personalized advice and to ensure all legal aspects are covered, consulting with a real estate lawyer like Jay Teichman is highly recommended.
By familiarizing yourself with these terms, you can confidently navigate the purchase process and protect your investment.