Do I Need a Power of Attorney?

Here in Kelowna there are several reasons an individual may require a Power of Attorney (POA) when preparing to sell his or her property. A Power of Attorney is a legal documents that grants to a person (sometimes called the “Attorney”) the right to sell and dispose of the assets of the Donor (the person granting the power of attorney). Although there are many circumstances where a Power of Attorney can be useful, some of the most common situations are:

  1. families where spouses are working overseas/ out of town (including military duty)
  2. adult caregivers of elderly persons needing to manage their everyday financial and property affairs
  3. real estate agents who act under the terms of a specific and limited Power of Attorney to complete a real estate deal (for example when their clients are on vacation)

When the time comes to transfer land using a POA, a lawyer is going to be looking for certain criteria in order to establish the validity of the POA.

  1. ascertaining the true identity of the parties involved;
  2. make inquiries to ensure the POA has not been revoked;
  3. ensuring that the ORIGINAL must be filed with the Land Title Office with a DF#;
  4. ensuring that the POA was properly witnessed by an OFFICER under s.42(3) of the Land Title Act;
  5. ensuring the POA has sufficient powers to transfer land; and,
  6. ensuring that the attorney must be at least 19 yrs old.

The flexibility of allowing another person to make financial and legal decisions for someone else can make Power of Attorney a useful tool in real estate transactions. Contact lawyers@pihl.ca to find out more.

Seller’s Remorse in Kelowna Real Estate; Can a Seller back-out?

In the last few weeks the Kelowna Real Estate market has seen a dramatic increase in sale activity (see OMREB stats here) and in some sectors of our market (particularly single family homes under 500k) signs of a “Sellers Market” have begun to emerge (see my January post here).

The rather quick shift from a Buyer’s Market earlier in the year to a Seller’s Market has caught some Sellers “off guard” particularly those who did not expect their homes to sell as fast as they did. In the last week I have received a large number of calls (from either the Buyer or Seller) in situations where the Seller wants out of a signed real estate contract.

In most cases, immediately upon signing, a Seller is legally bound to complete the terms of that contract for the Purchase Price (see my post here about what Sellers need to check before closing). The “subject conditions” in the deal are, most often, solely for the benefit of the Buyer and will not allow a Seller to back out once the deal is signed.

If the Seller is unsure about being able to complete the deal as presented they should:

  • NOT sign the contract of purchase and sale; or
  • ensure that appropriate subject conditions are added to the contract (ie; bank assurance of ability to clear mortgages from title) to the benefit of the Seller.

If a Seller is unsure of their financial payout commitments on closing they should call their mortgage broker PRIOR to listing the property, these financial commitments include: principal, interest, penalties, and other home secured loan products (ie; lines of credit).

Have questions? Selling or Buying a Home? Call Kelowna Real Estate Lawyer Peter Borszcz.

ar136149467128787

June Kelowna Real Estate Closings: Municipal Property Tax Adjusments

The end of June is “high season” for residential real estate closing. As the school year comes to the close and the weather turns warmer, people want to get the “business of moving” done prior to enjoying summer holidays.

There are a couple of unique considerations for Kelowna Real Estate at this time of year, all of which revolve around the July 2 Municipal Property Tax payment deadline.

Usually:

  1. For closings before June – the municipal property tax payment is the responsibility of the new Buyer and the Seller receives a debit at closing based on the estimated bill to be paid (or the assessment if available).
  2. For closing after early July  – the municipal property tax payment is the responsibility of the Seller (prior to vacating) and Buyer will receive a debit at closing for the amount already paid.

For closings in June and early July, a couple of key points for Sellers:

  1. When you pay your property taxes (at a bank or at the city), ensure that you keep your receipt.
  2. For your principal residence, make sure that you claim your Home Owners Grant on your principal residence when you pay your taxes (more info on eligibility here)
  3. Depending on the municipality and the timing of the payment, Sellers closing at the end of June may be legally required to holdback an amount of closing to ensure that property taxes have been paid (ensure you have budgeted for this extra temporary cost).

Your Kelowna Real Estate Lawyer will make adjustments such that the Buyer and Seller each “pay” for those expenses which accrue to the property during that time of the year (a per diem adjustment) that each party owns the property being transferred.

The Home Owners Grant that is actually claimed is the amount adjusted for. This can result in some “inequity” in some cases. For example where the Buyer is a Senior buys a property from an Investor and the Seller has already paid the property tax the difference in Home Owner Grant amounts means the Senior may pay an extra $500 in property tax.

These situations may not be entirely avoided but in some cases they can be minimized by talking to your Kelowna Real Estate Lawyer early. For instance (in the example above), we would try to have the Senior Buyer pay the taxes and claim the grant (and debit the Investor Seller) if this was legally possible prior to the municipal tax deadline.

For more information on property taxes, see the local municipal property tax information pages here:

  1. For information on Kelowna Property Taxes – click here.
  2. For information on West Kelowna Property Taxes – click here.
  3. For information on Lake Country Property Taxes – click here.

Written by Kelowna Real Estate Lawyer Peter Borszcz.

canadian-house1

 

Death of a Seller Prior to Closing

Sometimes after a series of unfortunate events the Buyer, or more likely the Seller of a parcel land dies after signing a binding contract for the purchase, but prior to completion (and signing the transfer).
At common law, where a contract was for “personal services”, the death of the party providing those services would “frustrate” the contract making it impossible to perform. For example, a man’s promise to marry was not held to be binding after his death (Mc Bride [1962] SCR 202).
This is not the situation for Real Estate Contracts. Real Estate Contracts are financial obligations and the foundation or subject matter of the contract, being real property, continues to exist after the death of any one of the parties. Canadian courts have consistently upheld the principal in Witicki v. Midley [1976] 6 WWR 471, wherein a contract for the sale of land was binding on the deceased’s estate despite the seller dying prior to signing the transfer document.
But… procedurally, the executor cannot sign the transfer until probate is granted… what happens? Usually, the parties (and their lawyers) will grant a pre-closing possession/ tenancy on the strength of having all the necessary documents (except the transfer) held in trust until such a time as probate can be granted.

Power of Attorney

In Kelowna, it is common place that real estate closings occur with another party signing on behalf of the Seller and executing documents by a power of attorney. A power of attorney is a document whereby one person (the DONOR) confers authority on another person (the ATTORNEY) to take certain actions on their behalf.

A power of attorney can be LIMITED in scope. For example it can only allow a person to deal with banking affairs and it may specifically exclude the right to deal with real estate. There are specific limitations on powers of attorney with respect to real estate, for example, s.27 of the Property Law Act prohibits an ATTORNEY from selling land to himself and s.56 of the Land Title states that a filed Power of Attorney will (unless expressly excluded) expire 3 years after the date it was signed.

To be valid to transfer land, a lawyer is looking for a number of items including:
a)ascertaining the true identity of the parties involved;
b)make inquiries to ensure the POA has not been revoked;
c)ensuring that the ORIGINAL must be filed with the Land Title Office with a DF#;
d)ensuring that the POA was properly witnessed by an OFFICER under s.42(3) of the Land Title Act;
e) ensuring the POA has sufficient powers to transfer land; and,
f)ensuring that the attorney must be at least 19 yrs old.

Realtors should:
a)ensure they obtain a copy of the Power of Attorney for their file;
b)ensure they know the identity of their clients (both DONOR and ATTORNEY); and
c)ensure their client’s lawyer is aware that the Closing will be occurring by Power of Attorney.

Non-Resident Vendors: The Need for Changes to s.116 of the ITA

Recently I was asked to write an article for the Lawyers Weekly (a national newspaper in Canada directed to lawyers), this is a re-post of that article originally published by the Lawyer’s Weekly October 8, 2010:

When we speak to law reform, real estate is generally a tortoise among hares and for good reason. Given that, for a majority of the population their home is their single biggest investment, there is a strong demand for a system that is efficient, fair and predictable.

However, for real estate lawyers in the current economic climate we are now dealing with the inability of Vendors to clear title in increasingly greater numbers. Unfortunately, the bureaucracy involved with Section 116 of the federal Income Tax Act adding to the uncertainty by delaying and jeopardizing sales of residential real estate. The eight month delays caused by procedural meandering, which has been readily acknowledged by the civil servants of the International Audit Division, gives purchasers in this buyers real estate market the opportunity to simply “walk” away from contracts with non-resident Vendors who are unable to clear title due to the requirement of a Section 116 holdback.

Section 116 requires a purchaser of residential real estate to withhold between 25% and 50% of the purchase price subject to a vendor obtaining a certificate of compliance from the Canada Revenue Agency (CRA). In the normal course of residential real estate transactions, this is accomplished by way of solicitor’s undertakings between the parties. In the past, these undertakings did not present a hurdle to non-resident vendors as the growth in the value of the property allowed the vendor to close, payout their lender, and simply wait to receive the holdback funds upon issuance of the certificate of compliance by CRA.

The current economic climate has dramatically changed this reality for non-resident vendors. Many non-resident vendors are required to payout high loan to value ratio mortgages and other sources of funds are no longer readily available. In the Okanagan Valley, where a large number of non-residents own secondary residences in our resort communities, this pressure has been compounded by the recent changes to the financing rules, which now require a minimum 80% loan to value ratio for secondary residences, and in turn this has decreased the pool of eligible buyers for any given property.

Often, with desperate sellers and fickle buyers, the real estate agents must cobble these deals together down to the last penny and leaving little if any additional funds for the holdback on the closing date. The nature of residential real estate practice (at least in British Columbia) is that the contract is often firm and binding on the non-resident vendor when the vendor is informed by their lawyer of the holdback amount thereby putting the vendors in a position where they are unable to close. In Epp v. Yung (1993), 35 R.P.R. (2d) 1 (B.C.S.C.) the court held that, even if the vendor disagrees with the amount of the holdback, the vendor must still close without access to the holdback funds and provide title free and clear of all financial encumbrance.

In 2008, CRA introduced changes to the s.116 certificate of compliance requirements; however these changes have not adequately addressed the issue. CRA personnel have acknowledged the delays and have recently provided advice to the Institute of Chartered Accountants, as published by their member advisory in September 2009, on the steps a vendor can take to minimize the time it takes to obtain a certificate of compliance. These steps include: a) ensuring forms are submitted early (ideally well in advance of closing); b) ensuring the vendor is registered for a tax number; c) ensuring that all the supporting documentation is available (eg; form T2062) to allow CRA to determine the adjusted cost base as well as the proceeds of disposition; and d) ensuring the cover letter requests a “Certificate of Compliance” (as opposed to a clearance certificate which causes confusion with another CRA program). CRA has been reported to be piloting a regional intake centre to quickly deal with “low risk files”, however there have been no reports on this program’s success or if it will be expanding.

The fundamental problem with the process for obtaining Certificate of Compliance is not a lack of manpower, however it is the associated purchaser’s requirement to withhold and investigate the nature of the vendor’s tax liability that, in the context of residential real estate needs to be statutorily changed. The objectives of the Income Tax Act would be much better served if, subject to receipt of a vendor’s statutory declaration of no gain, the liability for the vendor’s taxes remained with vendor and the CRA would cease to rely on purchasers as indemnitors.

This call for reform is not new and the need for change to the section 116 procedure has been noted by the Advisory Panel on Canada’s System for International Taxation in December 2008, wherein they recommended that the government “eliminate withholding tax requirements related to the disposition of taxable Canadian property where the non-resident certifies that the gain is exempt from Canadian tax because of a tax treaty”.

Absent a fundamental change in the legislation, the current requirements set out in section procedure are inefficient and have created instability in the residential real estate market, at a time when greater stability is needed. Since most residential contracts of purchase and sale are entered into without legal advice and lawyer s are often only engaged a short time prior to closing, it is often too late for legal counsel to complete the step necessary to get the transaction back on track for a timely closing. The end result is that this statutory requirement is doing more harm than good in our current real estate market.