Closing day and me!

Related Articles

Market Watch – January 2019

February 13, 2019

Market Watch – September 2018

October 16, 2018

Effects and victims of the new mortgage rules coming October 17, 2016

October 15, 2016

It has been an interesting week for me and one of my clients!  Thursday started off with a BBM early in the morning while I was at the bank that read, “F*** me” and followed with a story that went on to explain that the property is flooded.  Let’s go through it in a bit of detail and lay out all your options if this was to ever happen to you!

Back in February, I sold a property for one of my clients and yesterday was the, oh so happy, closing day that turned into a mess.  My client was doing the last load of laundry in his unit at 4:00 AM when the washing machine malfunctioned and caused a huge flood in the unit.  The unit is in a high rise and caused damages to the whole unit and two units below.

We went through the property yesterday with the buyers and saw the once beautiful unit had all it’s flooring ripped off and large fans on the floor drying out the space.  it felt like you were in a propeller plane ready to take of to a small town somewhere in northern Ontario.  This was intimidating for the, once happy go lucky, buyer that is looking to move into their home.  The buyer has couple of ways to deal with such a situation which we discuss briefly later.

A unit flooding is something that I, as a real estate agent, hear about a lot and it happens mostly because of faulty equipment or malfunction.  What’s interesting about this incident is that the property is already sold to a buyer that is looking to take pocession of the unit the same day.  I’ve been talking with the buyer and their agent who have been very understanding about what has transpired and the lawyers to review the legal implication for the parties.  One thing is clear, the unit is the responsibility of the seller / vendor till the transaction is complete.  Here is the clause 18 from the agreement of purchase and sale that dictates this:

INSURANCE: The Unit and all other things being purchased shall be and remain at the risk of the Seller until completion.
In the event of substantial damage to the Property Buyer may at Buyer’s option either permit the proceeds of insurance to
be used for repair of such damage in accordance with the provisions of the Insurance Trust Agreement, or terminate this
Agreement and all deposit monies paid by Buyer hereunder shall be refunded without interest or deduction. If Seller is
taking back a Charge/Mortgage, or Buyer is assuming a Charge/Mortgage, Buyer shall supply Seller with reasonable
evidence of adequate insurance to protect Seller’s or other mortgagee’s interest on completion.

In this situation where there is substantial damage to the property sold, there are two recourse outlined for the buyer in the agreement

1.  Buyer may at Buyer’s option either permit the proceeds of insurance to be used for repair of such damage OR
2.  terminate this Agreement and all deposit monies paid by Buyer hereunder shall be refunded without interest or deduction

Another option that was offered to the Buyer was a hold back till remedy agreement between the parties under which the Buyer would continue with the closing but not all the monies from the sale will be released to the seller rather there will be a hold back in the lawyer’s trust account.  The parties agree to a hold back amount and set the standard for performance and how long the hold back will be for.   This allows the seller some money from the closing to be used toward the repairs and the balance would follow to the seller once all the outstanding work is completed to the satisfaction of the buyer.

Another option presented by the Seller’s lawyer was an abatement under which the sold price is adjusted and compensate for the damages and the seller just walks away from the property.

I can’t discuss which option was negotiated by the parties but all of the above, except 2, can help you inch closer to a successful close while adjusting to the damages caused.  Here’s a list of items to keep when you have a closing coming up:

• Make sure the house is in good repair.  All outstanding repairs are completed.
• Ensure that all your appliances are in good working order.  Fires can be caused by dryer and floods are common with washing machines and dishwasher.  Keep on top of them!
• Insurance is up-to-date.  Anytime you are in arrears or don’t have insurance, you stand at risk of losing money if there is an accident.  Keep on it.