False and Misleading Statements ~ Agents (Consumer Protection)

(Ontario Real Estate Source)

By Brian Madigan LL.B.

We are all aware that sales agents like to pump their products, merchandise and services. That has been going on for years and the public who be naïve to think that there is never any "puffery" involved. However, there are times when it simply goes too far!

The Consumer Protection Act offers somewhat of a solution to this problem. The former Business Practices Act has been transferred to the CPA.

There are two types of representations that are prohibited under the Act:

1) false, misleading or deceptive statements, and

2) unconscionable statements.

First of all, the Act does not apply to real estate transactions as such. They are exempt. It does apply to many of the services that are provided in connection with a transaction. Here, the old common law prevails. There are a significant number of legal precedents concerning real estate. What must be disclosed and what may be withheld. These are matters that affect vendors and purchasers and fall within the purview of real estate law. Agents are obligated to follow those same laws. In part, they are somewhat consumer protection legislation since they righted wrongs in real property conveyancing hundreds of years ago.

It should also be pointed out that the Act contains a definition of "consumer" that excludes someone buying something for their business. In addition any transaction related to residential tenancies is not covered by the Act.

Nevertheless, agents are also affected by the new age of consumerism and the laws which protect all consumers. In this regard, the ancillary "services" that agents provide fall within the purview of the Act. This includes listing agreements, buyer agency agreements and all the many representations that an agent may offer as reasons or inducements to sign such agreements.

An agent might for example say "if you list with me, I'll sell your house in 2 weeks for $300,000.00". The problem with this statement is that it is intended to serve as an inducement. It is likely that only another agent would be able to determine the truth of the statement. The market is such that probably no house could be marketed and sold within 3 weeks, let alone one that sought a price at the upper end of the market range.

Another service that is frequently provided by an agent is the location of financing. An agent might make statements to the effect that financing will be easy to obtain. This is a "service" that falls under the Act. It is not an activity related to the purchase and sale of real property.

An unconscionable representation is one that demands, forces or takes advantage of a vulnerable individual. However, the definition is somewhat broader and includes statements that seek to take advantage of the consumer and are known to be untrue to the sales person (or their employer) including any one of the following:

· price grossly exceeds the competive price

· consumer is unable to receive a substantial benefit

· no reasonable probability of payment in full by the consumer;

· transaction is excessively one-sided

· terms are so adverse to the consumer as to be inequitable

· statement of opinion is misleading and detrimental to the consumer

Some examples of possible unfair practices might include the following statements:

· "List with me, I have a buyer for your house.'

· "I charge the lowest commission of any agent in this area."

· "The Board requires the listing to be at least 6 months."

All of the above statements are either untrue, or they are made carelessly without regard to their truthfulness, and if that is the case, then that's "unfair"

What is the result? The consumer can cancel the agreement (listing or buyer agency) and if he feels sufficiently aggrieved may report the matter, and this might result in a conviction under the Act. Further, such a conviction would need to be reported to the Registrar of the Real Estate Council of Ontario (RECO) and that might affect the registration status of the agent.

Specifically, the Act provides:

18. (1) Any agreement, whether written, oral or implied, entered into by a consumer after or while a person has engaged in an unfair practice may be rescinded by the consumer and the consumer is entitled to any remedy that is available in law, including damages.

The Act further provides that the consumer may seek exemplary or punitive damages. The defendants will include both the person who made the unfair statement as well as the person who benefitted from the satement (contracting party). So, this would include both the agent and the principal (broker).

Before we simply leave the Act, we should consider the particular provisions related to the regulation of real estate advertising:

"False, misleading or deceptive representation

109. (1) If the Director believes on reasonable grounds that any person is making a false, misleading or deceptive representation in respect of any consumer transaction in an advertisement, circular, pamphlet or material published by any means, the Director may,

(a) order the person to cease making the representation; and

(b) order the person to retract the representation or publish a correction of equal prominence to the original publication. 2002, c. 30, Sched. A, s. 109 (1).

Real property

(2) Despite clause 2 (2) (f), this section applies to any representations involving real property. 2002, c. 30, Sched. A, s. 109 (2)."

The above provision is very important. It is only the actual real estate agreement and conveyancing that is exempt from the Act. When it simply comes to advertising, well false advertising is still false advertising!

So, real estate ads are subject to the Act and the Director may issue a cease order or require a retraction. An individual has the right to appeal the decision to the Licence Appeal Tribunal.

All in all, this legislation is significant and consumers who feel aggrieved should take advantage of the opportunities the Act provides rather than simply view themselves as victims without a proper remedy.

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

Agents: Rules For Compliance with FINTRAC

(Ontario Real Estate Source)

By Brian Madigan LL.B.

It is very important for real estate agents to be aware of and to comply with the FINTRAC rules.

Effective 23 June 2008, real estate agents must be aware that there is an obligation to comply with the provisions of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. This Act is federal legislation and it is administered throughout the country by FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada).

So, who are they looking for? Actually, they are looking for both terrorists and money launderers. The method of enforcement is: not to allow them to hide among everyone else. The result is that everyone gives up a little bit of privacy in the interests of keeping the country safe. It's a reasonable "trade-off".

Hopefully, this will not cause undue anxiety to real estate agents and their clients.

The obligation is to identify everyone with whom you are doing business. Previously, the obligation was merely to report suspicious transactions, and it was mandatory to report cash transactions involving sums in excess of $10,000. Those rules still continue.

The Act is federal legislation and is designed for a certain purpose. The Act applies in a non-technical fashion. It includes its own definitions. Any technical issues that may arise under the Real Estate and Business Brokers Act (REBBA) are not applicable. So, agent has a much broader definition than that contained in REBBA 2002. The doctrine of paramountcy would require federal legislation to prevail over provincial legislation. So, the term agent is to be considered in the light of the federal act and not a provincial one. Client and customer status are not relevant. The payment of commission is similarly irrelevant.

I. The triggering event: what gives rise to the obligation to report?

1) a receipt of funds, and
2) a transaction.

Receipt of Funds

A simple receipt of funds is sufficient to trigger the operation of the Act. It is noteworthy that in a real estate deal, this would at first entail the deposit moneys. Let's assume that the vendor and purchaser are separately represented. The purchaser's agent first receives the funds in the form of a cheque and has the obligation to deliver it to the vendor's agent, or the vendor's solicitor, or another third party stakeholder. Whatever the obligation, the purchaser's agent is deemed to have received the money and the provisions of the Act apply.

Similarly, this applies to the vendor's agent who may acquire the funds for deposit into the firm's brokerage trust account. But, the role of the purchaser's agent in the first place will preclude the involvement of the second agent, that is, the vendor's agent. There is no need to double up the obligation. One responsible party is sufficient.

However, if the purchaser is unrepresented, then, this obligation transfers to the vendor's agent.

While the material published so far concerning the obligations and liabilities does not address the issue, non-agency transactions should similarly give rise to an obligation under the Act.

The legislation seems to circle around the issue, but, if neither the buyer nor the seller were truly represented by an agent, and the brokerage and sales representative merely provided customer service, the obligations under the Act should be imposed. So, to err on the safe side, any person who is a registrant under the Real Estate and Business Brokers Act should assume they have obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. It would be foolhardy to assume the contrary.

A Transaction

Basically, there must be a transaction. Here, transaction means a purchase or sale of real estate. It excludes property management or leasing. I don't know the reason for this. I assume that on the basis of the research they have undertaken so far, FINTRAC knows that terrorists are buyers and not renters.

II. What Records need be kept?

On the assumption that you have a triggering event which gives rise to an obligation under the Act, what records do you need?

Receipt of Funds

If you receive funds, or transmit them in some way, then you are required to:

1) keep a receipt of funds record, and
2) identify the client from whom the funds are received.

A Transaction

For a transaction, there is one additional obligation. So, here we are speaking about a deal that is completed and closed, not simply a deposit on a deal that does not materialize. Here, you must:

1) keep a receipt of funds record,
2) identify the client from whom the funds are received, and
3) make a third party determination.

II. What is in the Records?

Receipt of Funds Record

If you receive funds, then you have to record it. Specifically, you would need to record the following:

· Amount and currency of the funds

· The date of the transaction

· The purpose, details and type of transaction

· If the funds were cash, and particulars concerning the delivery of any cash

· If an account were affected, the number and type, the full name of the client holding the account and the currency in which the transaction was conducted

· The account into which the deposit was made (ie. brokerage's trust account)

· If an individual, then the name, address, date of birth and principal business of the individual

· If an entity, then the name, address and principal business of the entity (this could be a partnership, trust or joint venture)

· If a corporation, then a copy of official corporate records showing "power to bind the corporation", (ie. certificate of incumbency, articles of incorporation, by-laws etc. setting out signing officers, and any changes by corporate resolution).

Client Information Records

Most of the time, you will already have reached the record keeping threshold because a deposit will have been involved. However, there are situations when this threshold is not reached until later. No matter when the occasion arises, these records include:

· If an individual, then the name, address, date of birth and principal business of the individual

· If an entity, then the name, address and principal business of the entity (this could be a partnership, trust or joint venture)

· If a corporation, then a copy of official corporate records showing "power to bind the corporation", (ie. certificate of incumbency, articles of incorporation, by-laws etc. setting out signing officers, and any changes by corporate resolution).

IV. No Records Required

There are several situations that do not require records. The first two relate to records that are already being maintained under the Act. For example, suspicious transactions and large cash transactions; if you have records already, then, you don't need to do it again, once is enough!

You do not need to maintain the two new records, namely receipt of funds, or client identification if you act for either a very large corporation or a public body. As you might imagine, there is a definition for each of them.

Very large corporation: this means a corporation that has net assets of at least $75,000,000 on its last audited balance sheet. The company need not be a Canadian company but its shares must be traded on a Canadian Stock Exchange. There are special rules for large companies that are traded on other stock exchanges, if they are not traded in Canada. Subsidiaries are included provided the financial statements are consolidated. If their statements are not consolidated, then the subsidiary would have to qualify on its own. So, a company with $74 million in assets would be large, but not "very large", and in order to meet the criteria for an exemption from the rule, the company needs to be very large.

Public Body: this means a federal or provincial department or agency, a municipal body or a hospital authority. Hospital Authority is defined in the memoranda dealing with the application of the GST by Canada Revenue Agency. It includes public hospitals, various regional health authorities and would specifically preclude private hospitals and various charities and non-profit organizations.

V. Third Party Determination

Don't forget about this requirement under the Act. This is the one that really might catch the terrorists. Osama Bin Laden wouldn't likely open up an account, and submit an Offer to purchase in his own name. Surely, he would use an intermediary. So, that's why you have to ask the question!

If you are required to keep a client information record, then you are also required to "take reasonable measures to determine whether the client is acting on instructions of a third party". Is this deal being undertaken for someone else? Is the purchaser a nominee only? Is this deal "in trust" for someone else? FINTRAC considers employees to be undertaking transactions on behalf of their employers, being third parties.

Once, you have determined that a third party is involved, such information concerning that individual, entity or corporation is then to be recorded, or if it is not available, then this might give rise to a suspicion on your behalf and a corresponding obligation to report.

VI. Fines and other Penalties

The penalties are serious. Non-compliance may be treated as a criminal offence and the fines can be up to $500,000 and imprisonment can be up to five (5) years. In fact, both penalties could be imposed.

So, be careful and be aware of the rules!

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

Implications of Changes Made by Landlord

(Ontario Real Estate Source)

By Brian Madigan LL.B.

Let’s assume that the Landlord leases a convenience store to a tenant. Three months later the Landlord leases space a strip club. Traffic to the plaza drops significantly and no one wants to be seen there in the daytime.

Can a convenience store owner break a lease and sue the landlord for damages?
The answer here is not an easy one. There are essentially three options in terms of remedies:

1) remedies in contract,
2) remedies in tort, and
3) remedies in real property law.

The contract in this case is the lease, the offer to lease and any other documents signed in connection with the transaction.

Those documents should outline the remedy. If they don’t, then that is a serious problem.

Tort remedies are available in respect to misrepresentations made by or on behalf of the landlord in order to induce the tenant to enter into the lease etc.

Innocent misrepresentations are not actionable; fraudulent and negligent misrepresentations are.

So, there is possibly some relief here for something which amounted to an “alteration of plans” or a “change in the use”.

However, the court will look at the materiality of the alteration or change in determining liability not the effect upon the tenant, drastic or otherwise. Liability depends upon the activities of the landlord, not the impact upon the tenant.”

Assuming that there was a material change, then there are remedies available in contract, tort and real property law.

At common law, the Landlord cannot “derogate from the grant”, or create a nuisance which interferes with the ability of the Tenant to enjoy “quiet possession” of the property.

The first place to look is the Lease. It could specifically authorize such a change in use. This might be objectionable, but nevertheless that might be what the Lease says. There are circumstances where strip clubs and churches are in close proximity.

The next step is to look at remedies in tort. Are they precluded by the Lease. And, finally the real property issues.

The Supreme Court of Canada has ruled that a plaintiff may combine several causes of action into one lawsuit, and need only select the appropriate claim at the conclusion of the case.

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

Investment Properties at Risk to Common Law Spouses

(Ontario Real Estate Source)

By Brian Madigan LL.B.

The Supreme Court of Canada just changed the rules on 19 February 2011. Periodically, the Court will conclude that existing laws are out of date with reality.

The Court brought the division of property for common law spouses into the 21st century.

The previous law had been difficult and challenging for long term partners to acquire a fair share of the assets. The laws had been strict. If it was not in your name you had no claim to it unless you could prove that it was held upon a constructive trust. Most of the time, that evidence was just not available.

So, the Supreme Court applied the legal doctrine of “unjust enrichment”. Basically, this boils down to a “fairness test”. If it would be unfair for one party to profit at the expense of the other, then the doctrine will apply and the spoils will be divided as appropriate.

In one of the cases under consideration, Michelle Vanasse and David Seguin:

• The couple lived together fro 12 years
• They had two children
• The wife stayed home to look after the children
• The wife sacrificed her career
• The husband built a successful business, unencumbered by child-rearing constraints

Here is what Justice Thomas Albert Cromwell said:

"In my view, where both parties have worked together for the common good, with each making extensive, but different, contributions to the welfare of the other and, as a result, have accumulated assets, the money remedy for unjust enrichment should reflect that reality,"

"The money remedy in those circumstances should not be based on a minute totalling-up of the give-and-take of daily domestic life, but rather, should treat the claimant as a co-venturer, not as the hired help."

It should be cautioned that this new rule will not apply to everyone. Common law spouses should still have a co-habitation agreement which sets out their rights in the case of uncertainty. However, in this particular case, the wife probably would have been out of luck. In this case, her “good fortune” was that there was no agreement in place which restricted her entitlement.

This case has profound implications for common law spouses and their real estate holdings. This case goes beyond the requirements of the Family Law Act. It is now clear, that a common law spouse may have an entitlement to participate in the proceeds of sale of a property which is a matrimonial home, a business property, an investment property or any other similar interest in land.

Until this Judgment, business owners and entrepreneurs had believed that they were reasonably safe in protecting their assets if:

• They didn’t get married, and
• They didn’t sign any co-habitation agreements

This strategy will no longer work. The principle of “fairness” will be applied, and some assets previously considered “safe” will now be “at risk”.

This would be an opportune time for a business owner to seek some legal advice from a lawyer.

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

Allodial Title as explained by Thomas Jefferson

(Ontario Real Estate Source)

By Brian Madigan LL.B.

Just what is it and where does it come from? In English common law, the concept seems to have lost its meaning. Not too many people seem to know what it means, just legal scholars and historians have an interest in the subject.

Today, there are really two different definitions of the term, and it depends upon whether you are discussing public or private property.

In respect to public property, the concept has ancient origins actually predating the common law and the feudal system in the Middle Ages.

Property which was occupied and held by force against others was held in "allodium". Basically, that means "without any restriction, of any kind or nature, whatsoever". People would come across unoccupied, vacant land and would simply make it theirs. There was no one around, no one to say that they could have it, no one to grant permission, no one to sign a deed. In this regard, "might was right". If you had the property, and could defend it against others, then it was yours in "allodium". Since there was no place to register your title, it was simply acknowledged that you held allodial title. That simply meant that you had no deed.

To a certain extent, the concept of "allodial title" is just a legal fiction. It doesn't really exist in the legal system. It is simply a method of comparing it to other properties and helping to understand the differences between it and "fee simple".

So, let's have a quick look at the feudal system from medieval times. The King owned all the land. He leased it out to his tenants, and they sub-let it to others and so on, in a grand pyramid scheme. You definitely would want to be near the top.

In 1066, William the Conqueror, from France succeeded in the Battle of Hastings. He made significant changes to the feudal system, and by 1215, the first (of a series) of Magna Chartas was passed. This restricted the role of the King and is considered to be the first constitution of England. Within the next century, substantial changes were made to the property system. Tenure gave way to estates. So, rather than "leasing" land from the King, people who occupied land were considered to hold some ownership rights (estates) in the land. The estates could be restricted or limited in some way. It could be present or future. It could be temporary (a leasehold estate) or it could be full ownership with all the "bells and whistles" that go with that. This kind of estate was referred to as "fee simple". This was the highest estate that anyone could have. It was subject to certain rights in favour of the King, but other than that, it was completely unrestricted.

Basically, there were four rights retained by the King. A property would be: 1) subject to the right of the King to require servitude from the property, 2) subject to the right of the King to repossess the property, 3) subject to the right of the King to inherit the property, and 4) subject to the right of the King regulate the property. These are now sometimes referred to as taxation, expropriation, escheat and eminent domain.

So, in the English common law system, an estate in fee simple is as good as it gets. But, you had to get this estate from somewhere! In fact, you got it originally from the King. There was a Deed or a grant. There was an actual piece of paper that was "evidence" of your ownership. The only way that could happen is if you had a legal system and everyone agreed to go along with the rules.

Now, let's go back to our concept of allodial title. First, there is no one around. The place is vacant. You could probably go an entire lifetime without ever seeing anyone other than from your own family or clan. Land is not scarce, people are. There is no legal system. There is no registry office. No one keeps records of anything. So, to have allodial title is simply to own your land by occupancy.

Actually, the only way that you can hold title this way is if you are a country. There are no deeds. Other countries simply accept that they will not claim your land, since you are likely to defend it.

There is one other concept of allodial title, but it applies to private ownership. To a certain extent, it is just an historical concept. Land that was "unowned" perhaps in the wild west prior to settlement, or perhaps native or aboriginal lands that were occupied prior to the European immigration in the 16th century.

There are just a few states and none of the provinces that continue to maintain a concept of allodial title. Most have abolished the concept. At best, it was really pseudo-allodial title. It was possible to receive a grant in favour of a person specifying allodial title. Recently, the State of Nevada will permit such a grant in limited circumstances provided the individual pays up their property taxes in advance. But the concept of a grant is foreign to the concept of allodial ownership.

Allodial title is completely free and clear of all obligations, liens, encumbrances, taxes, mortgages and the like. However, where it is still recognized either historically, or presently it is still a rather pseudo-allodial title since the four basic restrictions that apply to fee simple ownership, apply to it as well: taxation, expropriation, escheat and eminent domain.

Any restrictions whatsoever, any recognition of a superior, granting institution would be fully alien to such a concept. Allodium simply means occupation of lands without challenge. This must imply to a certain extent: wilderness lands. So, that means the moon and the planets are up for grabs. Just get there first!

I thought that I might provide you with an excerpt from an apologist who authored a justification for reprisals against a King who wanted to exert his ownership over lands which the author felt were held "in allodium". The author is much more familiar with the concept of allodial title than I, and offers something of an insight into the rights of property ownership as we understand them today.

"That we shall at this time also take notice of an error in the nature of our land holdings, which crept in at a very early period of our settlement.
The introduction of the feudal tenures into the kingdom of England, though ancient, is well enough understood to set this matter in a proper light.

In the earlier ages of the Saxon settlement feudal holdings were certainly altogether unknown; and very few, if any, had been introduced at the time of the Norman conquest.

Our Saxon ancestors held their lands, as they did their personal property, in absolute dominion, disencumbered with any superior, answering nearly to the nature of those possessions, which the feudalists term allodial.

William, the Norman, first introduced that system generally. The lands, which had belonged to those who fell in the battle of Hastings, and in the subsequent insurrections of his reign, formed a considerable proportion of the lands of the whole kingdom. These he granted out, subject to feudal duties, as did he also those of a great number of his new subjects, who, by persuasions or threats, were induced to surrender them for that purpose.

But, still much was left in the hands of his Saxon subjects; held of no superior, and not subject to feudal conditions. These, therefore, by express laws, enacted to render uniform the system of military defense, were made liable to the same military duties as if they had been feuds; and the Norman lawyers soon found means to saddle them also with all the other feudal burthens.

But still they had not been surrendered to the king, they were not derived from his grant, and therefore they were not holden of him. A general principle, indeed, was introduced, that "all lands in England were held either mediately or immediately of the crown," but this was borrowed from those holdings, which were truly feudal, and only applied to others for the purposes of illustration.

Feudal holdings were therefore but exceptions out of the Saxon laws of possession, under which all lands were held in absolute right. These, therefore, still form the basis, or groundwork, of the common law, to prevail wheresoever the exceptions have not taken place.

America was not conquered by William the Norman, nor its lands surrendered to him, or any of his successors. Possessions there are undoubtedly of the allodial nature.
Our ancestors, however, who migrated hither, were farmers, not lawyers. The fictitious principle that all lands belong originally to the king, they were early persuaded to believe real; and accordingly took grants of their own lands from the crown.

And while the crown continued to grant for small sums, and on reasonable rents; there was no inducement to arrest the error, and lay it open to public view.

But his majesty has lately taken on him to advance the terms of purchase, and of holding to the double of what they were; by which means the acquisition of lands being rendered difficult, the population of our country is likely to be checked.

It is time, therefore, for us to lay this matter before his majesty, and to declare that he has no right to grant lands of himself. From the nature and purpose of civil institutions, all the lands within the limits which any particular society has circumscribed around itself are assumed by that society, and subject to their allotment only.

This may be done by themselves, assembled collectively, or by their legislature, to whom they may have delegated sovereign authority; and if they are alloted in neither of these ways, each individual of the society may appropriate to himself such lands as he finds vacant, and occupancy will give him title.

That in order to enforce the arbitrary measures before complained of, his majesty has from time to time sent among us large bodies of armed forces, not made up of the people here, nor raised by the authority of our laws: Did his majesty possess such a right as this, it might swallow up all our other rights whenever he should think proper.

But his majesty has no right to land a single armed man on our shores, and those whom he sends here are liable to our laws made for the suppression and punishment of riots, routs, and unlawful assemblies; or are hostile bodies, invading us in defiance of law.

When the course of the late war it became expedient that a body of Hanoverian troops should be brought over for the defense of Great Britain, his majesty's grandfather, our late sovereign, did not pretend to introduce them under any authority he possessed.

Such a measure would have given just alarm to his subjects in Great Britain, whose liberties would not be safe if armed men of another country, and of another spirit, might be brought into the realm at any time without the consent of their legislature.

He therefore applied to parliament, who passed an act for that purpose, limiting the number to be brought in and the time they were to continue. In like manner is his majesty restrained in every part of the empire. He possesses, indeed, the executive power of the laws in every state; but they are the laws of the particular state, which he is to administer within that state, and not those of any one within the limits of another.

Every state must judge for itself the number of armed men, which they may safely trust among them, of whom they are to consist, and under what restrictions they shall be laid.

To render these proceedings still more criminal against our laws, instead of subjecting the military to the civil powers, his majesty has expressly made the civil subordinate to the military. But can his majesty thus put down all law under his feet? Can he erect a power superior to that which erected himself? He has done it indeed by force; but let him remember that force cannot give right."

The comments noted above were offered by Thomas Jefferson as a justification for the Boston Tea Party and the American Revolution.

But, you have to admit that he certainly did understand and appreciate the concept of allodial title.

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

Conditions and Escape Clauses

(Ontario Real Estate Source)

By Brian Madigan LL.B.

There is always a great deal of confusion and discussion concerning conditions and escape clauses contained in agreements relating to real estate. But, it is really rather straightforward and the documentation depends upon how the escape clause was written in the first place.

There are really just two categories:
1) pending deals (which require confirmation), and
2) confirmed deals (which include an escape).

Pending deals are generally described by a condition precedent clause, and confirmed deals with a provision for escape are evidenced by the condition subsequent clause. The condition precedent clause begins with the words "this agreement is conditional upon...." and the condition subsequent clause begins with the words "the purchaser shall have the right to terminate...".

Conditions Precedent

There is no deal, until the condition is fulfilled, satisfied or waived. Usually, the condition will relate to a specific matter like mortgage financing or the physical state of the premises. Once it is satisfied, then in order to confirm the transaction and make sure that there is a binding agreement between the parties, this matter needs to be documented within the relevant time period.

This documentation can be accomplished in several ways which include either both parties signing or just one party signing. If a waiver provision has been included since the condition might be to the benefit of one party only,then a Waiver can be executed by that party alone. In many cases, realtors will often have both parties execute an Amendment deleting this clause. This is unnecessary.

True Conditions Precedent

This is a sub-category of conditions precedent, but it is rather unique in nature. The condition benefits both parties. Examples might include the compliance with the provisions of the Planning Act or registration of a condominium. If a vendor and purchaser enter into an agreement to convey a piece of property that is to be severed from a larger property and it doesn't get severed, then there is no deal. Same thing is true with respect to a condo.

If a purchaser were to offer to buy an apartment on the 27th floor of a building and it never gets registered then there is no deal. No one can waive this requirement. It benefits both parties. And, both parties cannot waive this requirement because there still is no severed property or apartment on the 27th floor. The actual decision is out of their hands and rests solely with a third party.

Another example might be a condition related to the assumption of a first mortgage upon the consent of the first mortgagee. If the mortgagee doesn't consent, then there is no deal.

Here, the only step that can be taken by the parties is to extend the time to permit fulfillment of the condition. They cannot waive the condition itself or delete the condition in the case of the Planning Act example or condominium example. In respect to the first mortgage assumption, both parties could delete that provision and agree to a new first. So, when drafting such a condition concerning mortgage financing, it would be wise to be aware of the rules related to true conditions precedent.

It is also noteworthy that almost every new condominium agreement of purchase and sale contains a true condition precedent clause.

Conditions Subsequent

In this case, the deal has been struck. The contract is binding but it does contain an "escape clause". The buyer has for example the right to terminate the agreement upon certain conditions. These are all the same reasons that you might have included in a condition precedent, ie. mortgage financing, condition of the premises etc.

The advantage is that if you do nothing, the deal is a "go". So, when the relevant date arises, there is actually nothing to do. You simply allow the time period to expire, no running around getting document signed, nothing like that. However, this doesn't seem to influence many realtors who insist on having either waivers, fulfillment statements or amendments deleting this clause signed. The purpose of this clause in the first place was to eliminate all this extra paperwork.

The leading case dealing with all three types of conditions was Turney vs. Zhilka in the Supreme Court of Canada in 1959. The Court preferred the use of conditions subsequent. Within about 10 years the Law Society adopted conditions subsequent as the preferred way of doing business (except when a true condition precedent was required). The real estate industry never adopted the change. As a result, the Law Society went back (about 20 years later) to using both types and that arrangement continues to the present time.


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

Gas Shortage and Cottage Prices

(Ontario Real Estate Source)

By Brian Madigan LL.B.

What is that going to mean for real estate?

Several years ago, thousands of motorists in the GTA lined up for gas. They are the lucky ones, others just stay home. They likely passed several stations that had closed because they ran dry.

Briefly, there was a fire at Esso's Nanticoke Refinery. At the same time, CN Rail employees went on strike further complicating deliveries. Gas prices had risen 7% in the week and 17% in the previous two weeks.

What is that going to mean for real estate?

In the very short term, probably nothing. It's just a small inconvenience. Longer term, it will definitely have an impact.
The question however is where? The most vulnerable segment of the market is recreational properties within reasonable commuting distance of major urban areas. Basically, that means downtown Toronto. The time limit for travel seems to be about 3 hours. Beyond that, most people are prepared to reconsider the issue of ownership. Sure, they'll visit friends on a long weekend, but they won't buy themselves.

The recreational market is vulnerable since it is a luxury, and in bad times, that's the first thing to go.
The cost of commuting is a significant factor in the determination of the value of cottage prices.

Let's assume that gas prices are still within reach of the average consumer. At the moment, that will take us up to about $1.35/litre. Beyond that, consumers will balk, and defer driving to distant locations. Work comes first, and there's not a lot of money leftover.
As this is published we are looking at average prices of about $1.15/litre.

The next issue is availability. If there are substantial shortages, it is going to be difficult to get people to line up for an hour or so before they embark on their 3 hour journey. And, once they are on the highway they'll all be going at the limit of 100 km/hour or less. It will simply to too expensive, and use up far too much gas to travel any faster. This will add another 30 minutes to 45 minutes to the 3 hour trip. Now, we are pushing close to 5 hours from the time you left your house.

However, we didn't talk about traffic congestion. If we simply have the same number of cars heading out of the City at about the same time, we are going to add to the congestion. The reason is that on a Friday afternoon, many people leave at about 3 o'clock in the afternoon. That really won't get any earlier. They still have to get their work done. It will simply mean that fewer people will be able to "get away early", basically adding to the already overloaded streets and highways.

Then, the PROMBLEM: that past weekend wasn't fun! Five hours to get to the cottage battling traffic with everyone going 85 km/hr, and 5 hours back on Sunday. But the saving grace on Sunday was that you left first thing on Sunday morning to avoid the rush.

So, now the question: is it worthwhile to own a cottage or should you just visit some friends?

The more people who say "No" to that question, the worse it becomes for the recreational property market which depends so much upon:

• Cheap gas
• 3 hour commutes
• moderate traffic

If that changes, so will the market! And, that will be good for some, and not so good for others.

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

How Would You Like a Free Cottgae in Muskoka?

(Ontario Real Estate Source)

By Brian Madigan LL.B.

This may not be as far-fetched as it seems! Well, of course there's a catch, but you don't have to buy a lottery ticket.

All you have to do is pay your bills on-time.

Let's consider the case of Bob, the general contractor. He pays his bills just shortly after they are due. He's a pretty busy guy getting up at 5:45 am and to the jobsite before 7:00 am. Most evenings he's out of the house doing estimates, and when he's home, he's mostly on the phone lining up his sub-trades for the next day. In fact, like the average consumer, he pays his bills seven times per year and a few of the accounts are just slightly over 60 days.

All the suppliers are happy to do business with Bob because he's a good worker and he pays his bills. But, what is this doing to Bob's credit? His credit rating drops from R1 (under 30 days), to R2 (under 60 days), and even to R3 (under 90 days) in some cases. When it comes to a mortgage loan, Bob qualifies but at a slightly higher rate than the best available rate. Over the last 25 years, this would have averaged about 3 1/2% per annum.

Let's assume that Bob had a $ 200,000 mortgage. He paid about $100,000.00 more in interest for 25 years than needed. But that's only half of the story. If he were to have invested the funds and secured a rate of return (after tax) of about 5%, then he would have had an additional $ 175,000. So, all in all, this slightly less than perfect credit rating ends up costing Bob $ 275,000.00. And, do you know what? That's more than enough to purchase a waterfront cottage in the Muskokas. OK, I appreciate that you're not going to have Goldie Hawn and Eric Lindros as neighbours, but it's still very nice to have.

What is the solution? Pay your bills just before they are due. Instead of sitting down seven times a year, sit down twelve times a year. Be scrupulous about your credit rating. Pay attention to the interest rate the mortgagee wants to charge you. Shop around for a better rate. If you are given a higher rate, take a shorter term, repair your credit and go back in eighteen months for a better rate.

What difference does it make? Well, in 25 years you could have a nice waterfront cottage in the Muskokas for the difference.

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

Legal Non-Conforming Use in Ontario

(Ontario Real Estate Source)

By Brian Madigan LL.B.

This is an issue under the zoning by-laws. It is important to note that all zoning by-laws are forward looking. They speak to the future and not the past. They regulate future uses of a property not existing ones. They are prospective not retrospective in nature. They are not retroactive.

So, if you have a present use which is legal, then it may continue forever. But, that entitlement applies to that property and that property alone, no others. If a new zoning by-law is enacted, it will apply only to other properties which do not have the existing and now prohibited use.

Let's say that the municipality does not want a parking lot in the area. It will first have to designate the area to which the new zoning will apply. Once the by-law is enacted, it will apply to every property in the area.

If any property had a parking lot in use at the time of passage of the by-law, then the owner will be able to demonstrate that this use is a "legal non-conforming" use. The activity predates the by-law. The use was a legal use at that time, and that same use has continued in an uninterrupted fashion since the by-law. It's not enough simply to show the start date, there must also be evidence that this particular use has not been abandoned. It has been continuous.

This continuous and uninterrupted use is at times difficult to prove. Let's take the example of a restaurant which is the only restaurant in an area that now excludes restaurants. What if the property closed down? What if the property were sold? How long can the property not be open to the public? What if it had a sign: "closed for renovations"? In all such cases, this is ultimately a matter for the Courts. For a vendor who wishes to ensure that such a use may continue, then legal advice should be sought in order to document the continuance of the use, particularly during lengthy periods of renovation and repair.

Property owners should not assume that the municipality will not seek to enforce its by-law. They have a very specific by-law BECAUSE they want to enforce it. There's no free ride here. Document the continued use! The lack of documentation is the precise reason why the legal non-conforming status is lost in most cases.

The building structure may no longer comply with the area requirements or the minimum setbacks. Generally, these properties may be repaired so long as the new structure complies with the existing use, and the legal non-conformity is not extended.

You will often see a number of buildings with modest setbacks from the sidewalk, perhaps they abut the sidewalk or may be set back just a foot or two. You will often find a row of commercial stores constructed in the early part of the 20th century that follow this alignment. Then, every so often you will find one brand new store set back from the street line, on its own, by about 20 feet. Why is this? The reason is that the new setback requirement under the current by-law calls for 20 feet from the sidewalk. The prior building was probably demolished and then the owners submitted an application for a building permit. These buildings are typically 30 to 40 years old.

Since that time, builders have become a little smarter. They repair and renovate. They never demolish and reconstruct. No matter how bad the structure might be, it is always improved or shored up. It is never torn down and replaced. This allows the "new" building to be reconstructed over the old building and retain its right to abut the sidewalk.

This is a very valuable right and should not be lost through oversight. If you own a legal non-conforming property, be sure to document its start date, and its continuous use. Would you have the evidence available if the municipality claimed that the use was lost? It's up to you to prove the legal non-conforming status. All the municipality needs to do is prove its current by-law. The onus to prove the right to non-compliance is upon the property owner.

Paper the file!

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

Turning Coffee and Donuts into Real Estate

(Ontario Real Estate Source)

By Brian Madigan LL.B.

David Bach popularized the expression "your latte factor" in his book The Automatic Millionaire.

His point was that anyone could find some extra money in their day to day living expenditures if they wished to do so. Some expenditures are indeed a little extravagant. They can be cut out, and the savings realized can be invested. Over time the savings together with accumulated interest will grow into a substantial sum.

So let's take the case of Don and Marilyn a young married couple who live in an apartment in Toronto and are trying to save a downpayment for a house. Don works as a sub-contractor for a small homebuilder in Barrie and Marilyn drives downtown to her position as the human resources co-ordinator for a large accounting firm. They both start off each day with a coffee and a donut and they each smoke a package of cigarettes per day. Don drives out to a local fast food restaurant for lunch and Marilyn goes to the food court except for Fridays when she goes out for lunch with her co-workers.

Where are the opportunities to save money for this young family? Let's focus on the coffee, donuts, cigarettes, fast food and gas.

Don

Don works 6 days per week. He drives 136 km to the job site each day. He drives a small pick-up truck and averages just 7 km/litre. However, he sleeps in late and rushes up the 400 at 120 km/hour. Assuming a dollar/litre, what if we could make his vehicle 25% more efficient. If you look at most motoring magazines, this is quite possible. Here are their recommendations:

reduce speed from 120 km/hr to 90 km/hr
have tires all properly inflated
don't follow too closely
don't constantly change lanes
keep at a steady pace
coast to a stop rather than applying the brakes
no jack rabbit starts
plan the route well in advance
turn down or turn off the air conditioning

Don will have to get up a little earlier, but he will have a far more relaxing and enjoyable trip. Surprisingly, this will only cost him about 10 minutes in time, but it will save him $ 9.71/day or $ 58.26/week.

Six mornings every week Don is in a lineup at Tim's for a coffee and donut. He really doesn't need them, but it has become part of his morning routine. This costs $ 2.40/day or $ 14.40/week.

He drives over to a fast food restaurant at lunchtime. If he took his lunch, not only would he save some time, but he could save $ 4.00 per day or $ 24.00 in the week.

Now we have the big one. He smokes a pack a day. Not good! But, this article is about saving money not saving your health, so what does it cost? Basically, $ 56.00/week.

So, if we took everything into consideration, Don's potential savings amount to $ 152.66 per week.

Marilyn

Marilyn's potential savings will be a little different. After all, she doesn't have that huge commute. But, she does drive 5 days/week to the downtown Toronto office, and if she could take public transportation instead, she could save $ 4.50/day on gas. Still, that's only $ 22.50/week. However, there is one more consideration. She parks the car in her building's underground parking at $ 23.75/day. This affords a potential saving of $ 98.00/week if she could give this up.

The coffee and muffin early morning starter costs the same as Don's, $ 14.40/week. She eats lunch at the food court, but if she took her lunch 4 days/week she could save $5.75/day or $ 23.00 for the week.

Yes, she has the same bad habit, but she is in an office and someone is always borrowing a cigarette. Actually, they gave up smoking or at least paying for them. So, she buys 9 packs per week, although she only smokes 7 herself. Amazingly, her potential savings amount to $ 229.90/week.

So, have you been keeping track? Their potential savings are $ 382.56/week or $ 19,893.12 annually. You will have to appreciate that in order to save that amount, they would have to make all of the changes at once, instantly, and we both know that's not going to happen.

Turning Savings into Real Estate

Let's assume that they both continue to drive as they do now and they continue to eat lunches the same as they do now. However, the early morning coffee, donuts and cigarettes all have to go. I'm sure that I read somewhere that there were some health benefits here. Maybe you can look that up. But, we're just talking about money, so what are the savings? Cigarettes alone amount to $ 6,656.00 annually and the early morning visit to Tim's is another $ 1,497.60, for a total of $ 8,153.60.

The next and probably most important question is: what difference does that make? They now have another $ 679.47/month to pay towards their mortgage. Assuming a 5% interest rate and 25 year amortization, they could carry another $ 116,826.71 in mortgage principal. That would add nicely to the cost of a new house.

Now, let's fast forward one year's time. Not only do they have a better house, but with an appreciation in value of 7%, this higher value adds another $ 8,177.87 to their equity, and that is tax free. And, don't forget they paid a little off the mortgage principal as well.

So, the morale of the story: switch to chocolate cigarettes, they are better for you!

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

Bad Areas are Easy to Spot!

(Ontario Real Estate Source)

By Brian Madigan LL.B.

This will be an area where the buildings are old and in disrepair. Generally, you don't want to live there. Poor quality buildings, neglected and not well-maintained line the streets. Its architectural charm is lost or hidden by aluminum siding, sheet metal or has simply fallen off. The lawns and landscaping are also neglected. Inside, the homes are often divided to house more than one family. The area becomes congested and intensified with a heavy demand upon the local infrastructure.

The commercial establishments are non-competitive with the retailers in other areas.

There are numerous for sale signs and few buyers. As well, you will often find that the crime rate increases in these areas for a variety of reasons. So, if the area has an increased police presence, you should probably avoid it.

You are also likely to find that on a relative basis the area had higher pricing 10 years ago. At some point in time, this type of area will become suitable for redevelopment. However, that could take 30, 40 or 50 years. This type of area is often simply overlooked and avoided in many urban centres.

Oftentimes, real estate investors will look for a bad area, hoping to buy for a good price before the turnaround. Sometimes it takes a quarter of a century and sometimes it never turns around. So, be careful!

While there can always be isolated opportunities in respect to single properties, the area as a whole will continue to be undesirable until there is a substantial infusion of money and some redevelopment.

If you are looking to assess the neighbourhood, remember the three questions from the 10 year rule:

1) what was the area like 10 years ago,
2) what is the area like now, and
3) what will the area be like 10 years from now.

With a bad area (from the perspective of real estate opportunities), you will easily see that the answer to these questions will point you in the direction of spotting the downward trend. So, this is an area to avoid. It's also easy to spot!


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

How to Pick a Good Area!

(Ontario Real Estate Source)

By Brian Madigan LL.B.


This is a common question posed by homebuyers. How do you know a good area and how do you find one?

The answer is actually fairly simple. Of course, it depends upon what you are looking for and also what you can afford. But, let's assume you have several neighbourhoods to choose from, in your price range.

The Ten Year Rule

The proper test questions all relate to the 10 year rule:

1) what was the area like 10 years ago,
2) what is the area like now, and
3) what will the area be like 10 years from now.

The answers to these questions will point you in the right direction. Just about all areas will follow through a cycle. They are brand new and relatively expensive. The price is reflective of the cost of recent, new construction. As new families move into the neighbourhood; schools, playgrounds, parks and plazas will complete the area, and it becomes more desirable. In about 10 years, the early plantings have taken effect and for the next 15 years the area improves in its desirability.

However, 25 years after the houses were built, the laws of nature have had an effect. The furnace, the air conditioner, and the roof all need replacement. The windows and the basement both leak. The electrical system can no longer support the requirements of a modern, active household. The kitchen and the bathrooms all need renovation.

So, the value of the house falls and the area to some degree is less desirable than it was 25 years previously. Around the neighbourhood, there are signs of neglect. Not everyone can afford a new roof, or new windows, or new siding, or a new fence. The area declines in relative value.

And, don't forget about the competition! Not too far away, there are brand new homes in a brand area starting the cycle from scratch. That means that they are only getting better, and the older neighbourhood is getting worse.

The second stage of the cycle is the general devaluation of the homes in the area. Some areas just keep getting worse and worse, while other areas soon reach the third stage: rejuvenation.

In every city, the usual rule of thumb is that the new houses are constructed in new subdivisions. These new subdivisions are generally located at the perimeter of the city. Generally, these new subdivisions are further and further from the downtown core. Assuming that the downtown area is desirable, then buyers will begin to look for opportunities once again in the older neighbourhoods.

If you live in one of these areas, why not remove some of the overgrown trees and vegetation. What about replacing the roof, renovating the kitchen and bathrooms? Why not construct an addition to house the new family room? If that makes sense, the homeowners will do it. And, if they do it, someone else may do it too. Then, there's less risk for the next person. Now, we have the start of a new trend. The area is "hot again". It's now "cool" to live there. The location never changed, but, on a relative basis, (compared to the rest of the city), it's closer to the downtown than it ever was before. In addition, when the demand is high, it will make sense to consider a complete demolition and reconstruction on the lot. These are the signs of a hot, new neighbourhood.

So, what are you looking for? Where does your area fit? What about the area you are looking at?

Remember the 10 year rule:

1) what was the area like 10 years ago,
2) what is the area like now, and
3) what will the area be like 10 years from now.

Obviously, the answer to the last question has to be "better", otherwise, why would you buy it? You should also be able to say, that right now, it's "improving". If not, then it could be on a downturn, and you don't know it yet.

The Real Estate Cycle
These same trends take place in all price ranges and in all locations throughout the city. These same trends will continue for decades to come. The real estate cycle which seems to turn in quarter centuries is:

1) improvement and appreciation (incline)
2) disrepair and depreciation (decline)
3) rejuvenation (incline)

The best areas are those where the residents who occupy the houses can afford to live there. That means that the wealthy areas are likely to be well-maintained for longer periods of time, than the poorer areas, which as time goes by can fall into disrepair.

So, the only way you can tell about these neighbourhoods is to:

1) drive around and tour the entire area, and
2) review the MLS sales statistics over the decade.

If you don't like what you see, then move on to a different neighbourhood. The cheapest way to move out of an area, is simply to drive away, BEFORE you buy! Once you live there, it's your problem

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

Related Parties under REBBA 2002

(Ontario Real Estate Source)

By Brian Madigan LL.B.

Are you related to cousin Vinny? Well, you were until 31 March 2006 and now you're not. That's the "correct" real estate answer!

Who are you related to? That seems to be a simple enough question.

However, the entire matter of who is a "related party" under REBBA 2002 is somewhat confusing.

So, let me give you the simple scheme:

• Lineal Descendants are included
• Lineal Ascendants are included
• Collaterals are included only to the first degree (brothers and sisters)

If that didn't make a whole lot of sense, then an example might work:

A is related to B if:

B is

earlier ascendant (ie. Greatgrandparent)
grandfather
grandmother
father
mother
child
Grandchild or other descendant
Brother
Sister

..............of A

Additional rules:

adoption counts
Marriage counts
Conjugal relationship counts
Associated counts (controlled corporations)


Now, one thing that is very interesting here is that uncles, aunts, nephews, nieces and cousins don't count. For anyone who remembers the old rules, they were included. So, this new approach seems somewhat strange.

Essentially, this simply doesn't make any sense. If your father, twenty years after divorcing your mother lives with someone in a conjugal relationship (either a woman or a man), then that individual's greatgranparents (whom I'm sure you've never met) suddenly become your relatives (related parties) under REBBA 2002.

At the same time, your good friend, cousin Vinny is not related to you anymore.

One other issue arises when it comes to related parties. All associated parties are included. Essentially this means corporations that are owned or controlled by related parties. In addition it includes voting trusts so the definition of "control" is expanded to some degree.

This issue is important to a registered salesperson under the Act, since they are required to make certain disclosures in their dealings with third parties.

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

Real Estate Law ~ Boundaries Below the Ground

(Ontario Real Estate Source)

By Brian Madigan LL.B.

Boundaries ~ Subsurface Issues

Below the surface there are mobility issues, so it's not quite the same as airspace.

In some cases, there is just no real access. The bedrock may form a barrier. In other cases, the bedrock is truly the asset.

Moveables Below the Surface

Water, gas and oil seem to move relatively freely in the subterranean environment. So, who owns it?

These types of liquids and gases can be removed as long as you are below your own property, even if, the result is that you might be draining the same liquid or gas from your neighbour. However, because of such a risk, oil and gas companies will require huge tracts of land to minimize the problem. This matter is now subject to strict government regulation.

Access Below the Surface

In the case of Edwards v. Sims a US superior court dealt with the matter of a cavern below the surface. The cavern was accessible through an opening on A's property, but it extended below the lands of B. The court decided that B was entitled to an injunction to prevent A from accessing the cave below the surface.

Mines and Minerals Below the Surface

Just because you own the land on the surface doesn't necessarily mean that you have the ownership rights to the minerals below. That is something which is now reserved to the Crown and transferred by separate grant. Usually, the grant is in the form of a lease or licence for a term of years, with the Crown constituting the remainderman or holding the reversionary interest.

So, while the surface owner acquires the airspace automatically, the subsurface rights may be deeded to another party. The practice of granting mineral rights varied over time and also varied from one province to another.

The legal definition of "mines and minerals" is interpreted in accordance with the common vernacular used by the mining industry at the time of the grant.

The mines and minerals under discussion are the ones specifically below the surface. They can be mapped out by survey in the same way as the dimensions on the surface.

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

Real Estate ~ Airspace Boundaries

(Ontario Real Estate Source)

By Brian Madigan LL.B.

Boundaries in the Airs

When we are talking about airspace, we are really dealing with two issues:

1) building, and

2) travelling around.

When it comes to building the question is "how high is up". What are the lateral and vertical boundaries of the property above the ground?

Actually, they expand somewhat according to the "cujus est solum" doctrine. They widen out towards the heavens in a conical shape, as they do in the subsurface approach towards the centre of the earth. But, this time they narrow to a fine point at the centre of the earth when theoretically everyone is everyone else's neighbour.

Now, that's a fairly self-centered legal doctrine for the ownership of the stars in outer space, however, that the way it goes.

Now, back to reality. How high is up? The courts have come up with a legal principle that provides the owner of the horizontal surface on the land with the right to build up about as high as he can build. The test is what is reasonable under the circumstances plus some latitude. So, at one time, the Empire State building (381 m) might have been close to the upper limit, recently it would be the CN Tower (553 m), and now, the Baj Kalifa tower in Dubai (828 m).

The next right is the right to air travel. That has occurred only within the last 100 years. So, at some point above the earth, the airspace is considered "public property". In addition, there must be closer and closer limits in order to permit landings and takeoffs to occur. These approaches and airspace laws are regulated by statute. In Canada, it is Parliament, or the federal government which has jurisdiction to enact such legislation.

But, there are also "over swinging rights". This is a little closer to the ground. A wants to erect a tall building on his land. Modern construction technology requires the use of cranes. The cranes will swing over the lands of adjacent property owners B, C and D during construction. Can A do this?

The quick legal answer is "no". In an English case known as Anchor Brewhouse v. Berkeley House (1987), a high court issued an injunction to prevent the swinging crane. Of course, permission could always be negotiated for a price. This case has been followed in other common law jurisdictions, and although it is not binding, it is indeed persuasive.

This same legal principle prevents overhanging eaves, soffits, fascia, protruding windows, doors, solar panels, chimneys, antenna, satellite dishes, wires and other projections that might interfere with someone's "airspace".

There are two types of rights in the geometric area above the land:

1) possessory rights (that would apply to construction)

2) rights of use (that would prevent or restrict travel within that space).

The legal cases, seem to permit an action in trespass for both rights, however, some courts believe that the proper remedy for an overswinging crane would be an action in nuisance. This matter has not been resolved by the Supreme Court of Canada as yet.

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

Real Estate Law ~ Boundaries

(Ontario Real Estate Source)

By Brian Madigan LL.B.

Boundaries ~ Legal Principles

All land has boundaries: up, down and sideways, but what are the rules and what are the limits?

You can imagine that the rules relating to the ownership of land on the surface on a horizontal plane are somewhat straightforward. The boundaries are clear. A's land abuts B's land and B's land abuts C's land. The boundary can be marked out and made clear. Surveys can be obtained and survey monuments can be placed at the corners.

The difficult matters are presented by the competing interests both above and below the surface.

We will examine the basic laws and rules that are to be taken into consideration. Do they make sense? Why did they develop and should they be changed? In any event, they are what they are, and they have arisen out of the English common law.

When we come back to the horizontal plane, some boundaries such as rivers, streams, lakes and oceans show some movement over time. Other physical boundaries such as mountain chains and canyons offer different issues in terms of boundaries.

The original law on this point was Roman and was expressed as follows:

"Cujus est solum ejus est usque ad coleum et ad inferos"

Translated from latin, it means "the owner of the land, owns all the way to the heavens and down to the bottom of the earth". The legal principle is short termed "cujus est solum". And, of course, that's the theory, but in reality it doesn't make any sense. In Roman times, buildings were often confined to 4 storeys and aqueducts below the surface were usually not deeper than 60 feet. So, all in all, it was more of a principle than anything else.

Today, airspace above the surface is important and mining rights below the surface are also important.

So, while any analysis of the law seems to go back to first principles being "cujus est solum", that statement does not truly reflect the law today.

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

Mortgage Rates ~ 14 February 2011

(Ontario Real Estate Source)

By Brian Madigan LL.B.








Terms...... Bank Rates... Preferred
6 Mos.......... 4.45%..... 3.95%
1 YEAR......... 3.50%..... 2.64%
2 YEARS........ 3.75%..... 3.29%
3 YEARS........ 4.35%..... 3.39%
4 YEARS........ 5.14%..... 3.84%
5 YEARS........ 5.44%..... 3.94%
7 YEARS........ 6.34%..... 4.94%
10 YEARS....... 6.65%..... 5.15%

Let me know if you need a referral to a mortgage broker?


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

Latent and Patent Defects, and Material Facts

(Ontario Real Estate Source)

By Brian Madigan LL.B.

The matter of patent and latent defects falls under the law of real property and the issue of disclosure.

A Patent defect is clear, apparent, observable and not hidden from view.

A Latent defect is not readily apparent to the eye and can only be determined with some degree of investigation.

A material fact is a defined term under the Code of Ethics. Basically, it means something "important", but it is defined to be ".....a fact that would affect a reasonable person's decision to acquire or dispose of....." an interest in property.

Registrants must investigate and determine material facts, and disclose them to clients. In respect to customers, the disclosure obligation is lessened somewhat to "known material facts" and those material facts which "ought to have been known". In practice, there may not really be a distinction between these two standards.

The big difference arises when it comes to the seller. The seller is under no obligation whatsoever to disclose material facts, or any facts, at all. That is contrary to the registrant's obligations and may bring them into conflict.

The seller basically has the right to remain silent. However, once he breaks his silence, then he must volunteer the truth.

The seller does not have to mention patent defects, because they should be obvious to all. The only obligation might arise in respect to latent defects which make the premises unsafe or unfit for human habitation. That proposition in respect to the law in Ontario is accepted, but it is not part of a binding legal decision, so there is really no precedent for it.

Any concealment of a patent defect could require comment and disclosure by the seller. Some courts have interpreted such an action to constitute a fraudulent activity and would be actionable.

When it comes to a seller's obligation to disclose, that seems to be:

1) patent defects, which are concealed, and

2) latent defects, which render the premises unsafe or unfit for human habitation.

Naturally, there are sellers like new home builders whose obligations are regulated by statute.

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

ORES Real Estate Index for January 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 January 2011, here is the Index representing average prices:

Real Estate

132.15.....GTA single family homes
130.87.....All condos in GTA
139.34.....Downtown Central Condos
122.53.....East condos
131.35.....West condos
124.97.....North condos

Other market comparisons

310.23.....gold (price per ounce)
206.98.....oil (price per barrel)
147.24.....TSX index
132.15.....ORES Index single family homes
111.59 .....CPI index
130.92.....NASDAQ index
113.37......Dow Jones index
108.88......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 January, the index stood at 132.15. That's a 32.15% increase in 73 months. That means the increase is 0.404% monthly, or it could also be expressed as 5.28% 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 111.59 (It has been modest and appears under control)

· 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, but reached its peak of 324.61 earlier In January

· Oil was the most volatile, (yes it dropped in half over our measurement period)

· Real estate was the most stable, with solid predictable returns at about 5.28% annually

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

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.

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