Monday, May 23, 2011

So You Want to Help a Friend Finance His Business?


(Ontario Real Estate Source)

By Brian Madigan LL.B.

Let's assume that for some reason you feel compelled to offer and assist someone who needs financing for their business.

What security do you want?

Well, you should get everything you can!

In the case of a business, this truly does mean everything. Because, the parts have little to no value.

So, my first advice is: don't get involved.

My second advice: take a collateral security on a non-business asset, like a house or a car. You can always sell a house or a car.

Finally, if you must offer the loan, here is what might be available:

1) Chattel mortgage, upon specific chattels for major purchases, big ticket items, tools of the trade,

2) Assignment of Leases upon specific chattels for major purchases, big ticket items, tools of the trade,

3) accounts receivable,

4) assignment of book debts,

5) General Security Agreement,

6) Assignment of Leases upon business premises,

7) Assignment of Options to Lease upon business premises,

8) Assignment of Agreements to Purchase upon business premises,

9) Assignment of Options to Purchase upon business premises,

10) A pledge of the shares of the operating company,

11) A pledge of the shares of the holding company,

12) An assignment of the suppliers' accounts,

13) A pledge of any intellectual property,

14) An agreement to be named as an additional insured on the insurance policy

15) An agreement by the insurer to waive its rights of subrogation,

16) An agreement to the assignment of the telephone number,

17) An agreement to the assignment of the website,

18) An Authorization to examine the books,

19) An Authorization to examine the bank accounts,

20) An Authorization to examine the HST returns,

21) An Authorization to examine the Income Tax returns,

22) An Authorization to examine the Workplace Safety assessments and payments,

23) A personal guarantee of the owner, proprietor,

24) A personal guarantee of the spouse of the owner proprietor,

25) A copy of all suppliers' contracts, including books of accounts, inventories and entitlements.

Of course, I'm still telling you that you should have second thoughts about this. But, you should have the above security for starters!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Sunday, May 22, 2011

Use Sunflowers to Stop Erosion


(Ontario Real Estate Source)

By Brian Madigan LL.B.

You sometimes need a cheap way to prevent erosion over an embankment.

So, what works?

Call a contractor and the concrete retaining wall will cost you $10,000 to $20,000. It's a good fix, but then again this is just a cottage property and you only use it 10 weekends throughout the summer.

The retaining wall which is obviously the best solution will just have to wait until you win the lottery.

So, what works in the meantime?

PLANT Sunflowers!

They grow rather tall in 2 months, and they have a great root system. Nevermind what they look like; it's the root system you're after.

Within 4 to 6 weeks the top of the bank will stop eroding and the root system of the sunflowers will have stabilized the land. That will allow you to plant bushes or trees. They work too, but not quite as fast as sunflowers.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Saturday, May 21, 2011

Landlords Face Risk of Tenants" Bank Financings


(Ontario Real Estate Source)

By Brian Madigan LL.B.

If you are a Landlord you may expect from time to time to have to engage in some form of battle with your tenants. But what about the secured lenders?

In commercial premises, the tenant may have acquired some of the chattels by financing them. Most of the time, the lender will take something as security. And, they may take that major purchase.

Landlords often think that anything attached to the real property is theirs. They think that it is a fixture. Not so! The ordinary rules related to the law of attachment do not apply, if there has been some sort of security registered against the item under the Personal Property Security Act (PPSA). However, it all depends on the timing.

If the security is registered before the item is affixed; it will remain as a chattel.

If the security is registered after the chattel has been affixed; then it's too late. It's already a fixture, and has become part of the Landlord's property.

Naturally, this will effect re-financings and the sale of businesses.

Landlords should pay strict attention to what items the tenant is bringing on site. It can delay enforcement proceedings substantially. And, don't forget, secured parties being banks and other financial institutions have lots of money to litigate.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Thursday, May 19, 2011

Commercial Landlords Should Consider Restoration Deposits


(Ontario Real Estate Source)

By Brian Madigan LL.B.

Here's the problem. The Landlord is looking for tenants to occupy its industrial complex. Most of the units are about 3,000 sq. ft. in size.

It's difficult enough to find good tenants, so what happens when the tenant's business requires something that occupies most of the unit? Consider the large ovens of an industrial baker, an MRI, a large paint booth for custom painting, massive printing equipment, industrial freezers and compressors.

These items require customized facilities, and special venting, and related accommodations. The cost of acquisition and installation may be the responsibility of the tenant. But, this is the time when the tenant has money.

What happens 5 years into a 10 year lease, when the tenant is out of money? In all likelihood the asset has been pledged to the bank or finance institution as security. If the security was registered under the Personal Property Security Act, that means it remains as a chattel and the secured party has first claim over the asset.

But, it will cost $50,000 to remove! The secured party is under no obligation to remove it and the Landlord has limited remedies.

Eventually, the Landlord may simply have to absorb the cost, remove the chattel and chalk most of it up to experience.

The solution? Actually, that was easy. At the outset, get a deposit for the cost of removal or get the tenant to post a "performance bond". Remember when the tenant had lots of money, lots of enthusiasm and lots of optimism right before they moved in, that was the time for the Landlord to deal with this matter.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Monday, May 16, 2011

Marriage in Ontario ~ Real Estate Implications


(Ontario Real Estate Source)

By Brian Madigan LL.B.


The legal responsibility for marriage is divided between the federal and provincial governments. The province is responsible for the “solemnization of marriage”.

What does that mean?

There is a Marriage Act in Ontario. Essentially, that means the procedural rules related to marriage.

In Ontario, you must be 18 years of age, which is the age of majority, or 16 years of age with the consent of both parents in order to marry. There are two routes, either through the issuance of a marriage licence or the publication of banns, a rather ancient and religious authorization. Over time, the role of marriage in society has become more civil and less religious.

The Marriage Act states:

“No person may solemnize the marriage of any person who, based on what he or she knows or has reasonable grounds to believe, lacks mental capacity to marry by reason of being under the influence of intoxicating liquor or drugs or for any other reason”.

It is rather interesting that permanent lack of capacity due to the failure to develop to maturity for any medical reason, or the loss of capacity due to physical injury is dealt with in the same section as “drugs and alcohol”.

Naturally, the candidate must be free to marry, that is, either no prior marriages, or any such marriage would have been dissolved (possibly by divorce) annulled, or ended due to the death of the spouse. These “facts” all need to be proved prior to the issuance of a marriage licence, or placed upon inquiry by the publication of banns.

There must be at least two witnesses present at the ceremony. A register is then signed by the married couple and the two witnesses. Whether the marriage takes place civilly or in accordance with the customs of a church or religious congregation, the “register” is the property of the Province of Ontario. The person solemnizing the marriage, then issues a “marriage certificate”, which constitutes official evidence of the marriage.

The old common law action for “breach of promise” was abolished in Ontario on 1 August 1978.

There is an important provision which deals with property. This provision means any property. So, that includes both real and personal property.

See, section 33:

“Recovery of gifts made in contemplation of marriage

33. Where one person makes a gift to another in contemplation of or conditional upon their marriage to each other and the marriage fails to take place or is abandoned, the question of whether or not the failure or abandonment was caused by or was the fault of the donor shall not be considered in determining the right of the donor to recover the gift.”


It is quite common for couples to live together prior to marriage. It is also quite common for them to purchase a house or condominium while they are still “living together”.

This section of the Marriage Act seems to have little to do with the solemnization of marriage. Nevertheless, it does still fall within the jurisdiction of the province which is “property and civil rights”.

This provision simply eliminates the consideration of “fault” in the determination of the entitlement to conditional gifts of property in contemplation of marriage.

It does not deal with entitlement. It simply makes matters “no-fault”, which is a principle enunciated in the Family Law Act and the Divorce Act.

It is a provision that real estate agents should consider, particularly if they are providing advice to young couples purchasing property together.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Sunday, May 15, 2011

Marriage Laws in Ontario


(Ontario Real Estate Source)

By Brian Madigan LL.B.

You might wonder about the laws that apply to marriage in Ontario.

In accordance with the Constitution Act, 1867 (formerly the British North America Act), legislative powers relating to marriage between the federal and provincial governments were divided between the federal and provincial governments.

•· The federal government has exclusive jurisdiction over "Marriage and Divorce": s. 91(26).

•· The provinces have exclusive jurisdiction over the solemnization of marriage: s. 92(12).

Federally, there is one Act, known as "Marriage (Prohibited Degrees) Act.

It imposes certain restrictions upon the entitlement of parties to marry one another based upon degrees of consanguinity. The key operative provision is as follows:

"No person shall marry another person if they are related lineally, or as brother or sister or half-brother or half-sister, including by adoption."

This simply means ascendants and descendants may not marry at all. Collaterals may marry provided they are not of the second degree which would be brothers and sisters.

The Ontario Court of Appeal changed the long standing definition of marriage on 10 June 2003 in Halpern vs. Attorney General of Canada.

The Court sumarized the issue as follows:

"The definition of marriage in Canada, for all of the nation's 136 years, has been based on the classic formulation of Lord Penzance in Hyde v. Hyde and Woodmansee (1866), L.R. 1 P.&D. 130 at 133: "I conceive that marriage, as understood in Christendom, may for this purpose be defined as the voluntary union for life of one man and one woman, to the exclusion of all others." The central question in this appeal is whether the exclusion of same-sex couples from this common law definition of marriage breaches ss. 2(a) or 15(1) of the Canadian Charter of Rights and Freedoms ("the Charter") in a manner that is not justified in a free and democratic society under s. 1 of the Charter."

The Court concluded:

1)the rights of the applicants (same sex couples) were violated, by preventing them from marrying one another, contrary to the Charter of Rights and Freedoms.

2)the new reformulated the common law definition of marriage is "the voluntary union for life of two persons to the exclusion of all others".

The matter of marriage, its qualifications, restrictions, definition, prohibitions, conditions, rights, and entitlements has not been made subject to further review.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Saturday, May 14, 2011

Can a Landlord Prevent a Tenant from having Pets?


(Ontario Real Estate Source)

By Brian Madigan LL.B.

I know you're going to like this answer:

"yes" and "no".

The Residential Tenancies Act in Ontario allows for pets. There is a specific pet rule.

"No pet" provisions void

14. A provision in a tenancy agreement prohibiting the presence of animals in or about the residential complex is void.


And, just to be on the safe side, the Act contains an override provision:

Provisions conflicting with Act void

4. Subject to section 194, a provision in a tenancy agreement that is inconsistent with this Act or the regulations is void.


So far, so good. If you have a pet and you are a tenant, the landlord has to go along with it?

But, what if you decide to have a reptile? What if you want to raise a 25 foot Ananconda? Is that permitted? What about the safety and security of the other tenants?

The saving provision here, is "nuisance". So, as long as the pet does not constitute a nuisance, then it can stay.

Most of the time, little "yappy" dogs would be fine.

The next question, before you decide to head to the pet store should be whether or not the complex is a condominium. If it is, and the condo declarations does not permit pets, then the answer is "no". No one, including the owner of the condo can have a pet in the complex.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Friday, May 13, 2011

Seller Must Disclose Refundable Tax Grants and Concessions


(Ontario Real Estate Source)

By Brian Madigan LL.B.


SPIS ~ Bond and Richardson

This is a case in the province of New Brunswick involving the use of the Property Condition Statement and the liability of the agent who assisted the vendor in the completion of the document.

The case is interesting from a procedural perspective. Mr. Bond purchased a property which was subject to certain deferred taxes under the Farm Lands identification Program (FLIP). If Mr. Bond changed the use of the property these deferred taxes would become payable.

So, he sued his own lawyer Ms. Richardson for negligence. His lawyer then sued the vendor for improperly completing the Property Condition Statement. The vendor then sued his own agent for improper advice concerning the completion of the document. All matters were heard in one proceeding.

The purchaser grew up on the property which is the subject of the sale. His family sold the property in 1975 and he saw it advertised in 2003. He contacted the agent, Paul Langlais who agreed to act in a dual agency capacity for he and the vendors, Mr. and Mrs. Kerr.

The FLIP program is designed to keep property as farming lands. If the use changes, the owner is responsible for the current taxes and 15 years of deferred taxes. Mr. Bond wishes to use some of the lands for a commercial auction which is his business. This change in use would trigger 15 years of back taxes. In the interim, Mr. Bond leased out the land for farming.

Liability of the Purchaser's solititor

The Court concluded that the purchaser's solicitor had failed to properly check the taxes prior to closing and this constituted negligence. Mr. Bond has suffered damages as a result of that negligence in that he is restricted in the use he can make of his property without incurring a cost and, by her failure to advise him of the deferred taxes, Ms. Richardson deprived him of the opportunity to reduce, eliminate or even negotiate those costs prior to closing.

Liability of the Vendors

There is also the matter of the vendor's liability, since the purchaser's solicitor claimed over as against them.

James Kerr, the vendor testified that he and his wife lived on the property for 15 years. It was registered in the FLIP when they bought it in 1988 and it was still in the program when they sold it in 2003. He regarded it as a tax break. He testified that all he knew about the program was that it resulted in lower taxes for him and that he was not aware that he would have to pay taxes back if the use of the property changed. He further testified that at the time of the sale to Mr. Bond he was not aware that Mr. Bond may have to pay the deferred taxes.

As part of the agreement, the vendors agreed to sign a Property Condition Statement.

In the first section of the Property Condition Statement, which deals with general information about the property, the vendors answered "no" to the following two questions:

4. Are you aware of or have you been charged any local improvement levies/charges?

5. Have you received any other notice or claim affecting the property from any person or public body?


The trial Judge said " the purpose of that Statement is disclosure. If they didn't have a duty to answer the questions both honestly and accurately that purpose would be defeated and the Statement would be meaningless."

And, the Judge made the following comment:

"It is clear......, James and Carole Kerr, made misrepresentations to Mr. Bond when they completed the Property Condition Statement. Mr. Kerr was aware of the FLIP taxes and while he regarded them as a benefit as opposed to an encumbrance, that did not excuse him from disclosing their existence, particularly when he answered the questions on the Property Condition Statement about whether or not he had received any notices from a public body affecting the property and whether or not the property was under the jurisdiction of any Conservation Authority. Both of those answers were clearly wrong and Mr. Kerr knew or ought to have known they were wrong since he knew from the time they bought the property that it was registered in the FLIP and he executed a document in 1997 in which he opted to continue to have the property registered in the FLIP."

The trial Judge determined that there was no intention to deceive it was an oversight. So, even though there was no finding of fraud, there was still a negligent statement. This statement met the 5 part test set out by the Supreme Court of Canada in Queen and Cognos to establish liability.

The Judge also commented that there was a special relationship between the parties, that is, they were negotiating an agreement, and that gave rise to a positive duty to provide honest and accurate answers:

"The representor's belief in the truth of his or her representations is irrelevant to the standard of care."

On the issue of the completion of the PCS, the Judge observed the following:

"In my view, if Mr. Kerr, in completing the Property Condition Statement, had given some thought to those questions he answered incorrectly, it is more likely than not that he would have realized that the FLIP should be disclosed in answering them.

I find that he did not exercise the care that an objective, reasonable person would have exercised in order to ensure the answers he gave were accurate and he was therefore negligent.

Mrs. Kerr was also negligent because she merely relied on the answers given by Mr. Kerr in signing the statement and made no effort on her own to ensure that the answers were accurate."

Liability of the Real Estate Agent

Paul Langlais had only been an agent for 2 years when he came across this situation. He was unfamiliar with farm properties, and although he obtained a tax statement referring to the FLIP, he knew nothing of the program or its deferred tax provisions.

The Court concluded:

· By failing to make himself and his clients aware of this essential and pertinent fact in a timely manner I find that Mr. Langlais failed to write the agreement in compliance with Article 6 of the Standards as it is not clear and understandable because it does not set out whose obligation it is to pay the deferred taxes.

· It follows, and I find, that Mr. Langlais failed to comply with the standard of care required of a realtor as set out in the Canadian Real Estate Association's Standards of Business Practice and thereby breached the duty he owed to Mr. Bond.

· I further find that Mr. Bond has sustained damages as a result of that breach. It follows, and I find, that Mr. Langlais was negligent.


Accordingly, the Court awarded a judgment in favour of the full amount of the deferred taxes to the purchaser. On the third party claim, the purchaser's solicitor was entitled to claim two thirds from the vendors and the real estate agent, the result being that the solicitor, the vendors and the vendors' agent each bore one third of the loss.

COMMENT:

This case again stresses the importance of the PCS. Be careful, when you are providing responses. If you are a realtor, you must counsel your client in terms of its execution. And, the mere fact the purchaser's lawyer made a mistake was not enough to relieve the vendors or the real estate agent from liability.


Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Thursday, May 5, 2011

ORES Real Estate Index for April 2011


(Ontario Real Estate Source)

By Brian Madigan LL.B.

Here is the "ORES REAL ESTATE INDEX" which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index.

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.

For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the five year average used as a standard benchmark comparison in the mutual fund industry.

As of 31 April 2011, here is the Index representing average prices:

Real Estate


147.74.....GTA single family homes
139.21.....All condos in GTA
144.82.....Downtown Central Condos
140.52.....East condos
137.88.....West condos
131.10.....North condos

Other market comparisons

358.97.....gold (price per ounce)
257.94.....oil (price per barrel)
151.51.....TSX index
147.74.....ORES Index single family homes
113.39 .....CPI index
139.33.....NASDAQ index
122.12......Dow Jones index
115.44.,....S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of April, the index stood at 147.74. That's a 47.74% increase in 76 months. That means the increase is 0.628% monthly, or it could also be expressed as 7.54% annually. The performance here is shown without annual compounding for the sake of simplicity.

The other statistics are reported in a similar fashion for the ease of comparison.

Observations (on the Index)

As we use index, there are several notable comments:

· Commodity prices are just commodity prices

· There is no other "extra return" for commodities

· The same is true for the CPI

· The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 113.00; increases have been modest and inflation appears to be under control; this is significant.

· For a realistic performance goal, you should aim for CPI plus 3.5% annually

· Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices

· The stock market Indexes only measure the survivors. So, in 2009, both GM and Chrysler would have been dropped due to the bankruptcies

· If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes

· Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

· Actually, I should have mentioned that if you held gold bullion, you could sit in a room, count it, and enjoy that experience too. I'm not quite sure how to measure that. You'll have to ask King Midas or Goldfinger!


Comparative Observations Using the New Index


· Gold was the best performer, reaching 358.97, eclipsing earlier peaks achieved mid January

· Oil was the most volatile, (yes it dropped in half over our measurement period), but recent increases do not offer good news

· Real estate was the most stable, with solid predictable returns at about 7.54% annually

· single family homes continue to show a better overall return than most condos

· Our own stock market posted reasonable gains, and is now ahead of single family homes over the measurement period, however, don't forget that the TSX is still well off its highs

· All three US stock market indicators now show positive numbers, and may truly be a better overall indication of the true state of the North American economy.

Conclusion

For steady, predictable, measured gains pick real estate. It's a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it's never "wiped out" completely, like GM or Chrysler stock. So, unless you're sitting on the edge of a tsunami, you'll still own something when the storm is over.

For a benchmark of success, there's 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt, including CanWest Global, and many US Banks) that would have been happy with that return.

The present rate of return is sustainable in a sought after location like the GTA. Currently, that is about 1.6% annually in excess of the longer term predictable returns.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com