In Canadian real estate transactions, conditions are specific clauses included in a purchase agreement that must be satisfied for the deal to proceed. These conditions are designed to protect the buyer (or sometimes the seller) and ensure that certain requirements or obligations are met before the sale becomes legally binding.
There are many types of conditions, including conditions created for a specific transaction. Here are some common types of conditions found in offers:
Sale of Current Property Condition
Septic and Well Inspection Condition (for rural properties)
Financing Condition
The condition of financing is a clause often included in real estate purchase agreements to protect the buyer. It allows the buyer a specific period of time (typically 5-7 business days) to secure mortgage financing for the property. If the buyer is unable to obtain financing during this time, they can cancel the agreement without penalty.
When underwriting a mortgage, as part of the transaction document package, the mortgage brokerage and lender will require to see the waiver of condition of financing associated with the condition (if present) of the Agreement of Purchase and Sale.
The purpose of the condition of financing is to ensure that the buyer has the mortgage funding to buy the house without being legally obligated to buy the home if they can’t get financing together.
The typical wordings is:
“This agreement is conditional upon the buyer obtaining financing satisfactory to the buyer in their sole and absolute discretion by [date]. Unless the buyer gives notice in writing delivered to the seller or the seller’s representative confirming that this condition has been fulfilled or waived, this agreement shall become null and void, and all deposit money shall be returned to the buyer.“
To waive the condition of financing, working with their mortgage agent, the buyer receives a mortgage commitment from a lender that says if the borrower meets all the conditions described in the commitment, the lender will provide mortgage funding under the following terms.
Based on this mortgage commitment, buyers, through their realtor, provide a Notice of Fulfillment to the seller before the date stated in the condition of financing waiving the condition.
If the buyer cannot get mortgage financing by the condition date, they can ask the seller for more time, or the buyer can terminate the agreement by notifying the seller in writing before the condition expires. The buyer’s deposit is refunded.
It should be noted that the mortgage commitment is not a guarantee of the mortgage being funded by the lender, and should the funding not come through by a condition not being satisfactorily met by the lender, the buyer will likely lose their deposit and potentially face legal action for damages.
Home Inspection Condition
The condition of home inspection gives the buyer the right to hire a professional home inspector to assess the property’s condition. If significant issues are uncovered, the buyer can renegotiate the price, request repairs, or cancel the deal depending on how the condition is stated in the Purchase and Sale Agreement.
In a Purchase and Sale Agreement, conditions related to a home inspection can vary based on the level of protection a buyer wants. These conditions give the buyer the opportunity to evaluate the condition of the property and make an informed decision before finalizing the purchase.
What is a Home inspection?
A home inspection is a thorough visual examination of a property’s physical structure and systems, conducted by a qualified inspector. Its primary purpose is to identify existing or potential issues, ensuring that buyers are fully informed about the property’s condition before finalizing a purchase.
General Home Inspection Condition
This is the most common type of home inspection condition. It allows the buyer to hire a professional home inspector to evaluate the property for structural, mechanical, and other issues.
“This Agreement is conditional upon the Buyer obtaining a home inspection of the property by a professional inspector at the Buyer’s expense, and the inspection being satisfactory to the Buyer in their sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller or the Seller’s representative not later than [date], this condition shall be deemed to have been waived, and this Agreement shall become null and void.”
Sale of Current Property Condition
Navigating the real estate market can be complex, especially when conditions like “sale of current property” clauses—commonly referred to as Sale of Buyer’s Property (SBP) conditions—come into play. With the cooling real estate market, these conditions have made a strong comeback, impacting buyers, sellers, and even mortgage financing strategies. Whether you’re a home buyer, a financial planner advising clients, or a realtor facilitating these transactions, understanding the nuances of this clause is essential for making informed decisions.
What Is a Condition of Sale of Buyer’s Property (SBP)?
An SBP condition allows buyers a specific period to sell their existing home before committing to the purchase of a new one. If their property does not sell within the agreed timeframe, they can opt out of the purchase agreement without penalties. While this condition provides a safety net for buyers, it introduces layers of complexity for sellers and can influence mortgage financing.
Example of Sale of Buyer’s Property Clause
This Agreement is conditional upon the sale of the Buyer’s property located at [Insert Buyer’s Property Address] (the “Buyer’s Property”) by [insert date], with an irrevocable waiver of all conditions related to that sale on or before [insert deadline]. If the Buyer’s Property is not sold on or before this date, this Agreement shall become null and void, and all deposit monies shall be returned to the Buyer in full, without deduction or interest.
The Seller shall have the right to continue to offer the Property for sale and to accept any other offer, conditional only upon the termination of this Agreement. If the Seller accepts another such offer, the Seller shall give written notice to the Buyer or the Buyer’s representative, requiring the Buyer to waive this condition or terminate this Agreement within [insert 24 or 48 hours]. If the Buyer does not waive this condition within the specified time, this Agreement shall be null and void, and all deposit monies shall be returned to the Buyer in full, without deduction or interest.
This condition is included for the sole benefit of the Buyer and may be waived by the Buyer at their sole discretion.
Key Elements of the Sale of Buyer’s Property Clause
- Deadline for Sale of Buyer’s Property
Specifies a date by which the buyer’s property must be sold and conditions waived. - Escape Clause
Allows the seller to accept a better offer and gives the buyer a limited period (e.g., 24–48 hours) to waive the SBP condition or forfeit the agreement. - Deposit Protection
Clarifies that the buyer’s deposit will be returned if the agreement becomes null and void. - Buyer’s Sole Discretion
It indicates that the condition is for the buyer’s benefit and can be waived by the buyer at their discretion.
This clause can be customized to reflect specific negotiations or the needs of the buyer and seller, but it’s essential that all parties fully understand the implications. Always consult with a legal or real estate professional when drafting or reviewing clauses in a purchase agreement.
Status Certificate Condition (for condominiums)
When a person in Canada wishes to purchase a condominium, they put in their offer to purchase a condition to enable themselves, their lawyer, their realtor, and their mortgage agent and lender the opportunity to review detailed information about the financial and legal health of the condominium corporation. As real estate is a provincial jurisdiction in Canada, the name of this condition differs depending on which province you are in:
- British Columbia: Form B: Information Certificate (governed by the Strata Property Act)
- Alberta: Estoppel Certificate (governed by the Condominium Property Act)
- Quebe: Syndicate of Co-Ownership Documents (governed by the Civil Code of Quebec)
- Manitoba: Disclosure Certificate (governed by the Condominium Act of Manitoba)
- Saskatchewan: Information Statement (governed by Condominium Property Act)
- Nova Scotia: Certificate of Financial Standing (governed by the Condominium Act of Nova Scotia)
- Ontario: Status Certificate (governed by Condominium Act of 1998)
What is a condominium?
A condominium is a type of property ownership governed by the different condominium acts of the province (see list above). It combines individual ownership of a specific unit (e.g., an apartment or townhouse) with shared ownership of common elements (e.g., hallways, elevators, recreational facilities).
Sample: Condition of Status Certificate
Here’s an example of how a Status Certificate Condition might be written in an Agreement of Purchase and Sale (APS) for a condominium in Ontario:
“This Agreement is conditional upon the Buyer’s solicitor reviewing the status certificate, including the accompanying declaration, by-laws, budget, rules, and reserve fund study, and being satisfied with its terms and the financial condition of the condominium corporation. The Seller agrees to request, at the Seller’s expense, a current status certificate from the condominium corporation and deliver it, along with all accompanying documents, to the Buyer or the Buyer’s solicitor within 10 business days from the acceptance of this Agreement.
The Buyer shall have a further 3 business days from receipt of the status certificate and accompanying documents to waive this condition by providing written notice to the Seller or the Seller’s representative. If such written notice is not provided within the time specified, this Agreement shall become null and void, and all deposit monies shall be returned to the Buyer without deduction or interest.
This condition is included for the sole benefit of the Buyer and may be waived at the Buyer’s discretion by written notice.”
Appraisal Condition
In real estate transactions, an appraisal condition is a clause in the Agreement of Purchase and Sale that makes the buyer’s obligation to complete the purchase contingent upon the property’s appraised value meeting or exceeding the agreed-upon purchase price. This condition safeguards buyers by ensuring they are not overpaying relative to the property’s market value. It also provides assurance to lenders, who typically base mortgage amounts on the appraised value.
What is an Appraisal?
An appraisal is a professional evaluation of the market value of a property, typically conducted by a certified or licensed appraiser. Appraisals are used in real estate transactions to ensure that the property is accurately valued for buying, selling, or refinancing purposes. The appraisal reflects what the property is worth in the current market based on various factors.
Appraisals are conducted by certified appraisers who are independent and unbiased. In Canada, appraisers belong to professional organizations like the Appraisal Institute of Canada.
There are 2 types of appraisers: residential and commercial. Residential appraisals are done on single-family homes, condos, or smaller multi-unit dwellings of 4 or less units. Commercial appraisals focus on income-generating properties like office buildings or apartment complexes of 5 or more units.
Here is an example of an appraisal condition clause that could be included in an Agreement of Purchase and Sale:
“This Agreement is conditional upon the Buyer obtaining, at the Buyer’s expense, a written appraisal of the property by a qualified appraiser, satisfactory to the Buyer and/or the Buyer’s lender, confirming that the appraised market value of the property is not less than the purchase price stated in this Agreement.
Unless the Buyer gives notice in writing to the Seller or the Seller’s representative not later than [date and time], confirming that this condition has been fulfilled, this Agreement shall become null and void, and all deposit monies shall be returned to the Buyer without deduction or interest.
This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole discretion by written notice to the Seller within the time period specified above.“
This condition allows the buyer to confirm that the property’s appraised value aligns with the purchase price, especially if financing depends on it.
Septic and Well Inspection Condition (for rural properties)
Not all homes have water supplied to them by the municipality or sewers to take away wastewater. This is particularly true for homes in rural areas. To protect buyers when making an offer to purchase a property without municipal services, buyers include conditions for septic and well inspection in their offers.
A septic or well inspection condition is a clause included in a real estate Agreement of Purchase and Sale (APS) to protect buyers when purchasing properties that rely on private septic systems or wells for wastewater and water supply. This condition ensures that the systems are functioning properly and meet acceptable standards before the transaction is finalized.
What is a Well, Cistern, and Septic System?
For such properties, water is supplied by a well or a cistern. A well is a structure created by drilling or digging into the ground to access an underground water source, such as an aquifer. It provides a natural and renewable source of water. A cistern is a water storage tank used to hold water from external sources. It is often used in areas where wells are not viable or water supply is inconsistent.
To remove wastewater, rural properties without municipal services rely on a septic system. A septic system is an on-site wastewater treatment system commonly used in rural or semi-rural areas where municipal sewage systems are not available. It safely manages and disposes of household wastewater, including water from sinks, showers, toilets, and appliances, by treating it on the property.
What is a Septic Inspection Condition?
A septic inspection condition allows the buyer to have the property’s septic system inspected by a qualified professional. The inspection evaluates the system’s functionality, integrity, and compliance with local health and environmental regulations.
Key Aspects of a Septic Inspection:
- Tank Condition: Ensures the septic tank is structurally sound and free of leaks or damage.
- Drain Field: Evaluates the absorption field to check for signs of failure (e.g., pooling water or foul odours).
- Capacity: Confirms the septic system is appropriately sized for the property.
- Maintenance History: May review records to determine if the system has been regularly pumped and serviced.
What is a Well Inspection Condition?
A well inspection condition allows the buyer to have the property’s well inspected to ensure it provides a reliable, safe, and adequate water supply.
Key Aspects of a Well Inspection:
- Water Quantity: Confirms that the well produces sufficient water to meet household needs (e.g., litres per minute).
- Water Quality: Tests for contaminants such as bacteria (e.g., E. coli), nitrates, or other pollutants to ensure potable water.
- Well Structure: Assesses the physical condition of the well and its components, such as the casing and pump.
- Compliance: Ensures the well meets local municipal or provincial standards.
Sample Septic and Well Inspection Clause
Septic Inspection Condition
“This Agreement is conditional upon the Buyer, at the Buyer’s expense, obtaining a satisfactory inspection of the septic system by a qualified inspector within [insert number] business days of the acceptance of this Agreement. If the inspection reveals defects or issues with the system that the Buyer is unwilling to accept or the Seller is unwilling or unable to remedy, the Buyer shall have the option to terminate this Agreement by providing written notice to the Seller before the condition deadline. Upon termination, all deposit monies shall be returned to the Buyer without deduction or interest. This condition is included for the sole benefit of the Buyer and may be waived by the Buyer at their sole discretion.”
Well Inspection Condition
“This Agreement is conditional upon the Buyer, at the Buyer’s expense, obtaining a satisfactory inspection of the well and water supply by a qualified inspector within [insert number] business days of the acceptance of this Agreement. The inspection shall include testing for water quality and quantity to ensure compliance with acceptable standards for potable water. If the inspection reveals deficiencies or issues that the Buyer is unwilling to accept or the Seller is unwilling or unable to remedy, the Buyer shall have the option to terminate this Agreement by providing written notice to the Seller before the condition deadline. Upon termination, all deposit monies shall be returned to the Buyer without deduction or interest. This condition is included for the sole benefit of the Buyer and may be waived by the Buyer at their sole discretion.”
Including a septic and well inspection condition is crucial for protecting buyers, especially in rural or semi-rural areas where these systems are common.
Zoning and Permit Conditions
A zoning/permit condition clause in an Agreement of Purchase and Sale (APS) is a provision that makes the purchase conditional upon the buyer confirming that the property complies with zoning bylaws or obtaining necessary permits for their intended use. This clause protects the buyer by ensuring that they can legally use or modify the property as planned before finalizing the transaction.
For example, a buyer may want to convert a single-family home into a duplex or multi-unit dwelling for rental income, short-term rental income, or to establish a home-based business such as an office, daycare, or salon. Perhaps the buyer would like to put in an in-ground swimming pool, gazebo, or even add a guesthouse or accessory dwelling like a laneway home or garden suite. These are just some of the many intended uses a buyer may have and would need to know if zoning and permitted use allow the property to be developed in such a manner.
Sample of Zoning Condition Clause
“This Agreement is conditional upon the Buyer, at the Buyer’s own expense, determining within [insert number] business days from the acceptance of this Agreement that the current zoning of the property is satisfactory for the Buyer’s intended use, being [insert intended use]. If the Buyer is unable to satisfy this condition, the Buyer may terminate this Agreement by providing written notice to the Seller or the Seller’s representative prior to the expiry of the condition period. Upon termination, all deposit monies shall be returned to the Buyer in full, without deduction or interest. This condition is included for the sole benefit of the Buyer and may be waived by the Buyer at their sole discretion.”
Sample of Permit Condition Clause
“This Agreement is conditional upon the Buyer, at the Buyer’s expense, obtaining all necessary permits and/or approvals from the relevant municipal authorities to [insert intended action, e.g., build, renovate, or change use] within [insert number] business days from the acceptance of this Agreement. If such permits and/or approvals are not obtained or are deemed unsatisfactory to the Buyer, the Buyer may terminate this Agreement by providing written notice to the Seller prior to the expiry of the condition period. Upon termination, all deposit monies shall be returned to the Buyer in full, without deduction or interest. This condition is included for the sole benefit of the Buyer and may be waived by the Buyer at their sole discretion.”
Why Include Zoning or Permit Condition Clause?
Including a zoning or permit condition clause in the Purchase and Sale Agreement ensures the buyer can legally use the property as intended before committing to the purchase. It prevents buyers from purchasing a property that could lead to fines or legal disputes due to zoning violations or unapproved uses. It also saves buyers from potentially expensive surprises, such as being unable to build or renovate as planned.
Conditions and Your Mortgage
Lenders require the Agreement of Purchase and Sale to be firm (without conditions) before issuing a final approval. This means copies of all waived conditions are provided by providing all associated waivers or notice of fulfilment as they have been presented to the seller or their representative (realtor).
By understanding the interplay between conditions and mortgage financing, buyers and sellers can navigate transactions more effectively and mitigate potential delays or disruptions.
