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<< back to all ArticlesPart Two: Tips and Considerations for First Time Home Buyers
As a continuation to my previous post, this article addresses an important and often challenging aspect of the home buying process – the Real Property Report and municipal compliance.
The majority of residential real estate transactions in Alberta utilize the standard form contract created by the Alberta Real Estate Association (AREA). The AREA contract contains certain statements of facts (representations) and warranties given by the seller about the property. These representations and warranties are:
- the current use of the land and buildings complies with the existing municipal land use bylaw and any restrictive covenant on title;
- the location of the buildings and land improvements:
- is on the land and not on any easement, right-of-way, or neighbouring lands unless there is a registered agreement on title or, in the case of an encroachment into municipal lands or a municipal easement or right of way, the municipality has approved the encroachment in writing; and
- complies with any restrictive covenant on title and municipal bylaws, regulations, and relaxations, or the buildings and improvements are “non-conforming buildings” as defined in the Municipal Government Act (Alberta);
The AREA contract requires a seller to provide a current real property report (RPR) with evidence of municipal compliance confirming the above representations and warranties (Compliance Letter).
An RPR is a survey of the property prepared by an Alberta Land Surveyor, which identifies the location and dimensions of the current buildings, structures, and other improvements on the property in relation to the property lines. The RPR must be current, meaning it must accurately show the existing improvements on the property. Often sellers will provide a copy of the RPR and Compliance Letter that they received at the time of purchase. As long as there have not been changes to the property, an existing RPR is usually sufficient.
Under the AREA contract, a property must either be compliant or non-conforming.
Compliant means that appropriate permits were obtained and the structures are located in accordance with the current zoning requirements. Non-conforming means that while the structures do not meet the current zoning requirements, they met the requirements at the time they were constructed and are “grandfathered in”.
Once an RPR has been obtained, it is sent to the relevant municipality for a compliance review. A representative of the municipality will review the RPR to confirm if appropriate permits were obtained and whether the structures are located in accordance with those permits and in compliance with the zoning requirements for the property. The municipality will then provide a letter either confirming the property is compliant/non-conforming or identifying compliance issues.
If possible, it is useful to get a copy of the RPR and Compliance Letter from the seller or seller’s realtor early in the process so that any issues can be addressed appropriately. Often the RPR and Compliance Letter are delivered shortly before possession, which can cause problems if the property is not compliant. When there is not enough time to correct the issues identified in the RPR and Compliance Letter, the buyer’s lawyer and seller’s lawyer will often negotiate a “holdback”.
What is a holdback?
In a real estate context, a holdback is an agreement, usually by the seller’s lawyer, to not release certain funds until some requirement has been met. Holdbacks are common, especially for new homes, where seasonal items such as fencing and landscaping cannot be completed prior to possession. A holdback is essentially a buyer’s security to ensure the seller complies with the contract. Ideally, a holdback will address at least four items:
- How much of the purchase price will be held back?
- What work needs to be done before the holdback can be released?
- When does the work need to be completed by?
- What happens to the holdback if the requirements are not met or not met on time?
What if an RPR and Compliance Letter are outdated or not available?
Title Insurance is often purchased when an RPR and Compliance Letter are unavailable or not provided. Title Insurance will not fix compliance problems but may offer compensation to the policy owner in the event there is a loss due to an unknown defect in the property.
Finally, it is important to note that the obligation to provide an RPR and Compliance Letter can be removed from the AREA contract if agreed upon by the buyer and the seller prior to the signing of the contract. Many private transactions in Alberta (transactions without realtors) do not contain the obligation to provide an RPR and Compliance Letter.
This post only covers a small portion of the many considerations that form part of the home buying process. Please feel free to contact the author or another real estate lawyer for further advice and guidance.
This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.
