The Anatomy of an Agreement of Purchase and Sale may seem like ‘dry bones’, but understanding the basics could prevent you from making a costly mistake. You’ve been working with your realtor for several weeks, and you’ve finally found the perfect home. It’s everything you’ve been looking for – your dream home! Filled with excitement, you instruct your realtor to prepare an offer, and off they go to the negotiating table. If negotiations are successful and the seller ultimately accepts your offer, the terms of your offer become a legally binding contract, called an Agreement of Purchase and Sale (“APS”). The first thing you should do after your offer is accepted and your Agreement Purchase and Sale becomes legally binding, is contact an experienced real estate lawyer like David Ellison at Ellison Law. However, even before you submit your offer, it’s important to understand the basic elements of an Agreement of Purchase and Sale, as well as your legal rights and obligations once your offer is accepted.

 

What Is An Agreement of Purchase and Sale?

An Agreement of Purchase and Sale is a legally binding contract between a buyer and seller of real estate.  It is the main document that outlines the most important details of your home purchase and contains all of the terms and conditions applicable to your purchase. Once the APS is signed by a buyer and a seller, you can’t change any of these terms without the consent of the other party, even if you didn’t notice something or misread a term before signing the APS. This is why it’s so important to understand the anatomy of an Agreement of Purchase and Sale before you enter into one.

Anatomy of an Agreement of Purchase and Sale

  • Legal Names of Buyer/Seller: The legal names of the buyer and the seller will be shown on the APS. Sometimes properties are owned by more than one person, and it is very important that all owners of a property you are purchasing are listed as Sellers in your Agreement of Purchase and Sale. If your APS doesn’t include all of the owners as Sellers, your agreement to buy the property may be void and you may be left with no rights or recourse. Before you submit an offer, make sure to ask your realtor if all of the owners on title are listed as Sellers in your offer.

  • Purchase Price: The APS will contain the final purchase price agreed to by the buyer and the seller. The APS will also provide for a deposit and how much that deposit will be. The deposit is an amount that is paid by the buyer to the seller when the APS is signed.  Generally, the deposit is held in trust by the seller’s realtor and is applied towards the purchase price at closing.  What every person should know before they submit an offer and enter into a binding APS, is that if you are unable to close the transaction you will most likely lose your deposit.

  • Property Address/Property Description: This might seem like a very obvious thing to mention, but you would be surprised at how many mistakes we see in the way the property address is written or described in the APS. If the address or legal description of the property is written incorrectly, it may invalidate your APS, rendering it null and void.  Where we see a large number of mistakes, is in the way parking spots and lockers are described in condo purchases.  We often see these described in an APS as “one underground parking spot” or “basement locker”, but this language makes it impossible to identify what locker or parking space you may be entitled to or even if the seller owns or has exclusive use of a parking spot or locker. We can’t stress how important it is to specifically and properly describe parking spots and lockers in your APS.  They should have accurate descriptions like “Parking Space Level 1A, Unit #25” or “exclusive use of Level 2B, Locker #12”.

  • Chattels and Fixtures: Your Agreement of Purchase and Sale will stipulate any chattels to be included (objects not attached to the home, such as a fridge or a sofa) and fixtures that are excluded (objects attached to the house like light fixtures or window covering hardware). All too often we see post-closing conflicts arise between a buyer and a seller about chattels or fixtures. These disputes are always caused by unclear and ambiguous drafting in the APS. If you want a chattel included in your purchase or a fixture excluded from your purchase, be as specific as possible when describing that item in the APS.  If you mean to include the brass curtain rods in the master bedroom, make sure you specifically state that in the APS and avoid generic terms like “window coverings” or “drapery”. 

  • Rental Items: Many homes come with rental items such as a hot water tank. The APS will stipulate whether something like a lease agreement for a hot water tank is being transferred with the property. While some of these rental agreements have reasonable terms, some have very bad terms and could cost you a lot more money than you expected.  It is critical to understand the terms of any rental item agreement being transferred with the property before your APS goes firm, as you will be legally bound by the terms of that rental agreement. 

  • HST (Harmonized Sales Tax): While HST is not payable on the resale of residential homes, HST is payable when buying a new-build home directly from the builder. Your APS will set out whether the HST is included in or on top of the purchase price. If HST is not included in the purchase price, you will have to pay the HST at closing, in addition to the purchase price. This could amount to a lot of money and may be something you didn’t anticipate or budget for. On builder deals, avoid surprises and always check whether HST is included in the purchaser price or not before your APS goes firm.

  • Title Search/Requisition Date: Your APS will set out a “Requisition Date”, which is the date on which the Purchaser’s lawyer must advise the Seller’s lawyer of any problems with title that must be fixed before closing.  Sellers have an obligation to provide a buyer with good and marketable title at closing. This is where experienced real estate lawyers like Ellison Law separate themselves.  An experienced real estate lawyer will be able to identify potential problems with title by performing a title search. An experienced real estate lawyer will also have the knowledge and experience necessary to fix these problems.  Identifying and fixing problems with title before closing will save you a huge amount of time, money, and aggravation down the road.

  • Conditions: Your APS will contain conditions for the completion of the transaction. These are extremely important, and you should always carefully review any conditions contained in an APS. Once a seller accepts an offer, and all conditions are either satisfied or waived, the offer to purchase becomes a legally binding contract. Typically, conditions will be reflective of individual circumstances of a real estate transaction. Examples of conditions are:

  • The buyer’s purchase is conditional upon the buyer obtaining mortgage financing;

  • The buyer’s purchase is conditional upon receiving a satisfactory home inspection; and

  • The buyer’s purchase is conditional upon the buyer being able to sell their own home.

 

Contact Ellison Law, Experienced Real Estate Lawyers Serving Clients Across Ontario

David Ellison has over 20 years of experience representing clients in real estate transactions and can help prevent you from making costly mistakes in your Agreement of Purchase and Sale. At Ellison Law, we provide practical and cost-effective legal advice personalized to each client’s needs. We offer client convenience through our virtual platform, allowing you to access trusted legal services from anywhere at any time.  Whether you are buying a condo, selling your home or refinancing a property, Ellison Law is ready to assist. 

Contact us today.