Interview: A Real Estate Lawyer Perspective

I find Canadians generally to be cautious when taking on debt. Because of this cautious nature, the Canadian real estate market has remained strong and steady. The historically low interest rates and all the hype about that did bring out some risk-takers and I did see some unrealistically high house prices. I feel that the market always corrects itself. I find that house prices are back down to more realistic levels.

Yes, I have seen a rise in pre-construction deals. Having said that, there has also been a good growth in the “re-sale” homes market.

I find that many of the purchasers in pre-construction projects are investors and many first-time home buyers are skipping a step and moving into detached/semi-detached homes as their first home instead of the traditional route of condominium/town-home as their first home.

I have seen very few foreign investors in my practice.

Foreign investment would be good for the market, but my advise to any foreign investor would be discuss the matter with their accountant or tax adviser and to understand any tax implications of the purchase.

Short answer – yes! As I mentioned, most of the purchasers in pre-construction projects are investors, whose intention is to sell off the property soon after closing. Many builders now offer deep discounts to the early purchasers which in turn feeds the “flip” market. Understanding the markets is vital for all investors looking to “flip”. It means knowing what local home buyers want and investing in the right properties.

I am also seeing an increase in “fix and flip” where the purchaser occupies the property for several months while carrying out renovations/up-grades and then sells at a profit.

The property market always goes through ups and downs. Lately, there seem to have been more ups than downs! With low interest rates, everyone wanted to jump onto the investor train. I cautioned all my clients to ensure that they will be able to carry the mortgage even when interest rates rise between now and the time that they are to take occupancy of the property. I have concerns about some purchasers who may have taken on more debt than they will be able to carry, especially when interest rates go up. That is why I always recommend to my clients that they retain the services of a financial adviser and mortgage broker early in the game.

I review the Agreement of Purchase and Sale and will advise the client on any specific concerns that I may have. I look for any restrictions on assignment or transfer of the property prior to final closing. This is especially important where I know that the client is purchasing the property as an investment. I also look for additional costs on closing and will advise the client to have these closing costs capped if possible. I also discuss with the client the “critical dates” i.e. the tentative occupancy closing and the outside date to which the builder may extend the occupancy closing. One thing that I must stress is that my advise is largely dependent upon the information that the client shares with me.

I explain the closing process to the client and especially the “occupancy closing”.

I also review the proposed condominium declaration and rules and will bring to the attention of the purchaser any terms and conditions which may be a cause of concern. However, as I also tell my clients, it is imperative that the purchasers familiarise themselves with the condominium rules as they are the one who will have to comply with these rules.

You would be surprised at how rarely I have seen pre-construction deals go sour in my practice. I find that this commonly happens where either the Agreement of Purchase and Sale has not been properly understood by the purchaser or there is a communication break between the builder, the purchaser and the lawyer.

I make every effort to explain the terms and conditions of the Agreement of Purchase and Sale to my clients. I would advise all purchasers to retain a lawyer immediately after they have entered into an Agreement of Purchase and Sale and to ensure that the Agreement and all related documents have been reviewed by the lawyer before the expiry of any conditional periods. Even though the closing dates may not be until 2 or 3 years later, it is imperative that legal advise is sought at the outset.

Every purchaser should have a strong team of professionals backing him/her. This team should comprise of:

(a) A realtor;

(b) A mortgage broker;

(c) A lawyer who specialises in real estate matters; and

(d) A financial adviser/accountant.

With these professionals working in tandem, the purchase transaction should be a smooth and fruitful one for the purchaser.

I would advise any purchaser to bear in mind the wise words “if it’s too good to be true, it probably is”. Remember that the executed Agreement of Purchase and Sale is binding. Review the Agreement carefully to ensure that it clearly sets out any representations, promises or assurances that the builder’s sales representatives have made to you. Make sure that you inform your lawyer of any specific terms or conditions which you have negotiated with the builder’s sales representative and that the lawyer knows to include these in the Agreement. All amendments to the Agreement must be in writing and executed by both parties. Do not rely on oral representations from the sales representatives, who after all are there to make a sale!

Thanks so much for your time, Shaffiq. You have given us a lot of insight!

Shaffiq received his LL.B (Honours) degree from the University of Reading in the United Kingdom in 1996. He then obtained his diploma in law from the Kenya School of Law in 1997. Shaffiq was called to the Bar in Kenya in 1998 and practiced in Nairobi until 2002. He was called to the Bar of Ontario in 2007. Shaffiq practices in the areas of commercial and residential real estate and is a member of the Law Society of Upper Canada, the Ontario Bar Association and the Canadian Bar Association. He is an advocate of High Court of Kenya and speaks Gujarati, Swahili, Hindi and Urdu. Shaffiq’s contact detail’s can be found here.