5 Frequently Asked Questions About Real Estate Agreements During COVID-19*
*This article was written by Mark Weisleder of RealEstateLawyers.ca LLP
In the wake of COVID-19 there has been a lot of uncertainty—this fragility has extended to the housing market as many were either mid-deal, planning on buying or selling, or had a project underway. As real estate professionals, we have received a lot of questions regarding the pandemic and the housing market, frequently around real estate agreements and how COVID-19 has impacted such agreements. In this blog, we will answer our most frequently asked questions from both clients and Realtors, about how the pandemic has affected real estate agreements:
1. Can a buyer cancel an agreement due to COVID-19?
The simple answer is no. If a buyer cannot obtain a mortgage, goes into quarantine or the value of the property decreases, these are not acceptable excuses to cancel a real estate agreement. Either terms of an extension are agreed to, or the buyer can be sued for any deficiency the seller suffers on a resale.
2. Can a seller refuse a pre-closing visit due to being afraid of COVID-19?
If the visit is provided for in the agreement, a safe compromise should be worked out, with perhaps only one buyer visiting the home. Such buyer would be expected to wear a mask and gloves, and only enter the home for a short time (maximum 20 minutes). During such a visit, a buyer should also be required not to touch anything in the home to ensure maximum safety. Another option is for the buyer and seller to agree to a Zoom meeting where the seller goes around the entire house showing the buyer all areas of concern. A final option we have seen is when the seller arranges to vacate the property early on the closing date and have the buyer enter the property for a final inspection. This option provides both parties with a fair final inspection of the home while also leaving enough time to close.
3. Can the Government Land Registry System close down?
While this is theoretically possible, we have been assured by the Director of Titles that this will not occur since the system is being operated by staff who are working remotely. In the unlikely event that this did occur, most real estate closings could still proceed as long as the buyer had title insurance which provides gap coverage, meaning that the agreements can close as scheduled, money can be paid to sellers, keys released to buyer and registrations occurring once the system is up and running again. Gap coverage means that in the unlikely event, a lien or judgment arises in the intervening period, which could affect the title. The buyer’s title insurance policy will remove it.
4. Can a buyer or seller complete a real estate closing without visiting a lawyer in person?
The answer is yes, but not all law firms offer this service. Technically speaking there is no requirement to meet any buyer or seller in person. All document signings can be done by video conference. If a law firm is registered as a bill payee at major banks, buyers can transfer the closing down payment directly to its trust account online, so that they do not have to line up at a bank branch with a mask for an extended period of time to obtain a bank draft. For sellers, this would mean signing all documents by video conference and automatically transferring closing funds by Electronic Funds Transfer directly to the seller’s bank account after closing, the same way real estate commissions are paid after closing.
5. Do you need special clauses to protect buyers and sellers during the pandemic?
Here are three practical clauses to include in any agreement during the pandemic:
- The Buyer shall pay the balance of the purchase price, subject to the usual adjustments by wire transfer.
- The parties acknowledge and agree that all closing documentation can be signed electronically and forwarded by email or fax in accordance with the Electronic Commerce Act, 2000, S.O.2000,c.17
- The parties agree that the keys to the property shall be left in a lock box at the property and the code to the same is to be provided to the Buyer’s lawyer in escrow pending closing of this transaction.
Otherwise, no further clauses should be added, as they do more harm than good, especially when they give buyers or sellers the right to terminate an agreement. As stated earlier, even in the remote situation that the government registration system goes down, real estate agreements can still close if there is gap coverage in place through the title insurance. Legal advice should always be obtained before any additional clauses are introduced into any real estate agreement of purchase and sale.
This article was supplied by RealEstateLaywers.ca LLP. It is being posted on the blog for information purposes only and does not constitute legal advice nor an endorsement of the author or his firm. Consumers are advised to reach out to and engage their own legal counsel regarding their specific situation. In Ontario you can find a lawyer by accessing the Law Society of Ontario’s Lawyer Referral Service.
Real Estate Roundup 10.21.20 – Real Estate Daily Beat
Real Estate Roundup:
National Acquisitions Roundup
- Blackstone has agreed to purchase an office complex in Silicon Valley that’s leased to Roku for $275 million. The two buildings are part of a project called Coleman Highline, a new development that’s walking distance to a Caltrain station and the stadium where Major League Soccer’s San Jose Earthquakes play. The purchase price translates to roughly $770 per SF. (Bloomberg)
- The Stro Cos. has purchased a fully occupied, 78,000-square-foot industrial property in Fairfield for an undisclosed price. The property, located at 140 Clinton Road, is home to two tenants and sits directly along Route 46, offering quick access to interstates 80, 280 and 287, among other highways. (RENJ)
- Realterm US Inc. has acquired a property under renovation for use by Amazon from Bridge Development Partners for $81 million. The Torrance, CA property is located at 2751 Skypark Drive, and consists of 118,000 of warehouse space, with 12,500 SF will be set aside as an office and reception area. (LABJ)
National Financing Roundup
- AvalonBay has secured a $167 million construction loan from a syndicate led by Bank of America for its 475-unit multifamily project in Downtown L.A.’s Arts District. The development sits on a 3.75-acre site at 668 S. Alameda Street, and will also have roughly 60,000 SF of commercial space. (LABJ)
- Starwood Retail Partners is giving up on the nearly 1 million-square-foot Louis Joliet Mall in Chicago, handing over the keys to its lender after first defaulting on a loan payment in the spring. The move comes two months after parent company Starwood Capital Group lost control of a seven-property regional mall portfolio. The landlord is reportedly in negotiations for a deed in lieu of foreclosure or a foreclosure sale. (TRD)
- In a regulatory filing made public Tuesday, AMC said it will be selling 15 million Class A shares in an offering valued at approximately $45 million. The firm estimates that on September 30 it had $417.9 million in cash and cash equivalents—an amount that “would be largely depleted” by the end of 2020 or early 2021 without any additional sources of liquidity. Last Tuesday, AMC disclosed in a regulatory filing that it resumed operations at 494 of its 598 U.S. theaters with limited seating capacities of between 20% and 40%. (Forbes)
- With outdoor space at a premium, shopping malls and garages are opening their parking lots to tenants and other vendors for open-air stores and other events. At a time when most brick-and-mortar retail is suffering, landlords are grateful for anything that brings in any additional revenue or foot traffic. Some use lots for public-service functions like job fairs, voting stations and drive-through Covid-19 testing. Others have become gathering spots for trivia or bingo games where participants play from their cars. (WSJ)
- JEMB Realty has filed a lawsuit that claims that Greenwich Insurance Company should have covered their losses at 1293 Broadway because the pandemic is defined as a pollutant. The insurance policy defined pollutants as “any solid, liquid, gaseous or thermal pollutant, irritant or contaminant.” The coronavirus qualifies, given that it spreads through the air or via surfaces, JEMB claims. The firm is seeking $3 million in remediation. (TRD)
New to the market
- Brookfield Asset Management is exploring a sale of its life-sciences real estate portfolio, and seeking about $3 billion. The firm is working with advisers to sell roughly 2.3 million square feet of life-sciences real estate it acquired as part of its 2018 purchase of Forest City Realty Trust. (Bloomberg)
- Nontraded real-estate investment trusts are again bringing in money after a pandemic slowdown… The funds typically take investments of as little as $2,500 and have been paying dividends above 5% without the volatility of the stock market. In the third quarter, the funds raised $1.37 billion. That was $450 million more than they raised in the previous quarter. In the first quarter, a record number investors tried to get their money back and some weren’t able to redeem shares. In the second quarter, redemption requests eased to $515.8 million from $724.1 million in the first quarter. (WSJ)
- With New Yorkers rushing to the suburbs, Fairfield County, Connecticut — the home of tony Greenwich — suddenly has the fastest-rising real estate prices in the U.S. The median home price climbed 33% in September from a year earlier to $499,000, while sales jumped 80%. By both measures, the county was the hottest U.S. housing market, based on an analysis of the largest metropolitan areas in the U.S. (Bloomberg)
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Hudson Bay aims to 'unleash' real estate values – Western Investor
A plan by Hudson Bay Company (HBC) to unlock the real estate values of its vast property holdings could run into dramatic price differences among its holdings in Western Canada.
On October 19, the venerable retailer, founded in Canada in 1670, announced it had formed HBC Properties and Investments (HBCPI), a dedicated real estate and investments business to “manage, maximize and enhance” the 40 million square feet of gross leasable space that HBC owns across North America.
Richard Baker, HBC’s executive chairman and CEO said, “This is an exciting phase of our company’s transformation and provides us with a significant opportunity to unleash the full potential of our real estate and investments business. Under this new organization, we will build upon our strong foundation of valuable real estate assets in key demographic areas. We will also continue our strong track record of maximizing our portfolio and generating value from these assets, as we did through the sales of the Lord + Taylor flagship building and our interest in European real estate assets,” He added, “HBCPI is well-equipped to further elevate and increase the value of our portfolio.”
HBCPI sold HBC’s Lord + Taylor building in New York City last year for $1.1 billion. It unloaded the company’s share of European assets for a reported $1.5 billion.
The plan to monetize real estate could include downtown locations in Vancouver, Edmonton and Winnipeg.
The 168,000-square-foot Edmonton store is slated to close this fall. The Winnipeg downtown store, once the HBC flagship outlet in Canada, is scheduled to close February 2021 after more than 125 years in business.
In Vancouver, HBC had a conditional agreement in 2018 to sell its downtown store at 674 Granville Street to RioCan Real Estate Investment Trust for $675 million, but the transaction failed to go through.
The site, which includes 767,000 square feet of land at the corner of West Georgia Street, is currently assessed at $251.6 million by BC Assessment.
As a comparison, the 650,000-square-foot Winnipeg downtown building was valued at zero in a January 2020 appraisal done by Cushman & Wakefield.
According to the appraisal, the building is worthless, but the site would likely be developed with retail and other commercial uses, such as offices or multi-residential development.
This would likely be the fate of other HBC downtown locations in Canada.
HBCPI now owns New York-based Streetworks Development, a large-scale property development division that specializes in mixed-use redevelopments.
“This new division focuses on creating multi-use spaces that feature a variety of services and experiences across the workplace, retail, residential and entertainment categories,” according to a HBCPI statement October 19.
New Brunswick Real Estate: Hot Markets, Province-wide – RE/MAX News
The COVID-19 public health crisis has altered consumer trends and home-buying patterns. From social distancing to Zoom teleconferencing, more people are working from home and performing their daily duties from the comfort of their kitchen or dining room. This has allowed a lot of homebuyers to vacate the big cities and re-plant their roots within rural and suburban communities. Based on the numbers, it looks like many of these home seekers are looking to the Prince Edward Island, Nova Scotia and New Brunswick real estate markets.
Despite the economic challenges in the wake of the coronavirus pandemic, many major urban centres are witnessing record-breaking growth, whether it is in sales activity or prices. If too many Canadians were priced out of these cities before the outbreak, their dreams of living in the downtown core of Toronto and Vancouver are becoming even harder to realize. These trends have facilitated tremendous growth in Atlantic Canada real estate.
Atlantic Canada housing markets have witnesses record-breaking activity since the height of the pandemic. Below, we take a closer look at just how well New Brunswick’s hottest housing markets have fared over the course of this unprecedented public health crisis.
New Brunswick Real Estate: Hot Markets, Province-wide
Fredericton was one of the many Atlantic Canada markets to endure the “pandemic pause,” but the city has since recuperated and now it is on track to close out 2020 with strong numbers that are projected to boost the local market into next year.
According to the Real Estate Board of the Fredericton Area, residential sales surged a record high 34.4 per cent in September 2020 compared to the same time last year. The average price of homes sold in September climbed an impressive 22.6 per cent year-over-year, to $210,015.
Although 312 new residential listings were added to the housing market in September, overall inventory continues to decline to its lowest level in 17 years. Active residential listings were down more than 40 per cent compared to the end of September 2019.
The RE/MAX Fall Market Outlook Report forecasts that Fredericton home prices will maintain their current values, rising 2.5 per cent to finish 2020. However, as a direct result of dwindling supply and pent-up demand, Fredericton is witnessing a new trend that has largely been confined to Canada’s largest real estate markets, such as Toronto and Vancouver: bidding wars.
Like Fredericton, Saint John is another city in the New Brunswick real estate market to enjoy record-setting activity, particularly in the second half of 2020.
According to the Saint John Real Estate Board, residential sales advanced by 27.1 per cent year-over-year, setting a new sales record for the month of September. The average price of homes sold in September increased by 14 per cent from a year ago to a record-breaking $205,247.
Despite 320 new residential listings, active listings fell 38.1 per cent at the end of September 2020. Overall supply levels are trending downward, standing at 12-year lows.
“Our local real estate market has continued to outperform expectations in September,” said Corey Breau, President of the Saint John Real Estate Board and broker at RE/MAX Professionals Saint John. “New listings also posted strong gains this past month but are struggling to stay ahead of the brisk pace of sales. Much like other parts of New Brunswick, Saint John’s usually busy fall market is experiencing significantly increased demand. When you combine that with the lowest inventory numbers that we have seen in over a decade, it creates sustained upward pressure on prices.”
While Saint John was not immune to the coronavirus-induced drop in housing activity earlier this year, the market has recovered. The RE/MAX Fall Market Outlook Report suggests that sales and prices will continue to be strong in the final quarter of 2020. Due to a lack of inventory, the high cost of building materials, and pent-up demand, Saint John prices are expected to surge seven per cent through the remainder of 2020.
The Broader New Brunswick Real Estate Market
CBC News recently reported that many New Brunswick households are better off financially than before the pandemic. Why? Federal COVID-19 relief spending in New Brunswick increased household incomes in the province to all-time highs, despite the economy slumping and thousands of people losing their jobs. When more consumers have money, a renewed confidence trickles down through the entire market, including real estate.
With demand outpacing supply in markets across the province, the competition for New Brunswick homes is ballooning, particularly with more real estate agents enabling the facilitation of online transactions. Remote markets are more accessible than ever before, and accordingly, people are snatching up New Brunswick real estate from across the country. In many cases, purchases are being made without the buyers even seeing the house in person.
The New Brunswick economy is on the rebound, thanks to successful containment of the coronavirus and interest rates at historical lows. For now, the province is enjoying stable growth, and the strong activity within its largest real estate markets will not only contribute to New Brunswick’s economic rebound, but also a possible population spike!
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