REAL ESTATE LAW

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REAL ESTATE LAW

• Real Estate Brokers Program
• Barbara Grodaes

2
Sources of Law

• Common Law foundation of other elements of law,
  legislation and case law.
• Legislation statutes and regulations passed by
  government.
• Case Law (decisions on the basis of earlier
  ruling/judgment) precedents.

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Real Property Law

• Deals with rights or interests in land and all
  that is erected, growing upon or fixed to the
  land.
• Not dealing with moveable property or all types
  of property other than land and fixtures
  (personal property law).
• Tenure theoretical basis in that only the Crown
  is the absolute owner.

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Estates

• Defines the nature, degree, extent and duration
  of ownership in land.
• Real estate and real property mean the rights or
  interest an individual holds with respect to
  land.
• 4 types of estates in land fee simple, life
  estate, leasehold and dower.

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4 Types of Estates in Land

• Fee Simple most common, can be inherited, any
  heir can inherit, absolute owner of the land.
• Life Estate has most of the rights of fee
  simple owner except right to sell.
• Leasehold fixed period of time.
• Dower spouse right to life estate.

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Methods of Holding Land

• In Trust legal estate held by one for the
  beneficial interest of another.
• Co-Ownership joint tenancy (right of
  survivorship) and tenancy in common (interests
  split)
• Co-operative Housing Ownership incorporated,
  non-profit business.

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Methods of Holding Land cont.

• Time Share Ownership rights of ownership
  limited for a specific part of the year
  (undivided or interval).
• Strata Title Ownership subdivision plan
  subdivides the volumetric space above or beneath
  land surface (3-dimensional drawings necessary).

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Surface and Mineral Rights

• Generally, surface rights only, title showing
  excepting thereout all mines and minerals.
• Most titles separated into surface only and
  minerals only titles.
• Surface Rights Act regulates rights and
  relationship between holders.

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Law of Agency

• Agency is a contractual relationship in which the
  principal and the agent agree that the agent will
  do certain acts on the principals behalf in
  dealing with a third party.
• Legal relationship between the brokerage and the
  client (written).

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Fiduciary Duties

• Loyalty (RANCOLD)
• Obedience
• Disclosure
• Confidentiality
• Reasonable care and skill
• Non-delegation
• Full accounting

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Single Agency

• Single agent represents either the buyer or the
  seller, never both.
• The Sellers Agent represents seller.
• The Buyers Agent represents buyer.
• Buyers and/or Sellers can represent themselves or
  by their legal counsel.

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Dual Agency

• Same brokerage represents more than 1 party in
  same transaction Seller and Buyer or 2 or more
  Buyers or all 3, all competing for property.
• Brokerage canNOT disclose price OR motivation and
  no confidentiality concerning material facts.

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Dual Agency continued

• Agent MUST have proper written authorization of
  both (all) clients.
• Agent MUST be particularly careful and act
  fairly, honestly with integrity.
• Agent MUST obtain written acknowledgement in
  timely manner.
• Agent MUST obtain informed consent.

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Other Agency

• Dual agency also applies to lease transactions by
  substituting Landlord for seller and Tenant for
  buyer and is otherwise the same.
• No Agency Relationship if one party acts on his
  or her own behalf Ethical duties be honest,
  fair, careful and do not misrepresent.

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Contract Law

• An agreement, based on a promise or a set of
  promises, which results in some legally
  enforceable obligations between two parties.
• Written or verbal, long or short, are essential
  parts of many business transactions.
• Legally binding get legal advice!

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Elements Must Exist

• Capacity of parties (legally competent).
• Legality of object (lawful).
• Legal intention (intent to be legally binding).
• Consideration (each receives something of value
  promise is value).
• Mutual agreement (offer/acceptance).
• Genuine consent (all facts needed to make a
  reasonable decision and have free will).

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Contract valid if all 6 present, otherwise,
contract is

• Void (never existed).
• Voidable (originally valid but able to be
  rejected by one of the parties later.
• Illegal (contravene a law and not enforceable).

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Capacity of Parties (Competent)

• Individuals NOT considered to have the capacity
  to make a contract are
• Infants or minors (gt18 years).
• Mentally incapacitated persons.
• Intoxicated persons.
• Cannot read OR speak English or vision impaired.

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Legality of Object (Lawful)

• Courts will not enforce contracts made for
  illegal purposes and violate criminal laws.
• Contracts can NOT contravene regulatory statutes
  or public policy.
• Though no longer legality of object, practical
  reasons suggest contracts be made during a
  weekday as opposed to being conducted on a
  weekend (closing date).

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Legal Intention

• Parties to contract MUST have intended their
  actions to be legally binding.
• In real estate, there MUST be an invitation to
  treat in the form of a statement inviting
  prospective buyers to negotiate a purchase
  contract.
• Listed price is intended to solicit offers.

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Consideration

• To be enforceable, a contract MUST be made under
  seal or be supported by consideration.
• What each party in a contract receives in
  exchange for the promise to act in a specified
  way.
• Past consideration NO consideration.

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Mutual Agreement ? Offer

• MUST be definite made with intent to create
  legal, binding obligation.
• MUST contain all essential terms of the proposed
  agreement so that a contract exists upon
  acceptance.
• CAN remain open until acceptance and/or until a
  stated time limit unless withdrawn before
  acceptance is communicated.

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Agreement ? Offer, cont

• CAN lapse after the passing of a reasonable
  amount of time if it contains no time-limit or
  acceptance.
• MAY be revoked if communication of the revocation
  is communicated to the offeree prior to the
  communication of the acceptance of the offeror.

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Mutual Agreement ? Acceptance

• MUST be unconditional (NO changes to the Offer
  any change is a rejection and making it a
  counter-offer).
• MUST be communicated to the offeror in the manner
  required by the offer.
• MUST be made within the time specified in the
  offer OR a reasonable amount of time if no
  time-limit.

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Mutual Agreement

• If the offer does not specify a manner of
  communication, then the method of acceptance MUST
  be in a manner as good or better than
  communication of the offer.
• If this is mail or fax, contract is binding even
  if mail or fax not received.

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Genuine Consent

• To form binding contract, mutual agreement MUST
  be real and genuine. Inducements that may
  invalidate a contract are
• Mistake.
• Misrepresentation.
• Failure to disclose.
• Duress or undue influence.

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Contract Deemed Invalid

• MAY be deemed invalid if one of following occurs.
  Courts ultimately decide if contract is
  enforceable they are not automatically void
• Mistake
• Misrepresentation
• Failure to Disclose
• Duress and Undue Influence

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Mistake

• May nullify apparent consent, contract has no
  legal effect as is based on mistake that has a
  narrow meaning in contract law.
• May remove the element of genuine consent
  essential to a contract.
• MUST be a mistake of fact and go to root of
  contract.
• General rule people are bound by their
  signatures, whether theyve read it or not.

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Misrepresentation

• Any statement made before or at the time of
  contracting, with regard to any existing fact
  which induces other party to enter contract. Can
  be
• Innocent (false without realizing).
• Negligent (intended to be fact without checking
  for accuracy).
• Fraudulent (knows it is false).

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Note for Misrepresentation

• The law treats a statement of opinion made by a
  real estate agent as a statement of fact.
• An agent making statement of opinion about real
  estate may be found having made negligent
  representation and be liable for compensation to
  the person who relies of this statement.

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Failure to Disclose

• Agents have a legal DUTY to exercise care when
  providing information. Hiding a significant
  defect can be considered FRAUD.
• Caveat emptor (let the buyer beware).
• Patent defects (visible to the eye should be
  discovered on examination).
• Latent defects, must be disclosed. Failure to do
  so or conceal may INVALIDATE.

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Duress and Undue Influence

• Duress is compulsion which forces a person to act
  through fear of personal suffering not of
  his/her own free will.
• Undue influence is the improper use of ones
  power over another to induce into a contract
  (such as educated/uneducated, experienced/inexperi
  enced) takes advantage because of his/her
  position.

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Conditions

• Condition precedent (normal in real estate) calls
  for event or act to occur before agreement
  becomes binding.
• Condition subsequent (after contract is binding)
  that if not met can give right to end contract.
• Conditions are fundamental to the contract and
  warranties important when a breach occurs.

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5 Ways to Terminate Contract

• Performance (fulfillment).
• Agreement (mutually agree).
• Frustration (events beyond control).
• Non-fulfillment of a condition (subject to
  clauses/condition not met in time.
• Breach of contract (fails to complete).

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Remedies

• Rescission (court have contract set aside).
• Damages (financial compensation for losses
  caused) damages not available where innocent
  misrepresentation occurred rescission is only
  available recourse.
• Specific performance (court force).
• Injunction (court order).
• Quantum Meruit (as much as he deserves).

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Considerations for Agent

• Requirement of writing (Statute of Frauds
  requires any contract for the sale of lands or
  any interest in lands must be in writing and
  signed by parties. Any contract must be
  performed in one (1) year unless written).
• Dower act IMPORTANT only when title shows only
  one owner and that owner is married.

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Duty of Care

• Special relationship where one party relies on
  information supplied by second party in position
  of knowledge.
• Relationship exists brokerage/client.
• Agent MUST represent information honestly and
  accurately to others.

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Further Considerations

• Power of Attorney (general/specific).
• Trustee/Guardian of Mentally Incompetent (court
  appointed under the Dependent Adults Act or
  other.
• Bankruptcy trustee has power to deal with land
  (files caveat on title).
• Privity binding to parties in contract.

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Listing Contract

• MUST contain essential elements.
• MUST contain clear description of 3 Ps (Parties,
  Property, Price Property is professional
  service of selling).
• Other information and documentation is important
  as Agent independently verify ALL information
  wherever possible.

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Purchase Contract

• MUST contain essential elements.
• MUST contain clear description of 3 Ps (Parties,
  Property, Price to render contract certain of
  intentions).
• Possession Date, completion date, adjustment
  date, payment date or closing date ALL same
  thing.
• Deposit NOT required to be binding.

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2 Common Seller Financing

• Vendor Take-Back Mortgage title transfers and
  mortgage registered.
• Agreement for Sale possession transfers but
  title remains in Sellers name until paid in full.
• Sellers foreclosure procedures are same,
  protecting buyers interest.

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Option/First Right of Refusal

• Option buyer acquires right to purchase within
  a specified time (sole control of buyer
  interest in land and subject to caveat against
  title).
• First Right of Refusal (not absolute right to
  acquire) Two Steps (1)make offer to holder and
  (2)its acceptance by the holder, or not.

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Encroachments

• MUST make reference to any encroachments on real
  estate purchase contract if there is any on
  title.
• Check the standard real estate purchase contract
  to ensure that seller is not providing warranty
  wrongly.

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Commercial Transactions

• Unique in nature and encompasses
• Industrial sales
• Commercial sales
• Investment sales
• Sale of businesses and companies.
• AREA has customized contracts.

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Sale of Assets Versus Shares

• Business can be sold by either sale of assets or
  sale of shares different tax consequences do
  NOT give advice.
• This field has securities law implications and
  must comply with the Securities Act obtain
  legal advice.

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Recognize and Be Aware

• Business records searches obtain and analyse to
  better advise client.
• Employment conditions MUST comply with the
  Employment Standards Code.
• Non-Competition Agreements seek legal advise
  contracts restricting trade.
• Warranties and representations vary.

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Commercial Leases

• Leasing involves complex negotiations and
  contractual terms.
• MUST contain specific elements to be valid and
  enforceable.
• Closely examine lease and confirm information.
• Advise client to seek legal advice.

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Land Titles System

• Torrens Land Registration System in Alberta under
  the Land Titles Act (111)
• 1 one piece of paper
• 1 one piece of property
• 1 located in one place (North or South Alberta
  Land Titles Office Edmonton or Calgary)

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Legal Land Descriptions

• Meridians north/south W4, W5 and W6.
• Ranges N/S every 6 miles starting meridian line.
• Townships E/W every 6 miles apart (1-126 1-34
  SALS, 35-126 NALS 36 sq.miles divided into 36
  sections 1sq.mile.
• Sections measurement 1x1 mile (640 acres/259
  hectares) (correction lines for earth curvature).
• LSDs (legal subdivisions) divide sections in 16
  (40 acres each or 4/quarter).

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Exceptions

• Settlement Plans plans accommodating settlements
  (St. Albert, Fort McMurray and Edmonton) small
  fixed areas, no fixed pattern.
• Metes and Bounds irregular shape that is
  difficult to describe.
• Unsubdivided to subdivided, description is
  replaced except condominiums.

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Principles of Torrens System

• Curtain MUST be registered.
• Mirror WYSIWYG what you see is what you get
  (rely on accuracy).
• Insurance Assurance Fund created to pay for any
  errors caused by the Land Titles Office
  compensation for Loss of Rights.

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Good to Know

• Torrens system provides many advantages, the most
  important one is they system guarantees the state
  of the title. Deed registry systems do not.
• Land Titles Act provide administrative framework
  of Torrens System.
• Title search is imperative.
• Agent expected to be good detective.

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Law of Property Act

• Provides remedies to recover security, protecting
  the owner personally (except for CMHC insured or
  corporate mortgagor).
• Foreclosure, Quit Claim, Statement of Claim,
  Order Nisi, Final Order for Foreclosure, RICE
  Order, are all part of the foreclosure process.
• All documents in action are public.

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Foreclosure Process

• If borrower does not file Statement of Defence or
  Demand of Notice, will be unaware of action is
  being taken and when.
• RICE Order is last step for CMHC Mortgagees
  allowing lender to pursue debt recovery.

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Condominium Property Act

• Every condominium development in Alberta is
  governed by the Condominium Property Act.
• Role of Agent is to identify issues and direct
  clients to appropriate legal advice.

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Condominium Ownership

• Rights allocated to owners via individual titles
  with 2 distinct yet inseparable parts
• 100 exclusive ownership of unit.
• Co-ownership share as tenant in common of common
  property, in proportion to the unit factor
  assigned to the unit.

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Condo Corporation

• Owners are members of corporation.
• Governs by board of directors.
• MUST maintain common property and comply with
  municipal regulations regarding repairs and work
  to be done.
• MUST enforce bylaws do all things in the best
  interest of all owners.

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Regulation

• ALL condo corps have a total of 10,000 unit
  factors.
• LTO uses CADS (Condominium Additional Sheet) to
  record registered documents against a Condo Plan.
• Reserve funds are MANDATORY and MUST have a
  reserve fund study.

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Condominium Potpourri

• As agent, beware of rental pools contract could
  affect sale of property.
• Condominium refers to land.
• Bare Land Condominiums are popular with
  developers because they can phase their
  development.

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Potpourri Cont

• Leasehold condominium where government does not
  provide for fee simple title (national/provincial
  parks, crown land, etc.)
• Parking stall MAY have separate title as may
  storage facilities.
• Restrictive covenants MAY limit the freedom of
  use of the property.

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Residential Tenancies Act

• If property is residential, the Residential
  Tenancies Act governs the relationship between
  landlord (seller or buyer) and the tenant.
• Provides for the obligations and remedies of the
  landlord and tenants as well as regarding
  security deposits.

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Definition

• Written, oral or implied agreement to rent
  residential premises.
• Fixed term ends on specified day.
• Periodic tenancy renewed or continued without
  notice.
• Commercial, industrial and other types of
  tenancies NOT governed by Act.

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Termination for Landlord

• The landlords rights to terminate a periodic
  tenancy is severely restricted. Landlord MUST
  have prescribed reason which may make it
  difficult.
• Notice to terminate MUST be in writing and not
  until all conditions of an offer to purchase have
  been met.

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Termination for Tenant

• MAY terminate the periodic tenancy by serving the
  appropriate notice, with sufficient time
• Week to week one tenancy week.
• Month to month 1 full tenancy months (3 full
  tenancy months for landlord).
• Year to year 60 full days prior to last day of
  year (90 for landlord).

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Need to Know!

• ANY provision waiving rights, benefits or
  protection under the Act is VOID and
  unenforceable.
• Landlord NOT entitled to deduct from damage
  deposit unless beginning report and final report
  produced.
• Knowledge of the Act is IMPORTANT.

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Municipal Government Act

• Provides legislative basis to determine how
  property may be used.
• Province divided into municipalities (city,
  town, village, summer village, municipal
  district).
• Required to pass a Land Use Bylaw which develops
  plan policies (critical for Realtors to know).

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Land Use Bylaw (Zoning)

• Will generally contain
• Section for administrative matters.
• General rules applicable to all land use classes.
• Detailed land use classes and subclasses.

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Land Use Control Methods

• Zoning Control specifies every aspect of how
  property may be used.
• Development Control allows each proposed
  development to be considered according to its own
  merits.

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4 Kinds of Land Use Districts

• Residential (R)
• Commercial (C)
• Industrial (I)
• Special catch-all for special needs
• For each land use classification the bylaw lists
  a number of permitted uses or discretionary
  uses, or both.

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Permitted Vs Discretionary

• Permitted are uses that entitle applicant to
  permit if the development conforms with the bylaw
  (inflexible but certain).
• Discretionary are uses that are deemed to be
  generally appropriate but not necessarily
  compatible with the surrounding (may/may not be
  approved flexible but uncertain).

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Land Use Compliance Matters

• Real Property Report is necessary to verify
  buildings comply with sideyard and setback
  requirements of the Land Use Bylaw and shows
  where they are relative to the property lines.
• Municipality will stamp a compliance certificate
  or legal but non-conforming.

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Compliance Matters cont

• Burden is generally on the seller to rectify any
  problems.
• To allow seller to maintain the structure as is,
  encroachment agreement or relaxation is
  necessary.
• Buyer MAY choose to or NOT to complete
  transaction.

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Permits

• Development permit document issued under the
  bylaw authorizing development.
• Building permit document issued and required
  for the actual construction. If not issued, can
  be appealed.

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Illegal/Non-Conforming Uses

• Illegal use of a property (not allowed under the
  Land Use Bylaw) may require change or removal.
• Non-conforming use (not allowed under the current
  bylaw but was okay at the time in came into use
  note if discontinued for more than 6 months, the
  use must stop).

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Environmental Law

• Environmental Protection and Enhancement Act
  deals with environmental concerns.
• Encourage buyers to investigate any issues of
  concern to them.
• Include a professional environmental audit as a
  normal condition to contract.

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Common Concerns

• Release of Substances, Contaminated Sites,
  Conservation and Reclamation, Groundwater and
  Related Drilling, Potable Water, Hazardous
  Substances Pesticides, Recycling Waste
  Management.
• Urea Formaldehyde Foam Insulation, Radon,
  Polychlorinated Biphenyl, Under-ground Storage
  Tanks, Post Tension Cable, Lead Paint/Plumbing,
  Farm Disposal Sites.

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Be Alert to Types of Land!

• Old service station locations.
• Industrial site - heavy construction occurred.
• Storage sites batteries, tires, scrap metal.
• Truck depots, old landfills.
• Lumber treating sites (creosote/bluestone (wood
  preservative).
• Pay attention smells, stains, soil, taste, etc.

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Environmental Audits

• Three-Phased Approach to analyze to determine the
  extent of damage or to determine compliance.
• Sampling and/or Testing required in Phase II may
  include Sampling Plan, Analytical Plan, Health
  and Safety Plan, then Final Report.
• Phase III is remedial action plan. MAY include
  Repair, Isolation, Encapsulation, Enclosure,
  Removal Disposal, hopefully limiting a problem
  of Stigma.

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Other Legislation

• Fire Prevention Act.
• Federal Environmental Protection Act.
• Once terms are in contract and agreed on,
  investigation and searches begin.
• If there is any indications of potential
  environmental problems, it is important to be
  more diligent.

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Municipal Taxation

• Property Taxes Assessed Value (land and
  buildings) x Mill Rate.
• A mill is one one-thousandth of a dollar
  (1/1000 of 1).
• Taxes due and payable June 30th of each year.

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Tax Adjustment

• Taxes are based on calendar year (January 1 to
  December 31 but due June 30th).
• Before June 30th, Buyer gets tax credit.
• After June 30th, Seller gets tax credit.
• Tax adjustment based on ofdays/365(yearly
  taxes x ofdays/365).

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Tax ACCOUNT Adjustment

• Tax Account based on tax year (July1-June30).
• Tax Accounts are savings for next June 30th .
• If assuming mortgage, Buyer reimburse Seller,
  Seller gets tax credit, Tax Account remains.
• If new mortgage, Buyer creates tax account with
  mortgagee so that, combined with the tax portion
  of PIT payments left before June 30th, lender
  will have sufficient funds to pay.
• Adjustment may be in Mortgage Statement, or not,
  but it will affect the Cash required to Close.

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Municipal Government Act

• Once tax notification registered on title for one
  year and before three, land can be offered for
  tax sale.
• If taxes not paid by March 31 of next year,
  property for sale by public auction with reserve
  bid and Sold.
• If reserve not achieved, then Municipality
  becomes owner usually redeemed.

84
Caution .. Tax Considerations

• Business Taxes.
• Allocation of Purchase Price (beware assets that
  allow high rate of depreciation).
• Income Tax.
• Note principal residence exemption.

85
Lawyers

• The function of Real Estate Lawyers in
  residential transactions is VERY important,
  timely (always working with deadlines) and
  similar, yet each is different.
• The real estate agents quality of work,
  thoroughness and ability to help clients aids the
  lawyers in the ease of closing.

86
Miscellaneous Considerations

• Dealing with Estates have knowledge about how
  death affect contracts.
• Personal Property Security Act.
• Expropriation Act.
• Mobile Home Sites Tenancies Act (similar to
  Residential Tenancies Act).

87
Legal Concerns Land Types

• Some types of land requires special
  consideration. Some of these concerns are found
  in
• Agricultural Land.
• New Construction.
• National Parks.
• Indian Lands.