What is an Agreement of Purchase and Sale in Canada?

Everything you need to know about a purchase and sale agreement and its key components.

An Agreement of Purchase and Sale (APS) is a legally binding contract between a buyer and a seller in a real estate transaction in Canada. The agreement outlines the terms and conditions under which the sale of a property will occur, serving as a roadmap for the entire transaction and protecting the interests of both parties. The APS can pertain to various assets, including commercial properties, land, residential properties, and even businesses or business interests.

Legal Binding and Importance

The agreement of purchase and sale varies from province to province. While there are similarities in the basic structure and purpose, there are some key differences as well. In Ontario, once both parties sign the APS, the document becomes legally enforceable. This enforceability indicates that any breach of the contract can result in severe consequences, such as lawsuits and financial losses. It’s important for both parties to thoroughly review and understand all clauses and obligations before signing. Legal advice from a qualified real estate lawyer is often recommended to ensure that both parties’ rights and interests are safeguarded throughout the transaction.

The full legal names, addresses, and contact information of both the buyer and seller must be included in the APS. The agreement becomes binding once signed by both parties. This section ensures that all legal aspects are accurately documented.

Key Components of the Agreement

Property Identification
The APS must clearly identify the property being sold. This includes the legal description and address. These can be found in land titles, tax assessments, or mortgage agreements. Accurate identification is essential to prevent any potential disputes.

Offer Price and Payment Details
The offer price at which the property will be sold must be specified, along with detailed payment information. This may include the deposit amount and any financing arrangements, such as seller financing, if applicable. Accurate payment details ensure that both parties are aware of the financial commitments involved.

Completion Date
The agreement will specify the closing date, which is when the sale becomes final. This section may also outline whether the buyer will take possession of the property on this date or if a temporary lease arrangement will be in place. The established closing date provides a clear timeline for both parties.

Conditions and Contingencies
The APS may include various conditions that must be met for the sale to proceed. Common contingencies include financing approval, property inspection, and the sale of the buyer’s current home. If these conditions are not met, either the buyer or the seller may cancel the agreement. Clear conditions and contingencies help manage expectations and reduce uncertainty.

Fixtures and Chattels
The agreement should distinguish between items considered fixtures (attached to the property and included in the sale) and chattels (movable items that may be negotiable). Providing a detailed inventory helps avoid disputes over what is included in the sale.

Risk and Insurance
Until the completion of the sale, the property remains at the seller’s risk. The seller is responsible for maintaining insurance coverage. In the event of substantial damage, the buyer may terminate the agreement or accept insurance proceeds. The risk and insurance clause clarifies the responsibilities of the seller.

Adjustments and Taxes
The agreement will address the apportionment of expenses such as property taxes, utility charges, and rents up to the closing date. It also covers adjustments related to any changes in property tax assessments. Proper adjustments and tax provisions ensure that both parties understand their financial responsibilities.

Cooling-Off Period and Legal Changes

Cooling-off periods can differ from province to province as well. In Ontario, the Homeowner Protection Act provides buyers with a 7-day cooling-off period for new builds and a 10-day cooling-off period for condos. During this period, buyers can cancel the APS without penalties, provided they do so in writing. This cooling-off period also applies to newly built condominiums. The cooling-off period allows the buyer additional time to reconsider the transaction.

Standard Forms and Modifications

Most provincial real estate associations have established standard form Agreements of Purchase and Sale, which contain standard terms and conditions. However, the specific terms of each agreement are documented in the schedules to the standard form and reflect the terms and conditions agreed to by both parties.

It is advisable to have the agreement reviewed by a lawyer to ensure all terms are understood and properly documented. Standard forms provide a reliable template, while modifications allow customization for specific transactions.