Looking At the Major Changes In Purchase Contracts For Alberta Real Estate

There have been significant changes to the Alberta Real Estate Purchase Contract used in Alberta. Recent years have seen smaller updates but this marks a major change. It is very important to understand what has changed. There are the top 10 (11 actually) changes to the Alberta real estate purchase contract that many people are not aware of.

1) Changes Regarding Which Encumbrances Must to be Removed from Title

The old section 1.5(b) and the new section 5.1(b) are very similar but with one key difference. The original stated that title shall be free of all non-financial obligations on title except easements, utility rights of way, restrictive covenants and conditions that are normally found registered against property of this nature and which do not affect the saleability of the property. The new section has removed the bolded wording, which means that in some cases, a non-financial registration that could affect future saleability of the property will remain on title unless the contract is amended to reflect that a specific registration must be removed. Without the qualifier used in the old contract, it becomes even more important to pull copies of the registrations on title to review prior to signing the offer, in which the buyer will be accepting all easements, rights of way and restrictive covenants.

2) The Inclusion of More Specific Terms Related to Alberta Dower Rights

The new Residential Real Estate Purchase Contract for Alberta deals with dower rights in different ways than before:

1. A spouse who is not registered on title as an owner must sign the purchase contract. This requirement, in and of itself, is not relevant because the spouse of the registered owner is not a party to the contract and is not bound by the terms contained therein, however, this does notify the buyer that dower rights are applicable.
2. The new contract has added section 3.1(h)(ii) which specifies that the seller will ensure that those representations and warranties relating to dower rights (as contained in section 6.1(a) and 6.1(c)) are true. Arguably, this requirement was always implied in the old contract, however, the new contract has incorporated this as an express term of the contract.
3. The biggest change relating to dower rights in the new contract is found in sections 7.1(b) and 4.8(a)(ii). Section 7.1(b) of the new contract states that if dower rights apply, a Dower Consent and Acknowledgment must be attached to the contract and signed by the non-owner spouse by a certain date. If the seller fails to provide the signed Dower Consent by the date specified, the buyer may void the contract. Section 4.8(a)(ii) further specifies that should the contract be voided pursuant to section 7.1(b), all deposits already paid by the buyer to the seller must be refunded to the buyer.

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3) How Tenants are Dealt with in the Purchase Contract

The manner in which the issue of tenants is now handled in the new Alberta Residential Purchase Contract has seen a significant change from the old contract. The old contract stated that the seller shall provide vacant possession to the buyer subject to the rights of any tenants residing at the property. In Alberta, tenant rights are set out by law in the Residential Tenancies Act (the “Act”). The old contract required that a buyer inquire as to whether there were any tenants residing at the property and then amend the contract accordingly to ensure that any tenants would vacate prior to possession.

Section 2.3 of the new contract provides more protection to buyers than the old contract as section 2.3 of the new contract requires the Seller to provide vacant possession to the buyer on the Completion Day, the requirement of which is no longer subject to tenant rights. Vacant possession means that no one will be residing in the property on the Completion Day. To comply with the new contract, the seller must ensure that all tenants have vacated the property or alternatively, the seller may amend the contract to state that the buyer will accept and assume any existing tenancies.

Further, section 10.7 of the new contract states that the seller must pay any costs associated with the termination of an existing tenancy, such costs which may be paid by the seller’s lawyer from the sale proceeds pursuant to section 10.5 of the new contract.

4) Release of Residential Real Estate Deposits

The new contract adds language which could impact disputes between the buyer and seller. Section 4.8 of the new contract specifically provides that no prior notice must be given to the parties before releasing deposits to the other party. This means that a parties’ ability to dispute the release of the deposit may be lost as the deposit can now be released without the other parties’ knowledge.

5) Contractual Instructions to Respective Lawyers

In Alberta, the lawyers’ Code of Conduct mandates that a lawyer must always follow their client’s lawful instructions. Section 4.12 of the old Residential Real Estate Purchase Contract specifically instructed lawyers to close transactions using protocol insurance when available. A protocol closing is one where the Law Society of Alberta’s mandated insurance covers the risk associated with the “gap” between the date on which a transfer of land and/or mortgage is/are submitted to the land titles office to be registered and the date on which registration has been completed. Registration delays vary based on many factors such as the Alberta Land Titles Office workloads, staffing, time of year, etc. Protocol insurance protects against the risk of other documents being registered against title to the property while the transfer of land and/or mortgage is/are waiting in the que to be registered.Both the old and new contracts provide that in the event the seller does not provide closing documents to the buyer with sufficient time to register the documents at the land titles office and obtain mortgage proceeds, payment of the purchase price by the buyer is postponed until sufficient time has been provided. In these situations, the seller must give the buyer possession of the property at a reduced interest rate. In practice, it is quite difficult for a seller’s lawyer to provide documents to the buyer’s lawyer with sufficient time to register documents at the land titles office as registration times are typically quite long, are constantly changing and are unpredictable.

Section 10.11 of the new Alberta real estate purchase contract states that the parties “will” instruct their lawyer to close the transaction using protocol insurance whereas the language used in the old contract directly instructed the lawyers to close using protocol insurance. As lawyers cannot act on anticipated instructions, they must obtain written instruction from their clients to utilize protocol insurance for closing. This is really not an issue for the buyer or seller (most buyers and sellers have no opinion regarding closing one way or the other), but may now become an issue where a lawyer who does not want to close on protocol insurance (or has not been diligent in the completion of a lender’s requirements for obtaining mortgage proceeds) can now cite a lack of instruction from their client to close on protocol insurance as a rationale to postpone payment of the purchase price on the Completion Day and still ensure keys will be released to their client.

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6) Potential Change to the Definition of Material Latent Defect

In common law jurisdictions, such as most of Canada, the law is determined not only by statute, but also through the interpretation and application of statutes through reported court decisions. Individuals may enter into private contracts, the interpretation of which are often determined by the Courts when there is a breach of the contractual terms. Contractual terms are often better understood through a series of judicial decisions that further define what is meant by the specific wording used in the legislation and/or contracts. If the government does not approve of the judicial interpretations of the legislation (the common law), they may amend the legislation and to be more specific in its language. The same is true for contracts. If a court rules that certain language in a contract suggests a certain intention, meaning or outcome, parties can alter such language in future contracts, which is relevant in terms of how the Residential Alberta Real Estate Purchase Contract deals with material latent defects.

Section 6.1(h) of the old Alberta real estate purchase contract stated that “the seller is not aware of any defects that are not visible and that may render the property dangerous or potentially dangerous to occupants or unfit for habitation.”

The seller warranty and representation found in the new Section 6.1(f) states that “known Material Latent Defects, if any, have been disclosed in writing in this contract”. This means two things:

1. Notwithstanding any previous disclosure (ie. verbal, email, notes found in the MLS listing, etc.), Material Latent Defects must also be written into and acknowledged in the Residential Real Estate Purchase Contract; and
2. Material Latent Defect is now a capitalized term indicating that it is defined in the contract itself.

Section 3.1(f) of the new contract defines a Material Latent Defect as “a defect in the Property that is not discoverable through a reasonable inspection and that will affect the use or value of the Property”, which is a change from the old contract in two ways:

1. The seller representation and warranty found in the old Alberta real estate purchase contract stated that, “except as otherwise disclosed, the seller was not aware of any defects which were not visible.” This included defects such as those which were hidden behind walls, air quality issues or inconsistent problems that may not have been apparent at the time the Buyer viewed the home (ie. a home was fine when viewed in the winter but leaks every spring). The new contract changes the standard from “not visible” to those defects that are “not discoverable through a reasonable inspection”. The Courts would likely apply the test of what a reasonable person would be able to discover. This change in language means that more disclosure is now required than was previously.
2. Because the term “material latent defect” was not defined in the old contract, the Courts had developed a definition of the term over time. Where previously, the concern regarding defects had been centered around more serious issues that could render the property unfit to live in, the new contract specifically references the effect of the defect on the “use” OR “value” of the property, resulting in significantly more issues being captured by the new definition.

*As a general rule, if the seller is unsure whether they should disclose any issues, it is safer and the seller is more likely to avoid potential litigation by disclosing more, rather than less information.

7) Which Courts May Hear Disputes

In the old contract, section 7.4 stated that the parties agreed that the contract was to governed by the laws of the province of Alberta and went on to state that the parties would submit to the exclusive jurisdiction of the courts in Alberta for any disputes.

Section 3.1(b) of the new Alberta real estate purchase contract states that the laws of Alberta apply to this contract. The significant change is that the restriction as to the exclusive jurisdiction of the Courts of Alberta has been removed. This means that if it can be established that the dispute somehow has a connection to another jurisdiction, the Courts of another jurisdiction could potentially hear a dispute arising out of the transaction and the trial may be held outside of Alberta. For example, if one of the parties to the dispute were a full time resident of another jurisdiction, the Courts of that jurisdiction may accept the residency as a basis for hearing the matter (although Alberta law would still apply to the analysis).

8) Who Can Perform Home Inspections

The “home inspection” condition in the Alberta Residential Real Estate Purchase Contract is intended to allow Buyers to make informed decisions as to whether or not they want to buy a property upon consideration of the condition of the home. The old contract did not specify who could conduct the inspection, meaning that even a friend or a family member could conduct the inspection, allowing the Buyer to base their decision on a potentially unqualified opinion.  Alberta now mandates that home inspectors be licensed so it makes sense that the change was made in the new contract requiring that home inspections be conducted by a qualified licensed home inspector.

9) Who Can Receive Notices & Acceptance of the Contract

Section 12.2 of the old Alberta real estate purchase contract included a BOLD note which has now been removed in the new contract. Specifically, the note stated that the representative information was required to be completed in full by the buyer’s agent prior to the contract being signed in order to authorize communication between the buyer’s and seller’s real estate agents. Absent the completion of the representative information, the offer, accepted contact, and notices cannot be sent to the real estate agents and must be sent directly to the buyer or seller.

10) Acceptable Methods for Acceptance of the Offer and Providing Notices

Section 14.1 in the new Alberta real estate purchase contract involves the mechanisms for delivering notice. As above, both the old and new Alberta real estate purchase contract allows for notices (including offers and final acceptance) to be sent to the real estate agent. Aside from the bold reminder note, the key difference, is that new contract now allows for delivery of notices (and all other documents) by email, a change that was needed for some time given commonality of email communication and its widespread use in the real estate industry. Interestingly, the new section 13.2 deems notice to be effective at the time the email was sent rather than when it was received.

Bonus 11) Real Property Report (RPR) Requirements

Real Property Reports have long been the cause of disputes between buyers and sellers. The old Alberta real estate purchase contract stated that as part of the closing documents to be provided to the buyer, the seller “will provide, regarding the matters described in clause 6.1, a real property report reflecting the current state of improvement on the Property……with evidence of municipal compliance or non-conformance”. The new section 10.2 has changed this wording to state that the closing documents shall “include an RPR showing the current improvements on the Property……..with evidence of municipal compliance or non-conformance and confirming the seller’s warranties about the land and buildings.” The new wording in the section 10.2 clarifies the RPR requirements for closing of the transaction. Where previously, it could be argued that, although a breach of the seller’s representations and warranties in section 6.1, an RPR which showed the encroachment of a structure onto a neighboring property satisfied the RPR requirements in the old Alberta real estate purchase contract. The new contract now requires that the RPR confirm the seller’s warranties and must therefore show that the structures do not encroach onto neighboring properties unless an encroachment agreement has been registered on title. As both the old and new contracts do not require that the buyer close the transaction until the normal closing documents have been received, the new contract allows buyers to postpone payment of the purchase price until the seller has either obtained and registered an encroachment agreement or removed the encroachments and provided a new RPR evidencing same.

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