The ABCs of a Basic Real Estate Contract

Most of us will buy and sell at least one home at some point in our lives. We usually know what we want in a home, we have an idea of what our budget is, and we know that most people use a realtor to help them find or advertise a home. For many people, these topics are pretty straightforward. But what about the legal contract that’s required to buy or sell a home? For some folks, the terms in the contract can be a bit mysterious. In the reminder of this article, we will try to provide some basic concepts found in a standard real estate contract.

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What is a Legal Description?

When we describe the location of a home, we generally think of the home’s civic address. But there are too many identical addresses in BC for this to be a foolproof method of describing a home. Just how many 1234 Main Streets are there in BC? To counteract this concern, the Land Title Office uses Parcel Identifier numbers (often called PIDs) and Legal Descriptions. Every separate piece of real estate in BC has its own unique PID and Legal Description. For many people, the easiest place to find this information is on their home’s annual BC Assessment notice. The PID is a nine-digit number (for example: 012-345-678) and the Legal Description is a mix of words and numbers (for example: Lot 23 Group 2 Township 16 New Westminster District Plan LMP41263). The PID and Legal Description are used in a legal contract to buy and sell the home in order to accurately describe the home involved.

What are “Conditions Precedent” or “Subject Clauses”?

Most real estate contracts will contain Conditions Precedent (commonly called Subject Clauses). Most often, the Subject Clauses are inserted into the contract by the buyer because there are certain things that the buyer wants to be sure of before he becomes fully committed to buying the home. But the buyer doesn’t want to go to the effort or expense of becoming sure of these things until he knows that he can buy the home for an agreed upon price on a certain day. So, the contract will often state the price, the completion date, and all of the other details surrounding the transaction, but the buyer will insert Subject Clauses so that he will not be required to go through with the transaction until he becomes satisfied about the remaining things. Common Subject Clauses would include things like: the buyer obtaining a commitment from his bank that he can get a mortgage on the home; the buyer getting a home inspection done; or for a condo or townhouse, the buyer reviewing and being satisfied with the strata bylaws and strata meeting minutes. In order for a Subject Clause to be binding, it must include date by which time the buyer must be satisfied. If the buyer fails to waive the Subject Clause by the date stated, then the contract becomes null and void, and the seller is free to sell the home to someone else.

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What is the Completion Date?

The Completion Date is the date on which the buyer actually takes legal ownership of the home. This is done by the buyer’s lawyer filing a Transfer Form (that has been previously signed by the seller) at the Land Title Office on that date. It’s also the date on which the purchase price is paid by the buyer’s lawyer to the seller’s lawyer. Finally, the buyer should also purchase his home insurance so that he has coverage from the Completion Date onwards. Virtually all aspects of what happens on the Completion Date are controlled by the buyer’s and seller’s respective lawyers.

What is the Possession Date?

The Possession Date is the date on which the buyer is entitled to move in to the home. Typically, the Possession Date also includes a specific time of day. For example, the Possession Date might be 11:00 a.m. on July 7, 2021. This means that the seller has until 11:00 a.m. on that day to get all of his possessions out of the home, and the buyer’s realtor is entitled to give the keys to the home to the buyer as of that time. Often, the Possession Date is one or two days after the Completion Date. The rationale for this is that the seller does not want to give the buyer the keys to the home until the seller knows that he’s received his money from the sale.

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What is the Adjustment Date?

Whenever a home is bought and sold, there are usually a few pre-paid (or yet to be paid) expenses that need to be adjusted for, over and above the actual purchase price. The most common examples are: annual property taxes that either have already been paid by the seller, or need to be paid later in the year by the buyer; bi-monthly water and sewer utility bills that also either have been paid, or need to be paid; and for condos/townhouses, monthly strata fees that have already been paid by the seller. Depending on whether these expenses have already been paid, or are yet to be paid, they will adjust the purchase price upwards or downwards slightly. The Adjustment Date is the date which the buyer’s and seller’s lawyers use to calculate the proper amount of the adjustment for these expenses. In most cases, because it makes sense to adjust these expenses as of the date on which the seller stopped living in the home (and the buyer began living in the home), the Adjustment Date is usually the same day as the Possession Date.

The information above is intended to provide a very high-level and general overview of some of the common questions that we often receive when reviewing a real estate contract. However, each contract can be different and unique in its own way, and we suggest you contact your lawyer if you have any further questions on this topic.

© Linley Welwood LLP. The contents of this article do not constitute legal advice. Readers should seek legal advice in relation to their own specific circumstances.