Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300
Toll Free: 1-888-507-0817

 

Search Blog

Search in:  
    
    
       

Sort by:

The Title Clause Explained: Agreement Purchase and Sale

May 26, 2016 - Updated: May 28, 2016

 Title Clause

 

The agreement between the parties concerning "title" to the property is in essence the "bargain" between the seller and the buyer. This is a matter of substance and not just procedural as is the title search clause.



It is also the clause which gives rise to the greatest amount of litigation between the parties.



Let's have a look at the standard form agreement of purchase and sale and see what it says in the "Title" clause:



"10. TITLE: Provided that the title to the property is good and free from all registered restrictions, charges, liens, and encumbrances except as otherwise specifically provided in this Agreement and save and except for (a) any registered restrictions or covenants that run with the land providing that such are complied with; (b) any registered municipal agreements and registered agreements with publicly regulated utilities providing such have been complied with, or security has been posted to ensure compliance and completion, as evidenced by a letter from the relevant municipality or regulated utility; (c) any minor easements for the supply of domestic utility or telephone services to the property or adjacent properties; and (d) any easements for drainage, storm or sanitary sewers, public utility lines, telephone lines, cable television lines or other services which do not materially affect the use of the property. If within the specified times referred to in paragraph 8 any valid objection to title or to any outstanding work order or deficiency notice, or to the fact the said present use may not lawfully be continued, or that the principal building may not be insured against risk of fire is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee, (with all related costs at the expense of the Seller), and which Buyer will not waive, this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction and Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages. Save as to any valid objection so made by such day and except for any objection going to the root of the title, Buyer shall be conclusively deemed to have accepted Seller's title to the property."

 

Now that was a real mouthful! Do you have any idea what you just read? Probably not! This is a paragraph that needs to be read, re-read and then read once again, before you will have any idea what kind of statements are being made.

 

We will have to review it line by line, and due to the fact that it contains so much information, I will identify each line, thought, or partial sentence by a letter of the alphabet for later review.
 


A) 10. TITLE: Provided that the title to the property is good and



B) free from all registered restrictions, charges, liens, and encumbrances



C) except as otherwise specifically provided in this Agreement and



D) save and except for



E) (a) any registered restrictions or covenants that run with the land providing that such are complied with;



F) (b) any registered municipal agreements and registered agreements with publicly regulated utilities providing such have been complied with, or security has been posted to ensure compliance and completion, as evidenced by a letter from the relevant municipality or regulated utility;



G) (c) any minor easements for the supply of domestic utility or telephone services to the property or adjacent properties; and



H) (d) any easements for drainage, storm or sanitary sewers, public utility lines, telephone lines, cable television lines or other services which do not materially affect the use of the property.



I) If within the specified times referred to in paragraph 8 any valid objection



J) to title or



K) to any outstanding work order or deficiency notice, or



L) to the fact the said present use may not lawfully be continued, or



M) that the principal building may not be insured against risk of fire



N) is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance



O) save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee,



P) (with all related costs at the expense of the Seller),



Q) and which Buyer will not waive,



R) this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections,



S) shall be at an end and



T) all monies paid shall be returned without interest or deduction and



U) Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages.



V) Save as to any valid objection so made by such day and



W) except for any objection going to the root of the title,



X) Buyer shall be conclusively deemed to have accepted Seller's title to the property.



So, that was the paragraph broken into its component parts. Now, in order to understand it, we will have to review each item separately.



A) 10. TITLE: Provided that the title to the property is good and



What does this sentence mean? First, the use of the term "provided" means that the matter is elevated to the status of a condition. You might recall that in a contract, terms may be:



• Conditions
• Representations, or
• Warranties


 

The elementary, basic concept is that the bargain is for "good title". In fact, "good title" is made a condition of the transaction. Without good title, the transaction will fail. The concept of "good title" is a term of art. It has a long history and there are numerous legal decisions interpreting its meaning.



There are two basic elements of good title:



• Chain of title
• Extent of title


 

The chain of title falls within the purview of the lawyer or legal conveyancer. It deals with ownership and the proper transfer of ownership or "title" from "A" to "B".

 

The extent of title falls to the surveyor who can plot on a particular parcel of land, the exact location of the property subject to the agreement. There may be some apparent impediments. Such would qualify any opinion on the extent of title.

 

In that sense, the extent of title is physical in nature, while the chain of title arises out of a legal registration system.

 

At one time, the bargain in an agreement was for "good title". Not anymore! Have a look at the exceptions and the qualifications in this paragraph? The concept of "good title" in law is simple. There are no qualifications, explanations, exceptions, conditions, impediments or arrangements. The title is simply "good", and that's the end of it. Courts later added the expression “marketable” meaning that the title was one which could be forced upon an unwilling purchaser.

 

However, you will see that provision is not included in this standard form, nor in fact, do most owners have a title which technically qualifies as "good title". Some do, most don't.



B) free from all registered restrictions, charges, liens, and encumbrances



So far, so good! In line A), you bargained for "good title" and in line B) you are not accepting:



• Registered restrictions
• Charges
• Liens, and
• encumbrances


 

To quickly summarize those concepts, registered restrictions means building restrictions, building covenants, restrictive covenants and the like which run with the land. They were the forerunners of municipal zoning by-laws. They are sometimes referred to as private deed restrictions. Charges are voluntary agreements to provide the property as security for a debt or promissory note. In the Registry system they are called mortgages and in the land titles system they are called charges. Subsequent to the passage of the Land Registration Reform Act, the document is called Charge/Mortgage under both systems.

 

Liens however are like involuntary charges. A third party with certain rights files the claim. Executions, taxes, and construction liens can all be registered against the title to the property.

 

Encumbrances are really like title defects of some sort. They are qualifications or explanations concerning title. An easement for example is an encumbrance.



C) except as otherwise specifically provided in this Agreement and



Now, we come to the exceptions, and the first one is a reference to another part of the agreement. So, if there are separate and distinct obligations with respect to title elsewhere in the agreement, then those other provisions prevail.



D) save and except for



This is the commencement of the list of exceptions. The following exceptions apply no matter what. They are part of the standard form. This is "the" bargain between the parties, whether you like it or not, or whether you think this should be the case.



There is no need to speculate here. This is the list of exceptions. If you don't like them, then change them. There is no point complaining or being surprised about them being here. They are here, and that's it.



E) (a) any registered restrictions or covenants that run with the land providing that such are complied with;



This is the first exception. The buyer agrees to accept registered restrictions and covenants that run with the land. It doesn't really matter what they are, or even whether the buyer knows about them, or doesn't know about them. Whatever they are, they must be accepted by the buyer.



Let's assume that there is a building restriction. The covenant says no house may be greater than 2,500 square feet. The present building is 1,800 square feet of inexpensive construction about 35 years old. The property as it stands complies.



However, the new buyer just put in an Offer at $900,000 for the property. It's one half an acre in a fashionable part of the city. The municipal by laws, will restrict the size to 15,000 square feet. The new buyer wants to build 5,000 square feet.



So, what happens? Unfortunately, the new buyer is stuck. A deal is a deal. The bargain was for good title subject to a building restriction that was in compliance. The limit is 2,500 square feet. The municipal by law doesn't matter. The only remedy is to close the transaction and sue someone. Likely, this will include the buyer's lawyer and real estate agent. It's possible but unlikely that the seller's agent was involved in any misrepresentation. What went wrong?



It doesn't even matter whether the title search took place in time. This restriction is accepted as part of the transaction, it cannot be requisitioned. The time to deal with this issue was at the time of the Offer.



F) (b) any registered municipal agreements and registered agreements with publicly regulated utilities providing such have been complied with, or security has been posted to ensure compliance and completion, as evidenced by a letter from the relevant municipality or regulated utility;



This is the second statement on the list of exceptions. It deals with:



• Registered municipal agreements
• Registered agreements with publicly regulated utilities


 

The balance of the sentence contains two provisos:



• Providing such have been complied with, or
• Security has been posted to ensure compliance


 

There is one further qualification, and that is that the municipality or utility is to provide evidence by way of a letter.

 

So, we start off with the proposition that in a new area under development there may be a municipal development agreement. Older areas in the province would be unlikely to have such agreements. They became commonplace in the 1960's and 1970's and became increasingly more sophisticated thereafter.

 

Initially, these agreements imposed conditions and requirements for development upon the subdivision developer. They required roads to be built, storm and sanitary sewers to be constructed and parkland to be dedicated to the municipality. This would be a work in progress. It might take 5 years. However, the first few streets in the new subdivision might already be available for occupancy.

 

Some municipalities require a performance bond to be posted by the developer to ensure compliance.

 

In most new areas, the matter of water drainage is an issue. When the land sat as a 100 acre farm, that was fine, the water drained off naturally into some creeks and streams. Now that 400 or more houses sit on the same land, the rainfall must drain in accordance with a proper and approved municipal drainage plan. Sometimes, it didn't work! And someone's basement filled up with water. That's not fine.

 

The solution is straightforward, make a provision in the subdivision agreement whereby the developer can come back for years and re-do the grading, if need be. If you are one of the ten properties that has your backyard dug up, you're not going to like it. But, if you are the one whose basement is filled with water after every heavy rainfall, then this is a good system.

 

Let's have a quick look at the steps in the process:



1. Registration of municipal development agreement on title
2. Posting of security by developer with municipality
3. Construction of first of 500 homes
4. Occupancy of early homes
5. Completion of subdivision
6. Completion of last homes in subdivision
7. Acceptance of subdivision by municipality
8. Release of developer by municipality
9. Release of security posted
10. 2 years, 5 years, 10 years after final release


 

In the early stages, the municipality can confirm that they have received adequate security for the completion of the terms of the subdivision agreement. Remember that the cost or the lien imposed upon all of the properties might be $20 million. That's a major lien against one single house.

 

By steps 8 and 9, the municipality can confirm that they are satisfied with the completion of the subdivision.

 

Now, we come to the final step. There may be a continuing obligation imposed upon the new homeowners to permit the developer to return and re-grade the property. This might have a time limit of short duration, ie. 2 years, 5 years, or 10 years following the final "sign-off" by the municipality. In other cases, there is a continuing easement to this effect in the agreement. If that is the case, then there is no expiration date.

 

The question, then, is how significant is that? Does anyone really care? Does it matter? Actually, it seems like a general benefit to everybody in the subdivision. And, most of the time, repair work does not need to be undertaken.

 

The big risk would be a new builder, developer or commercial development taking place. That buyer may find that they are exposed to additional responsibilities compared to others. In such case, they should search the title ahead of time. Don't submit an Offer without knowing the facts. Alternatively, this provision in the standard form agreement must be amended.

 

There are similar issues that arise when we are discussing the regulated utilities, hydro, gas, water, sewers, telephone and cable companies are all regulated. In some cases, their equipment is contained and restricted to an easement that is registered and in other cases, it is not. Each must be investigated and the location of equipment should be identified prior to acceptance. This standard form provision obligates the buyer to accept these agreements. However, the theory is much the same as the municipal agreements.

 

G) (c) any minor easements for the supply of domestic utility or telephone services to the property or adjacent properties; and

 

The prior sentence dealt with the agreement itself. This sentence deals with acceptance of easements. Buyers have to accept "minor easements". So, the first question is "what is minor"? This might not be so clear. What is minor to one person might not be minor to another.

 

Easements are frequently 10 to 15 feet wide. That can be quite a swath of property if it runs through the middle of someone's rear yard. It might, for example, prevent the installation of a swimming pool.

 

If that is the case, then the buyer should at least be able to terminate the transaction. But, the wording as it stands may prevent that. Consequently, the agreement should be amended.
 

 

It is also noteworthy that the property need not benefit from the imposition of the easement. Also, note that the easement need not be "registered". The clause did not say "any minor registered easements". If they wanted to say that then they could. In the previous sentence, they specifically said "registered".

 

That brings us to the next question. Assume your neighbour's cable goes down. Now, the cable company comes along and hooks into yours. They run the new line over your property, that is, along the ground, not buried in it. In due course, they promise to come back and bury it later. Maybe, they never do!

 

In those circumstances, we have an unregistered easement. If nothing is said, the standard form agreement obligates the buyer to accept. So, if you're the owner, you're protected in the sale and if you're the buyer, then you're stuck.

 

I) If within the specified times referred to in paragraph 8 any valid objection

 

This next part of the sentence deals with requisitions. The time limits for the two requisition periods are set out in paragraph 8. The first step is to observe the appropriate time limit, and the second step is to submit a "valid objection". That means something that has arisen out of a search that requires resolution.

 

J) to title or

 

The first matter on the list is "title". The specified date in the agreement applies here. That is the title search date. There are several matters that are close to title problems but are not covered, and they are:



• Matters of conveyance
• Matters of contract
• Root of title issues


 

In all three cases, you need not submit requisitions within the prescribed time, you may submit requisitions at any time, up until closing.



K) to any outstanding work order or deficiency notice, or



For work orders and deficiency notices, the second requisition date will apply.



L) to the fact the said present use may not lawfully be continued, or



Again, the second time limit will apply to the risk of present use.



M) that the principal building may not be insured against risk of fire



The matter of insurance also brings the second time limit into play.



N) is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance



The requisitions are actually completed by the purchaser's solicitor and submitted to the vendor's solicitor. Writing is not usually an issue, but I suppose in the event that the vendor were not available and had failed to appoint a solicitor, then the Notices paragraph in the agreement may be helpful.



The seller is then provided with some options in the event of a proper and valid objection which the seller is:



• unable or
• unwilling


 

In the case of "unable", this usually means that it is not legally possible. In the case of unwilling" this is likely to arise by reason of cost. If it were simple, straightforward and did not cost very much, then likely the seller would agree.



We are next presented with the four types of solutions:



1) remove,

2) remedy,

3) satisfy, or

4) obtain insurance


 

The appropriateness of these various solutions will largely depend upon the nature of the problem in the first place. "Remove" means delete, or arrange for a registration that has the effect of removing the original. "Remedy" is also at times a suitable solution, as is "satisfy". That was always the case, or at least for the last century that was the paragraph contained in most standard form agreements.

 

However, the current OREA standard form actually goes one step further. It provides that "insurance" is also a satisfactory or suitable solution. It may not be!

 

But, unless the wording is changed, the buyer is stuck with this clause. Insurance is good enough and that's the deal. The buyer identifies the problem, the seller secures insurance and by the terms of this agreement, that is a sufficient response.

 

Let's consider the case where the seller owns two 50 foot wide properties separated by a laneway. The laneway is 10 feet in width. There is a title defect. The seller obtains insurance to pass on to the buyer. It provides a remedy if anyone ever comes along to claim the laneway. But, the seller really wants to build a rather large structure over the entire 110 feet. This insurance is not good enough, but it may be all that is required to comply with this provision in the agreement. The buyer has to close the deal. He has three properties, two 50 foot properties and one 10 foot property (with insurance). This does not allow him to go ahead and build as if he had one 110 foot property.

 

In a large number of cases, insurance will not be an appropriate solution. So, always make the necessary amendment, as required.

 

O) save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee,

 

It is difficult to deal with this sentence in the abstract. Remember that this sentence started out with "......Seller is unable or unwilling to.... obtain insurance...".

 

This clause starts out with the "exception", before it goes back to the "obligation". The property must be able to satisfy the insurer's requirements when it comes to insurability. That means "fire insurance", not other kinds of insurance.

 

The insurance that is being referred to in this sentence is "Title Insurance" and that term appears in brackets. It makes good sense, since title insurance may afford an appropriate solution in some cases. But, in all cases, the property should be insurable.

 

The insurance policies should all be available to be in favour of either the buyer or mortgagee as named insureds.

 

This clause is not easy to read. It is very awkward in the manner in which the thoughts are expressed. I have offered an interpretation of my own, that is, my own meaning arising from the words that are expressed. It is difficult and lends itself to other interpretations as well.

 

In addition, there is an unintended "out" in this paragraph. Assume the property is worth land value. There is situate an old building that requires demolition. It may not be insurable. The buyer may later decide not to proceed with this transaction. The lack of insurability of the old building may provide a sufficient requisition to enable the buyer to avoid the transaction.

 

P) (with all related costs at the expense of the Seller),

 

Recognize that the problem already exists, and it is the seller's problem. Consequently, it makes sense to include a provision to the effect that the seller will pay.

 

Q) and which Buyer will not waive,

 

Here, we are now swinging back in the transaction to the defect. So, all we are really saying here, is that the buyer will not waive the defect and proceed with the transaction.

 

R) this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections,

 

It is contemplated that money might offer something of a solution. If both parties cannot reach an agreement with respect to the value of the discount, deficiency or possible correction of the problem, then we need to wind things up.

 

S) shall be at an end and

 

The agreement is at an "end". Note, that the agreement is not "null and void"; it is at an "end". It is concluded or finished. Both parties can still sue one another. If the agreement were "null and void", then, subsequent lawsuits would be eliminated. But, not here!

 

T) all monies paid shall be returned without interest or deduction and

 

Now, we have some agreed upon rules relating to the "end" of this agreement. The first rule is that all monies paid are to be returned without interest or deduction. All monies means "all monies". That means all deposits together with any other monies paid. Here you would be particularly concerned about option prices. This clause says that they are to be returned. Ordinarily, option payments are to be retained by the seller, no matter what. So, make sure that this clause is not in conflict with the intentions of the parties.

 

The prior wording said ".....all monies paid shall be returned in full..". This time the concept of "in full" has been omitted. Nevertheless, there are to be no deductions, and unless the matter of interest were dealt with otherwise in the agreement, then there is no interest.

 

U) Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages.

 

This is an interesting statement. It is a negotiated term in the contract between the seller and the buyer, so, in the right circumstances, the seller will not be responsible for costs or damages.

 

But, why throw in the Listing Brokerage and the Co-operating Brokerage? I suppose because the document was drawn up as a standard form by an association of realtors! Legal stationers’ forms do not include this type of clause.

 

You probably have noticed that neither the listing brokerage nor the co-operating brokerage are made parties to the contract. There is no consideration for the promise. On the assumption that both have a contract with their respective clients, then the clients will be suing them pursuant to that contract, not the agreement of purchase and sale. Well, I suppose, it's worth a try!

 

V) Save as to any valid objection so made by such day and

 

This is the consequence or the substantive result of missing the requisition date or dates. There were two specified.

 

W) except for any objection going to the root of the title,

 

This is an acknowledgment that root of title matters are not covered by either of the first two requisition dates. Either, one might say that a root of title issue can be submitted as a title objection right up to the time of closing, or alternatively, the root of title objection has the date of closing as the requisition date.

 

X) Buyer shall be conclusively deemed to have accepted Seller's title to the property.

 

This is the final conclusion and consequence of missing the requisition date. If the date is missed then the objection cannot be used. The risk associated with that particular defect transfers from the seller to the buyer.

 

The real problem occurs with the potential mortgagee. The buyer may indeed be content to accept the defect, but the mortgagee is not. The mortgage commitment will not obligate the mortgagee to close. So, that's a problem, and a very significant one at that.

 

Comment

This particular paragraph in the agreement is unduly complicated and prolix. It is difficult to follow, and there are some soft points when it comes to title insurance and liability disclaimers.


 

The provision has been drafted to lock the parties together. It favours neither the seller nor the buyer. In that sense, I suppose it's fair.

 

However, it rarely matches exactly the best interests of both the buyer and the seller. The question then, if that is the case, why is it so rarely amended?

 

Brian Madigan LL.B., Broker

 

www.iSourceRealEstate.com


Tagged with: agreement title objections good title insurable title orea form 100
| | Share

Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

Powered by Lone Wolf Real Estate Technologies (CMS6)