SEPTEMBER 2008
MORTGAGE ENFORCEMENT SERIES
BULLETIN IV – AGREEMENT OF
PURCHASE AND SALE
COMMERCIAL REAL ESTATE
LAW ALERT
A. INTRODUCTION
Bulletin IV of this mortgage enforcement series deals with a mortgagee’s duties in
Ontario under the power of sale proceedings and the types of clauses that can
protect a mortgagee in an agreement of purchase and sale when selling under power
of sale. In all power of sale proceedings, the mortgagee should have its lawyer
review the agreement of purchase and sale prior to executing it, in order confirm
that all necessary clauses have been included to ensure the mortgagee’s obligations
are limited. We would be pleased to assist you in this regard, and any other aspect
of the mortgage enforcement process.
(Please note that these bulletins are drafted from an Ontario law perspective. We
would be pleased to discuss any mortgage enforcement questions you might have
for the other Canadian provinces.)
B. DUTIES UNDER POWER OF SALE PROCEEDINGS
•
There is an overarching duty imposed on the mortgagee to: 1) act in good faith
and 2) to take reasonable care to obtain the true market value of the property.
•
In order to discharge this obligation, the mortgagee should obtain at least two
appraisals for the property by a qualified appraiser.
•
A mortgagee is not obliged to enter into a listing agreement with a real estate
broker as a mortgagee could proceed with a private sale, tender or auction.
•
However, given that the goal of selling the land is to obtain the best possible
price and to discharge its duty, a mortgagee should consider entering into a
listing agreement so that the property comes to the attention of a wide segment
of the market.
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MORTGAGE ENFORCEMENT SERIES
BULLETIN IV – AGREEMENT OF PURCHASE AND SALE
C. AGREEMENT OF PURCHASE AND SALE
In order to save on costs and expenses, the mortgagee is capable of negotiating an agreement of purchase and
sale with a potential purchaser by itself or through its real estate broker. In these cases, such an agreement of
purchase and sale should always be conditional upon review by the mortgagee’s solicitors to ensure that the
mortgagee’s obligations are limited.
Some matters that should be dealt with in the agreement of purchase and sale are as follows:
•
the purchaser should give an acknowledgment that the property is being sold by the power of sale
remedy under the mortgage;
•
all standard form representations and warranties of the vendor/mortgagee should be removed,
including the urea formaldehyde and "present use" wording;
•
the purchaser should provide an acknowledgment that it is accepting the property on an "as-is whereas" basis;
•
if a standard form is used, then careful review should be completed to ensure that the mortgagee is not
referred to as the owner;
•
real estate commission should only be payable upon the successful completion of the sale (i.e., not
until title is transferred to the purchaser);
•
the mortgagee must be entitled to terminate the agreement at any time prior to the completion of the
sale without liability (except for the return of the deposit);
•
possession of the property will need to be dealt with, whether it will be vacant possession or subject
to tenancies (be careful if this a residential rental property as the only way to obtain vacant possession
will be through the Residential Tenancies Act);
•
the purchaser must agree to accept the property subject to all matters which are not extinguished by
the power of sale and the mortgagee must not be responsible to discharge or release any encumbrances
which have a priority to the mortgage;
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BORDEN LADNER GERVAIS LLP
MORTGAGE ENFORCEMENT SERIES
BULLETIN IV – AGREEMENT OF PURCHASE AND SALE
•
if there is a prior mortgage, the agreement should be conditional upon obtaining the prior mortgagee’s
consent to the purchaser’s assumption of that prior mortgage;
•
the agreement should contain a clause that either excludes or amends the statutory covenant that the
mortgagee will grant such further assurances as necessary;
•
if there are tax arrears or other utility arrears on the property, then the mortgagee should negotiate that
the purchaser accept the arrears and adjust for that accordingly on the statement of adjustments;
•
clauses dealing with chattels will have to be removed unless the mortgagee is also selling personal
property under the Personal Property Security Act;
•
depending on the likelihood of receiving payment from the mortgagor and the general relationship
between the mortgagor and the mortgagee, the mortgagee may want to make the agreement
conditional on not being redeemed;
•
the time period for acceptance by the mortgagee should be somewhat longer than the usual period for
acceptance to ensure that the mortgagee is satisfied that it has or will have discharged its duties under
the power of sale remedy; and
•
always provide that the agreement is conditional upon review by the mortgagee’s solicitor.
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MORTGAGE ENFORCEMENT SERIES
BULLETIN IV – AGREEMENT OF PURCHASE AND SALE
BLG’s COMMERCIAL REAL ESTATE GROUP
Our Commercial Real Estate Group consists of more than 50 experts across the country in all facets of commercial
real estate law. We provide excellent creative legal advice to a broad spectrum of clients including developers,
builders, pension funds, private financiers, lending institutions, private, public and crown corporations, national
and international business communities, including aerospace and airlines, banking and finance, securities,
manufacturing, construction, insurance, government agencies, natural resources, high technology, retail,
transportation and real estate.
Our services include:
Acquisition and Development
Negotiation and preparation of all documentation relating to the acquisition, development, construction, financing
and marketing of commercial, industrial and residential properties, including:
•
Retail plazas
•
Hotels
•
Office buildings
•
Business parks
•
Apartment buildings
•
Condominium projects
•
Mixed-use developments
•
Residential subdivisions
•
Shopping centres
Public/Private Arrangements
Negotiation of arrangements between private enterprise and governmental bodies relating to land and infrastructure
development.
Formulation and preparation of proposal calls for public/crown corporations and all ancillary agreements.
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BORDEN LADNER GERVAIS LLP
MORTGAGE ENFORCEMENT SERIES
BULLETIN IV – AGREEMENT OF PURCHASE AND SALE
Construction and Infrastructure
Negotiation and preparation of construction contracts.
Negotiation, structuring and financing of infrastructure projects.
Financing and Restructurings
Mortgage enforcement and preparation of all notices and court documents on behalf of lenders.
Negotiation and preparation of all financing documentation on behalf of private and institutional lenders and
borrowers, for project and term financing.
Negotiation of arrangements between investors and developers pertaining to the restructuring of financial affairs,
including attending to all due diligence matters.
Hotels
Negotiation and preparation of all documentation relating to the acquisition, development, construction and
financing of hotels, including advising with respect to all related issues including, hotel management agreements,
licensing agreements, employment issues, co-owner arrangements, liquor licensing agreements and franchise
agreements.
Environment
Performance of due diligence reviews and advising on compliance with laws and regulations, advising on obtaining
required authorizations and licences and on co-ordinating environmental audits and clean-ups.
Negotiation of environmental representations and warranties, advising on the management and disposal of
contaminants and their transport, storage and export, and providing representation before administrative tribunals,
the civil courts and in governmental inquiries related to these matters.
Municipal
Advise and assist on all aspects of zoning and planning work, including securing approval of amendments to
zoning, advising on expropriation and permitted land uses and the appeal of realty tax assessments. In Québec, this
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MORTGAGE ENFORCEMENT SERIES
BULLETIN IV – AGREEMENT OF PURCHASE AND SALE
includes representation before the Tribunal Administratif du Québec to contest municipal valuation assessments of
major hotel, office, commercial and industrial properties.
Long Term Ground Lease
Negotiation and preparation of long-term ground leasing arrangements for both public and private sectors.
Commercial Leasing
Negotiation and preparation of all leasing documentation for retail centres, business parks, office buildings and
warehouses.
Condominiums
Structuring, assistance, negotiation and preparation of all condominium documentation, including project
financing documentation, declaration, by-laws and rules, disclosure statement, development agreements and sales
agreements.
Syndications
Negotiation and preparation of all documentation required to form real estate syndicates and partnerships, as well
as co-tenancy and joint venture arrangements for developers.
Limited Partnerships
Negotiation and preparation of all required documentation and advising with respect to the entering into and the
structuring of limited partnerships.
OUR TEAM
The Borden Ladner Gervais LLP Commercial Real Estate Law Alert is necessarily of a general nature and cannot be
regarded as legal advice. The firm would be pleased to provide additional details and to discuss the possible effects
of these matters in specific situations.
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BORDEN LADNER GERVAIS LLP
MORTGAGE ENFORCEMENT SERIES
BULLETIN IV – AGREEMENT OF PURCHASE AND SALE
Borden Ladner Gervais LLP
Lawyers • Patent & Trademark Agents
If you have any questions about this alert, please contact us.
Our National Commercial Real Estate Law group is chaired by:
David P.L. Mydske
Vancouver
604-640-4123
dmydske@blgcanada.com
Our Regional Commercial Real Estate group coordinators are:
Lawrence M. Kwinter
Calgary
403-232-9554
lkwinter@blgcanada.com
Sylvie Bouvette
Montréal
514-954-2507
sbouvette@blgcanada.com
Rocco D’Angelo
Ottawa
613-787-3549
rdangelo@blgcanada.com
Steven N. Iczkovitz
Toronto
416-367-6214
siczkovitz@blgcanada.com
Yvonne J. Hamlin
Toronto
416-367-6649
yhamlin@blgcanada.com
David C.S. Longcroft
Vancouver
604-640-4211
dlongcroft@blgcanada.com
David Shortt
Waterloo
519-579-5600 x.313
dshortt@blgcanada.com
Author: Sybil Johnson-Abbott, BLG Ottawa
Visit our website at www.blgcanada.com where you can view the Commercial Real Estate Law
Alert and other Borden Ladner Gervais LLP publications.
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