Reducing the Risks for the Buyer's Agent
The sale of a property by an estate can present difficult and challenging issues for the buyer’s agent. After all, they don’t know the family, they don’t know how controversial the listing may have been, they don’t know if there is any animosity among the various beneficiaries, and they don’t know if the court probate application might be challenged.
Risk to the Buyer
The real risk is that the deal won’t close because the applicant has not yet “received probate”.
Under the standard form clauses, OREA identified this issue, but chose only to deal with it from a vendor’s perspective. The thought was naturally, that the applicant would proceed in good faith but might run into some procedural delays with the Court process. OREA added a clause permitting the seller to unilaterally extend the closing date.
But, also consider the risks to a buyer:
- locked into a deal, at the seller’s “whim”,
- loss of guaranteed mortgage interest rate,
- living in unsuitable accommodation for additional months, and
- possibly facing higher prices when finally released from the transaction.
A Transaction Gone “bad”
Let’s assume that Gary and Brenda have found their ideal home. Brenda is pregnant and they have a 6 year old. The ideal bungalow is available in the right neighbourhood at the right price from the John Robert Smith Estate. And, good news, their Offer is accepted with a two month closing date.
Now, we run into a problem with the estate. There is some ‘in-fighting”. Some think the house was sold at too low a price. The person who signed the listing, John’s eldest son, David is getting cold feet. Why? First, his mother is upset. But, she divorced “dad” 15 years ago. Next, Martha is upset. She’s “dad’s new wife. And, Bruce and Mary, David’s siblings just think he should have waited until the Spring when prices are higher.
What does this mean? It means very simply that David will now drag his feet in the probate department. Perhaps, he should have consulted with everyone named in the Will?
If David can prolong the estate process, and get out of the real estate deal, then his problems are solved. But, that doesn’t help our poor buyers, Gary and Brenda. They get to stay in their apartment for another half year, and they don’t get to send the 6 year old to the right school. They may be facing a higher interest rate on their bank mortgage, because their guarantee expired. And, when they are thrown back into the real estate market, they may be facing higher prices.
Legal Constraints on Estate Sales
If John had a Will, then David’s appointment as Estate Trustee takes effect from the time of death. The problem is that he just can’t prove it. But, he can sign the Listing Agreement., as well as the agreement of Purchase and Sale. Unfortunately, he does not have the correct documentation to enable him to close the deal.
The first step is an application to Court for the issuance of a “Certificate of Appointment of Estate Trustee with Will Annexed”. Sorry, that was a mouthful, but that’s what it’s called. The old term “probate” would have been much easier.
This application cannot be made until 7 days after the date of death. However, you need to have an inventory of the assets and the value of those assets, in order to calculate the correct fees to pay to the Court. This quite clearly, can take some time: weeks, months, and even years in some rare cases.
The Court will need 6 to 8 weeks to process the application once it is received. So, there is going to be a delay here.
Now, if you could list the property and sell it 30 days after John died, with a 2 month closing, you are “right on the money” with the targeted date for the Court Certificate. Any delay, and you need more time.
It should be noted that if there is no Will, then there is no authority in anyone to list or sell the house, until the court has appointed an Estate Trustee. This time, it is called a “Certificate of Appointment of Estate Trustee without a Will”. But, this time, there’s no listing and no sale without that Certificate.
Resolving the Buyer’s Agent’s Dilemma
Gary and Brenda should have some favourable consideration in the Offer as well. They should have some assurance that David is intending to proceed expeditiously with the application. Also, they too should have the right to extend the closing date, not just David.
If the deal doesn’t go through, there are some other risks, and they should be explained upfront to them by their own agent. Their consent to assume these additional risks should be documented.
Here are some clauses that the Buyer’s agent should consider including in the Offer.
Estate/ Probate Clauses for Consideration
The Buyer and Seller agree that the Seller, upon giving a minimum of _____ days written notice to the Buyer (excluding, Saturday, Sunday or Statutory Holidays), may unilaterally extend the date set for completion, one or more times, not to exceed _____ days in total, to be calculated from the date of acceptance of this Agreement, for the purpose of obtaining a Certificate of Appointment of Estate Trustee.
The Estate Trustee executing this Agreement of Purchase and Sale on behalf of the Estate of the late John Robert Smith (the testator) warrants and represents that he is in possession of an original Will which purports to be executed by the testator, the registered owner of this property, and such Will nominates him as sole Estate Trustee, and further that he will proceed diligently and conscientiously to obtain a Certificate of Appointment of Estate Trustee with Will Annexed, as soon as possible, and that he has no notice, no claim and no reason to believe that any other person will contest his application for appointment
The Buyer and Seller agree that the Buyer, upon giving a minimum of _____ days written notice to the Seller (excluding, Saturday, Sunday or Statutory Holidays), may unilaterally extend the date set for completion, one or more times, not to exceed _____ days in total, to be calculated from the date of acceptance of this Agreement, for the purpose of extending the time to permit the Seller to obtain a Certificate of Appointment of Estate Trustee.
Sometimes it takes 3 months to get the Certificate of appointment.
The first clause protects the Seller. I would suggest 10 days and 180 days.
If prices escalate, the seller may wish to slow down the application and wind up the deal, then re-list in the Spring. To avoid this, the Buyer should have his own clause. Again, 10 days and 180 days.
So, if you had a 2 month closing, the Seller could put it over by as much as another 4 months (in good faith).
The buyer under his clause would have 6 months in total, assuming that the Seller did not extend. Both clauses run from the date of acceptance, forward, so the dates are then clear.
It should be noted that while these clauses may be generally suitable for a regular residential transaction, they would however, likely fall short of the mark for a commercial transaction where a builder were acquiring the property for a land assembly etc. In such cases, additional clauses would be advisable.
Brian Madigan LL.B., Broker