In the wake of COVID-19 there has been a lot of uncertainty—this fragility has extended to the housing market as many were either mid-deal, planning on buying or selling, or had a project underway. As real estate professionals, we have received a lot of questions regarding the pandemic and the housing market, frequently around real estate agreements and how COVID-19 has impacted such agreements. In this blog, we will answer our most frequently asked questions from both clients and Realtors, about how the pandemic has affected real estate agreements:
1. Can a buyer cancel an agreement due to COVID-19?
The simple answer is no. If a buyer cannot obtain a mortgage, goes into quarantine or the value of the property decreases, these are not acceptable excuses to cancel a real estate agreement. Either terms of an extension are agreed to, or the buyer can be sued for any deficiency the seller suffers on a resale.
2. Can a seller refuse a pre-closing visit due to being afraid of COVID-19?
If the visit is provided for in the agreement, a safe compromise should be worked out, with perhaps only one buyer visiting the home. Such buyer would be expected to wear a mask and gloves, and only enter the home for a short time (maximum 20 minutes). During such a visit, a buyer should also be required not to touch anything in the home to ensure maximum safety. Another option is for the buyer and seller to agree to a Zoom meeting where the seller goes around the entire house showing the buyer all areas of concern. A final option we have seen is when the seller arranges to vacate the property early on the closing date and have the buyer enter the property for a final inspection. This option provides both parties with a fair final inspection of the home while also leaving enough time too close.
3. Can the Government Land Registry System close down?
While this is theoretically possible, we have been assured by the Director of Titles that this will not occur since the system is being operated by staff who are working remotely. In the unlikely event that this did occur, most real estate closings could still proceed as long as the buyer had title insurance which provides gap coverage, meaning that the agreements can close as scheduled, money can be paid to sellers, keys released to buyer and registrations occurring once the system is up and running again. Gap coverage means that in the unlikely event, a lien or judgment arises in the intervening period, which could affect the title. The buyer’s title insurance policy will remove it.
4. Can a buyer or seller complete a real estate closing without visiting a lawyer in person?
The answer is yes, but not all law firms offer this service. Technically speaking there is no requirement to meet any buyer or seller in person. All document signings can be done by video conference. If a law firm is registered as a bill payee at major banks, buyers can transfer the closing down payment directly to its trust account online, so that they do not have to line up at a bank branch with a mask for an extended period of time to obtain a bank draft. For sellers, this would mean signing all documents by video conference and automatically transferring closing funds by Electronic Funds Transfer directly to the seller’s bank account after closing, the same way real estate commissions are paid after closing.
5. Do you need special clauses to protect buyers and sellers during the pandemic?
Here are three practical clauses to include in any agreement during the pandemic:
- The Buyer shall pay the balance of the purchase price, subject to the usual adjustments by wire transfer.
- The parties acknowledge and agree that all closing documentation can be signed electronically and forwarded by email or fax in accordance with the Electronic Commerce Act, 2000, S.O.2000,c.17
- The parties agree that the keys to the property shall be left in a lock box at the property and the code to the same is to be provided to the Buyer’s lawyer in escrow pending closing of this transaction.
Otherwise, no further clauses should be added, as they do more harm than good, especially when they give buyers or sellers the right to terminate an agreement. As stated earlier, even in the remote situation that the government registration system goes down, real estate agreements can still close if there is gap coverage in place through the title insurance. Legal advice should always be obtained before any additional clauses are introduced into any real estate agreement of purchase and sale.
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