A chaotic market keeps real estate lawyer busy

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Buyers and sellers in Ontario’s real estate market face uncertainty as 2020 winds down: Many people in the Greater Toronto Area are back in lockdown or code red territory as health officials try to halt the spread of COVID-19.

And while people grapple with the anxieties arising from the health crisis, a $7-million house might spark competition while a $700,000 downtown condo stagnates on the market. Even within the condo market, there’s a divergence between the more desirable larger apartments and the micro-sized units that fill many high-rises.

Unpredictable outcomes make for brisk business for a real estate lawyer. Mark Weisleder of Real Estate Lawyers.ca LLP, has been spending a good chunk of his time helping owners navigate the complexities of selling a unit during the coronavirus pandemic.

Mr. Weisleder says real estate industry mavens nimbly regained their footing following the Toronto-area’s first lockdown in the spring. They adapted to pandemic rules and sales came roaring back. With the city and some nearby areas now back under lockdown, sales continue, but buyers and sellers continue to run into stumbling blocks.

“Even the news about COVID-19 changes every week,” Mr. Weisleder says. Health and government officials imposing and removing restrictions during lockdowns has repercussions for people’s lives, he points out.

One common conundrum: How does the owner handle a sale if the unit is occupied by a tenant? After the cheques are signed and documents exchanged, there’s a human element to consider. The tenant still needs a place to live. Some are reluctant to move out.

When it comes to selling investment properties, Mr. Weisleder is now advising clients to wait until the unit is vacant before they put it up for sale.

Mr. Weisleder says landlords in Ontario must give two months’ notice to a tenant if the buyer plans to move into the unit. In some cases, tenants choose to dispute the notice.

One reason for a dispute might be that the tenant does not believe that the buyer, in good faith, is actually moving in, the lawyer says.

In that case, the two sides may end up putting their case to Ontario’s Landlord and Tenant Board.

Mr. Weisleder explains that a landlord who deceives a tenant into leaving faces penalties.

“There is a $50,000 fine for a landlord who tricks a tenant in this way,” he says.

In addition, the tenant can sue for up to 12 months’ rent.

Mr. Weisleder says getting a hearing is a lengthy process – especially since the board was closed from March until the end of July due to the health crisis. Now the board is running virtual hearings, but the backlog is severe.

“They’re still months behind when it comes to hearings,” he says.

Mr. Weisleder has had to untangle problems from sales that have been held up for as long as six months because closing the deal is contingent on the unit being vacant. The delay can cause snowballing problems for the buyer, who may not be able to obtain the same mortgage rate several months later, for example.

In some cases, sellers end up offering the tenant some cash to help with the move.

“An incentive has to be paid to the tenant so the deal can close on time.”

Sellers may also run into problems if the tenant refuses to co-operate with showings for potential buyers. A tenant may have legitimate concerns about opening the door to strangers, he says.

Real estate agents have adopted new measures to make showings safe, he says, and many require the prospective buyer to sign a form declaring that they don’t have any symptoms of COVID-19 and they haven’t recently travelled, for example.

But Mr. Weisleder has known of cases where tenants question whether they should trust a form filled out by the prospective buyer. Some insist on evidence of a negative COVID-19 test taken within the past 24 hours.

When sellers seek his advice about taking the tenant to court, Mr. Weisleder recommends against it. In some cases, they may say they have health conditions that make them more vulnerable to the possibility of severe disease with COVID-19.

“I wouldn’t really want to argue that case because the judge might say ‘the tenant is right’,” he tells the client.

Mr. Weisleder says many such snags can be avoided if owners work with tenants before they even call in the real estate agent. A seller can have a vacant unit staged to show it at its best, and a buyer can take possession on time.

“You’re better off helping the tenant to move.”

Some of the lawyer’s recent clients are buyers who are laying the groundwork to compete for a condo apartment.

In the past couple of weeks, one dozen or so prospective buyers have asked him to review condo building status certificates before they make an offer to buy.

Buyers generally ask lawyers to look over a condo corporation’s status certificate to learn about its financial position and whether the buyer might be on the hook for contributing to the cost of a large repair, among other details.

In some cases, buyers make their offer conditional on a review of the status certificate. If they are asking him to peruse the documents in advance, Mr. Weisleder says, that means they want to be able make a bid without conditions.

In his experience, that indicates plenty of bidding wars are still taking place in the condo market.

But the intensity of competition can also lead to buyer’s remorse, he adds.

On occasion, the lawyer is hearing from buyers who fear they overpaid. Typically, a buyer who prevails in a bidding war will have 24 hours to provide the deposit they promised.

Some believe that walking away from the deposit will get them out of the deal, but Mr. Weisleder stresses that a person who signs the sales agreement and then tries to walk away may very well be sued by the seller.

If the seller has to sell for less to a second buyer, the initial buyer may be sued for the difference, he explains.

When he represents sellers who haven’t been able to collect the deposit, Mr. Weisleder will send a letter on the client’s behalf.

“I would send a letter saying, ‘you’re in breach; if we put the property back on the market, and if we suffer a loss, we’re going to come after you’.”

These snafus arise against the backdrop of a shifting real estate landscape.

Lisa Patel, president of the Toronto Regional Real Estate Board, says polling undertaken before the pandemic had already pointed to an increase in investors selling their condo units in 2020.

“The pandemic only added to this trend with a stall in economic growth and a halt to tourism impacting cashflow for many investors.”

New listings of condo apartments in the City of Toronto spiked by 103 per cent in October compared with October, 2019, while sales edged up 2.2 per cent in the same period, according to TRREB.

By comparison, new listings of detached houses in the City of Toronto rose by 10.3 per cent in October from the same month a year earlier. Sales growth of detached houses in the core far outpaced the rate of new supply, with a 34 per cent jump in October from October, 2019.Article text goes here

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