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An important lesson for buying real estate assets | RENX – Real Estate News EXchange

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A recent decision from British Columbia’s highest court highlights the importance of heeding the wording of a sale agreement and retaining a lawyer who can handle the job, especially when it comes to buying regulated real estate.

In Sutter Hill Management Corporation v. Mpire Capital Corporation, the purchase and sale of a specialized property went sideways after the buyer’s lawyer determined he lacked the expertise to complete a regulatory aspect of the transaction. The resulting delay frustrated the sale and the buyer, in turn, ended up losing a substantial deposit.

The purchase-and-sale agreement

In January 2016, Mpire Capital Corporation (the buyer) entered into an agreement of purchase and sale (the APS) to buy a care home from Sutter Hill Management Corporation and Sweet Investments Ltd. (the sellers) for $14,125,000. After the APS was executed, the buyer paid a $300,000 deposit toward the purchase price.

The APS was amended in July 2017 to include a term stating the buyer was required to “use commercially reasonable best efforts” to acquire all of the necessary licenses and approvals from the Fraser Health Authority (the FHA) “as soon as possible”. The closing date for the transaction was deemed to be 30 days after the date on which the buyer obtained regulatory approvals and the transfer of licenses from the FHA.

After the amendment was executed, the buyer took steps to obtain regulatory approvals in the following months. On Nov. 8, 2017, the FHA sent the buyer a number of draft agreements which had to be executed as part of the approval process.

A few weeks later, the buyer’s lawyer advised the sellers he lacked the expertise to advise the buyer on the FHA agreements and he withdrew on Nov. 20, 2017. The buyer retained a different lawyer on Nov. 24, 2017.

On Nov. 27, 2017, the sellers delivered a notice of default to the buyer, which stated the buyer breached the APS for failing to use its “best efforts” to obtain FHA approval, as agreed. The notice of default stated the buyer had taken too long to return the agreements to the FHA and a deadline of Dec. 12, 2017 was given to cure the default.

By Dec. 14, 2017, the buyer had not yet returned the agreements to the FHA. The sellers therefore stated the APS was at an end and took the position that the buyer’s deposit was forfeited as a result.

The sellers then commenced a court application seeking to retain the deposit.

Court decision overturned on appeal

The application judge at the British Columbia Supreme Court did not agree with the sellers.

The judge reasoned that, since the buyer retained a new lawyer on Nov. 24, 2017 to review the FHA agreements, there “simply was not sufficient time” for the new lawyer “to immediately engage in the process”. It was therefore held to be “commercially reasonable” for the buyer to wait for its new lawyer to give advice on the agreements and the buyer was not held to be responsible for the resulting delay.

The sellers appealed the decision and argued the application judge was wrong in holding that the buyer had in fact made “commercially reasonable best efforts” to get FHA approval in a timely manner. The British Columbia Court of Appeal agreed with the sellers in this regard.

The court held that, in order to determine what was meant by the words “commercially reasonable best efforts” and “as soon as possible”, the agreement as a whole and the surrounding circumstances had to be considered. It was noted the lower court made the mistake of examining this issue in too narrow of a context.

The appellate court stated that, in agreeing to obtain FHA approval “as soon as possible”, and using “commercially reasonable best efforts” to do so, the buyer was obligated to “do everything it reasonably could to obtain the necessary approvals as soon as possible, excepting only steps as would be commercially unreasonable”.

As such, it was noted the amount of time it took for the FHA to grant approval was not relevant, as it could not take any steps until the agreements were returned to it. By not returning the FHA agreements in a timely manner, the buyer was the one who was responsible for delaying the process, as it could not explain why it had not taken any concrete steps between the time the agreements were received and the delivery of the notice of default.

It was also held the buyer’s need to retain another lawyer did not excuse it from completing the transaction in a timely manner.

The decision of the application judge was therefore reversed and the deposit was ordered to be paid over to the sellers in full.

The implications for buyers and sellers

Both buyers and sellers would be wise to pay close attention to this decision and its potential implications.

Phrases like “commercially reasonable best efforts” don’t have a clear meaning and will always come down to the specific context of the transaction. However, when entering into an agreement with that (or similar) wording, buyers should always be able to prove they are moving as quickly as they can to complete the transaction and they should also be able to explain any delays.

Also, perhaps more importantly, it is essential for buyers to retain a lawyer with the necessary expertise for complicated real estate deals. This especially holds true in matters like this case, which involve the purchase of specialized assets and related regulatory hurdles.

If a lawyer finds themselves out of their depth, it could end up compromising the deal.

Are there any topics you would like to me to cover in The Property Law Hub?  If so, please feel free to email me at any time [email protected].

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With housing top-of-mind for Ontarians as election looms — Windsor's real estate market cools – CBC.ca

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With the Ontario election less than one week away and interest rates rising, the real estate market in Windsor-Essex is experiencing a cool down.

However, the price of a home is still significant, leaving many constituents feeling left out of the market, yet hopeful that the election might bring with it some improvements.

“Optimism and hope is always there because that’s all we have, right?” said Shanike Gordon, a single mom with two kids renting an apartment in Windsor.

Gordon hopes to get into the housing market soon. 

“That’s the goal at the end of the day — you have somewhere for you and your kids to be able to call home,” she said.

The latest numbers indicate a shift in the local real estate climate, with buyers taking a more conservative approach, and sellers not seeing as much competition for their houses as before, according to Windsor realtor Abe Alhakim.

“We’ve noticed a slowdown in the market over the past few months,” explained Alhakim, who works with LC Platinum Realty. 

“We’ve noticed buyers have put their plans on hold, especially with the increase in interest rates from the Bank of Canada, which has already had one interest rate increase and more is planned over the next few months. And also there’s an Ontario election coming up, so people want to kind of see how things work out over the next few months.”

After months of prices climbing, the average price of a home in Windsor-Essex dipped to $692,759 in April. It was the first decline in the average sale price of a home since September 2021. At its peak, the average price of a home reached $723,739 in March.

The number of sales also dipped by 16 per cent in April compared to the month prior. Sales also dropped by nearly 19 per cent compared to April 2021.

Alhakim describes it as a “mixed market” where some homes are still selling significantly over asking price with multiple offers and bidding wars, while other houses aren’t seeing the same kind of demand. 

Realtor Abe Alhakim says the real estate market in Windsor-Essex is experiencing a slow down. (Katerina Georgieva/CBC)

As for what’s anticipated for the coming months, Alhakim noted, “that’s the golden question.”

“I anticipate the market will stay stabilized and balanced over the next few months, but it remains to be seen how expected interest rate increases are going to affect the market — and also the Ontario elections.”

He noted that the decline has some feeling “fearful” while others are jumping at the opportunity to buy a home at a cheaper price point.

Housing key election issue

Housing costs are a key issue for voters across Ontario, with bidding wars and low supply having driven prices up in recent years. To address the issue, the PC Party, NDP and Liberal Party leaders have all pledged to build 1.5 million homes if elected.

For Leamington’s Terry Maiuri, it’s particularly concerning as he considers the impact the soaring prices are having on his son. 

“It’s just getting ridiculous for the younger generation, I’d say, to afford housing,” Maiuri said.

Terry Maiuri, left, Lisa Lum, centre, and Shanike Gordon, right have affordability of housing on their minds during this provincial election. (CBC)

His 20-year-old son is close to completing his university studies, and Maiuri is concerned about what comes next.

“I told my wife the other day, with the price of houses, I said, ‘My God, he’s going to be living with us until he’s 40.’ Like, how does someone starting out as an adult afford housing, let alone apartment rentals?” he asked. 

“It just seems a little ridiculous.”

He added that while politicians say they realize there’s a problem, he doesn’t think any party is doing enough to address the issue.

Shanike Gordon on housing

7 hours ago

Duration 0:48

Single mom Shanike Gordon shares her hope of buying a home one day.

Windsor voter Lisa Lum says affordable housing is key for her this election. She said, after living in her Walkerville home for eight years, she was recently evicted after her landlord sold the duplex she was renting. 

Now, she’s in a new home in the same neighbourhood, but it’s significantly smaller, paying $500 more in rent. 

As for whether she might want to buy down the road, she doesn’t believe that to be realistic given the state of the market. 

“I wouldn’t be able to with the bidding wars that are here,” she said.

“I mean, how do you even get the down payment when homes that were bought, you know, five years ago for $120,000, and now they’re going for five and $600,000?”

While she’s optimistic more can be done by political leaders to address rent control, she doesn’t have confidence much will change when it comes to real estate.

As for Gordon, she’s not sure she’ll be voting at all in the provincial election, but explained stronger action on housing could sway her.

“Anything that caters for housing, families, single families especially, I’m all for it,” she said. 

Meanwhile, Alhakim continues to monitor the market, adding that he doesn’t expect a major correction in the market, but envisions the market settling into a plateau this year.

The housing market in Windsor-Essex is experiencing a cool down, with a dip in the average price of a home and fewer offers on some homes, according to realtor Abe Alhakim. (Katerina Georgieva/CBC)

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Ottawa's commercial real estate market to 'remain vibrant' in 2022, Re/Max says – Ottawa Business Journal

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Ottawa’s commercial real estate sector is “gaining momentum” thanks to a booming industrial market and a retail industry that’s roared back to life in recent months as pandemic-related restrictions have lifted, according to a new report.

After topping $3.8 billion in a record-setting 2021, commercial investment activity in the National Capital Region is on pace to exceed that amount this year, Re/Max says in its 2022 Commercial Real Estate Report released on Thursday.

Citing the Conference Board of Canada’s projection that Ottawa-Gatineau’s GDP will grow by 3.4 per cent in 2002 as the tech and construction sectors heat up, the firm said that sunny forecast should bode well for real estate investors.

“Against this backdrop, the city’s commercial market should remain vibrant, with improvements projected in the office sector as the pandemic recedes from the forefront,” the report said.

Re/Max singled out the red-hot industrial sector as the star performer in Ottawa’s commercial real estate scene. 

1.7% availability rate

The report cited the city’s close proximity to 400-series highways and the U.S. border as prime reasons for the ongoing surge in industrial activity, adding the limited stock of available properties is “presenting serious challenges” for investors seeking to capitalize on the sector’s growth.

According to the Altus Group, Ottawa’s industrial availability rate sat at 1.7 per cent in the first quarter of 2022, down from 3.1 per cent during the same period a year earlier. 

“While intent (to invest) exists, a shortage of available inventory for both lease and sale has fallen short of demand, especially in the popular west end,” Re/Max said.

The company said the space crunch has pushed industrial lease rates to a new record average high of a net $15.50 per square foot – a 30 per cent increase over the average of $12 per square foot just two years ago.

“In the city’s east end, smaller space is almost impossible to find, with listings that do come on stream snapped up quickly, often at a premium,” the report said.

Meanwhile, Re/Max said Ottawa’s retail real estate sector has “rebounded with a vengeance” after a difficult two-year stretch in which COVID-19 wreaked havoc with brick-and-mortar stores, restaurants and other mainstreet businesses.

Smaller spaces have been almost completely snapped up in major malls such as the Rideau Centre, Bayshore Shopping Centre and St. Laurent Shopping Centre, the report says, adding that vacant storefront properties in areas like the ByWard Market, Glebe and Westboro are also being occupied at a brisk pace.

“Negotiations with landlords are more complicated than in years past, with many wanting guarantees in the form of personal covenants,” Re/Max said. “The glut of space available last year has been absorbed, albeit at a slightly lower lease range.”

Suburban mall revival

The report said suburban retail complexes are also undergoing a renaissance, with fitness facilities, restaurants and fast-food outlets among the major tenants taking over space in big-box malls.

The company isn’t as bullish on the office sector, which still has an overall vacancy rate above 10 per cent. With many civil servants still working from home, Re/Max said it could be a while before Ottawa’s office towers are teeming with tenants again.

As a result, the company said, landlords have started offering incentives such as free rent for a year and various leasehold improvements in a bid to fill vacant properties.

“At the same time, the relatively low interest rate environment has generated an upswing in demand for office buildings in suburban areas like Kanata,” Re/Max added. “Most are smaller, commercial buildings ideal for professional offices, generally sought-after by end users.”

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3-day 'cooling off' period, transparent bidding recommended to transform B.C. real estate sector – CBC.ca

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The regulator for British Columbia’s real estate sector has recommended that the province adopt a so-called “cooling-off” period of three business days to protect people buying a home, through legislation tabled this spring.

A report from the B.C. Financial Services Authority released Thursday advises that sellers be required to provide reasonable access for a property inspection during the three-day homebuyer protection period, which would start the day after an offer is accepted.

It also advises that B.C. implement a “modest” termination fee of 0.1 to 0.5 per cent of the price of a home to be paid by buyers who pull out of a deal.

The fee “strikes a balance between discouraging frivolous offers and recognizing the disruption in the selling process,” the report said.

Additional recommendations include a five-day “pre-offer” period after a property is listed, when a seller may not accept any offers, along with suggestions aimed at enhancing transparency in the transaction process.

For example, the report advises that key strata documents should be made available when a strata property is listed. The province could also require buyers to disclose to sellers any other active offers they’ve made, it suggests.

The report also recommends ending blind bidding and exploring an open bidding process used in many Scandinavian countries.

Homebuyers pressured to take ‘unreasonable risks’

The B.C. government introduced amendments to property legislation in March. Finance Minister Selina Robinson tasked the independent regulator with consulting the real estate industry on the parameters of a cooling-off period and other potential measures.

Robinson says the province is reviewing the report, and her aim is to move “relatively quickly” with the bill that passed its third reading last month, but the real estate industry also needs time to adjust and adapt to the changes.

The province has heard in recent years about homebuyers feeling pressured to take “unreasonable risks,” such as waiving home inspections, which has led to “horror stories,” Robinson said at a news conference on Thursday.

“I’m eager to move on these elements. I do need to have more discussion with [the B.C. Financial Services Authority] and others around what time frame is needed to act, certainly around the buyer protection period,” Robinson said, noting there’s a “whole range” of other recommendations.

Aims to increase transparency, consumer protections

Blair Morrison, CEO of the B.C. Financial Services Authority, said at a news conference there would be “adjustments” to the current real estate transaction process to bring the homebuyer protection period into force.

In developing the report, Morrison said the authority hosted 20 consultation sessions with more than 140 people from across B.C.’s real estate sector.

“We think this is core, basic, good consumer protection that should apply throughout British Columbia,” he said.

“We want to make sure this works for the sector, for the real estate [agents], for the lawyers and other parts of that process,” he added.

He said the review was not intended to address housing affordability in B.C.

The report also considers “blind bidding,” a common practice in which sellers are not compelled to tell prospective buyers about competing offers.

That lack of transparency can “skew the perception of market fairness and potentially lead to distrust in the real estate transaction process,” it said, pointing to concerns about inflated valuations or buyers overpaying for a home by offering a price that significantly exceeds the next highest offer.

The regulator looked at open-bidding alternatives, advising B.C. to consider options such as live auctions and anonymous disclosure of other offers.

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