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10 Key Realtor FAQs About N.B. Real Estate Law

Published:

November 19, 2021

Author(s):

• Steven Christie, Partner
• Tom Creagh, McInnes Cooper Alum

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To help realtors better prepare their clients to ensure smooth real estate transactions with timely closings, here are the answers to the 10 questions realtors most frequently ask us about real estate transactions in New Brunswick.

1. What should I consider when filling out the standard form purchase and sale agreement?

Completing the standard form purchase and sale agreement is more than a mere formality: it’s a contract that both grants the parties legal rights – and imposes legal obligations on them. The words written into the standard form purchase and sale agreement form part of that contract. Although the standard form adds efficiencies as a “one size fits all” agreement, it creates a greater onus to ensure that the “deal” is described exactly as your client intends (for example, by describing exactly what is or is not included, or the timing of certain obligations). Precision is key; avoid ambiguity to the greatest extent possible. If the contract isn’t clear about the parties’ legal rights and obligations, disputes can arise between them, which can cost the parties time and money to resolve. It also makes the lawyers’ work more difficult and slower. Both can result in a closing delays and upset clients. If the contract is clear, disputes between the parties are less likely and the lawyers’ work is typically easier and faster, both of which facilitate a clean and timely closing.

2. What are the most common issues that hold up a closing?

 Many issues can hold a closing up, but three of the most common are:

• The seller’s failure to meet the obligations set out in the purchase and sale agreement (for example, cleaning obligations, failure to remove unwanted personal items from around the property, or failure to leave those items behind as agreed to).
• Damage to the property or the discovery upon closing inspection that items that were supposed to remain on the property have been removed.
• Late delivery of funds or mortgage instructions.

3. What goes into closing costs?

There are a number of additional costs (usually called “closing costs”) associated with a real estate purchase, in addition to the purchase price and any mortgage. The amount of the closing costs varies depending on the purchase price, the property subject to the transaction, and choices the buyer makes. Some of the items commonly captured by closing costs include:

• Land transfer tax (currently 1% of the greater of the purchase price and the assessed value).
• Service New Brunswick Registration of Transfer fee.
• Service New Brunswick Registration of Mortgage fee.
• Search fees.
• Real Property Tax Certificate.
• Certificate of Registered Ownership or title search, as applicable.
• Water and Sewer Certificate.
• Title Insurance or survey, as applicable.
• Legal fees.

4. Why do lawyers need the buyer’s and the seller’s birth certificate (or other specific identification records)?

New Brunswick law, specifically section 5 of the New Brunswick Naming Conventions Regulation, requires that a person who is a party on a document that will be registered in the Land Titles system (such as legal title to real estate) must be identified by certain records depending on where they were born or their citizenship. The lawyer must review the required records in order to comply with the Regulation. The Regulation requires that the person must be named on the documents to be registered as:

• If the person was born in Canada and their birth was registered with a government agency, they must be named as stated on their birth certificate.
• If the person was born in Canada but their birth wasn’t registered with a government agency, they must be named as stated on their current Canadian passport, social insurance card, or a passport issued by another jurisdiction.
• If the person was not born in Canada but is a Canadian citizen, they must be named as stated on their certificate of Canadian citizenship.
• If the person was not born in Canada and is not a Canadian citizen, they must be named as stated on a current visa issued by the Government of Canada, on a passport issued by another jurisdiction, or on a birth certificate or equivalent document issued to them by the government agency responsible for the registration of births at the place where they were born.

When buyers and sellers can’t find their birth certificate, they commonly insist that something else (usually a passport) will suffice. But because the birth certificate requirement is law, it’s non-negotiable. It’s not a matter of whether the lawyer believes the client; it’s a matter of identifying the client’s name by relying on the legally required document.

Realtors can help their clients save time and stress by asking them to locate their birth certificate, or order a new copy, before the lawyer requests it, or even before they reach an agreement with another party. If the individual requires a new copy of a New Brunswick birth certificate for a real estate transaction, there’s an expedited process for this purpose.

5. What’s a “title search”? 

“Title” is the term used to describe the bundle of rights a person obtains when they buy real estate. Buyers, and lenders that might receive a mortgage to finance the property purchase, want “good and marketable title”: a bundle of rights that allows them to enjoy the property to the fullest extent possible, which affects its value and their ability to sell it later. Before New Brunswick implemented the current Land Titles system, lawyers always had to conduct a “title search” by digging through old documents reviewing a “good root of title” (an old enough document they could rely on), and inspecting all other documents that might affect that property until the date of the search.

A title search is now necessary only when legal title to the property is still in the old Land Registry system, and hasn’t yet been migrated to the new Land Titles system. Once title to a property has been migrated to the Land Titles system, the province guarantees title and issues a Certificate of Registered Ownership. Lawyers can rely on the Certificate of Registered Ownership and the documents referenced in it, rather than go searching for relevant documents, as the means of reviewing title.

6. What if the legal title to the property hasn’t yet been migrated to the Land Titles system?

The act of transferring or mortgaging a property that’s still in the old Land Registry system triggers an obligation to “migrate” (move) legal title to the new Land Titles system. The process of migrating legal title can be time consuming; if title to the property needs to be migrated, realtors and their clients should consider this when setting a closing date. The process to migrate title is:

• The buyer’s lawyer conducts the title search.
• Once the buyer’s lawyer completes the title search, they submit to Service New Brunswick a “PID Databank Application” describing the property by either metes and bounds or as a lot on a plan.
• Once Service New Brunswick approves the application, the buyer’s lawyer prepares an Application for First Registration of Title (an “AFR”), describing all of the ownership interests and encumbrances. The AFR is then sent to the seller’s lawyer for review by the seller, who confirms through an Affidavit of Applicant that the AFR contains all relevant interests. The buyer’s lawyer then submits the AFR electronically to Service New Brunswick for registration and certifies that the title is as described.
• Service New Brunswick then issues a Certificate of Registered Ownership, and the property is migrated to the new Land Titles system.

There are certain exceptions that permit a buyer to leave the property on the old Land Registry system, such as when a condominium unit is in a building that hasn’t been migrated to the Land Titles system, or when selling a Land Registry property by deed for less than $5,000.00.

7. What happens when the title search reveals that there’s something affecting the title to the property?

Sometimes the title search reveals that there are other interests registered on the title to the property. Common examples include an encumbrance, like a right-of-way, a lien, or an undischarged mortgage. The impact on the title to the property varies greatly depending on the circumstances. Certain encumbrances, such as utility easements, are unavoidable and of little concern, but the lawyer will still need to confirm that the buyer is satisfied with the title they’re purchasing. Other encumbrances, like liens and undischarged mortgages, are of much greater concern and must be addressed, which can slow a transaction down.

When listing property that’s still on the Land Registry system, a realtor can better prepare their clients by encouraging them to prepare a list of every interest in the property they are aware of.

8. What’s the role of title insurance?

Title Insurance is an agreement to indemnify: it insures against a future loss caused by a covered defect that’s present as of the date the policy is issued. Title insurance is different from “Property Insurance”, which insures against a future event, like a fire.

If a client is purchasing property with financing, the lender will require either a survey of the property or the purchase of a title insurance policy. Title insurance is less costly than obtaining a survey and covers defects that would have been discovered if a survey had been conducted. Furthermore, title insurance addresses many other searches such as zoning compliance, building inspection, encroachments, water and sewer, and access. If, at some time after the buyer purchases property, it’s discovered the title to that property has a defect that the title insurance policy covers, title insurance insures against the risk the owner will suffer a loss as a result of that title defect.

There’s no annual premium for title insurance; a single premium is paid when the policy is issued and it remains in effect until the property is transferred. Each title insurance policy is unique to the property that’s insured, but title insurance doesn’t cover everything; there are certain exceptions, such as environmental risks, that title insurance won’t cover. Buyers will need to decide whether to undertake the more significant cost of a survey and other searches, or to take the lesser cost of title insurance and rely upon the indemnity if title issues arise during their ownership.

9. What documents does a lawyer need from the buyer or the seller to open a real estate file?

In addition to the need for a birth certificate, lawyers require certain documents from the parties to satisfy their professional obligations. The lawyer is obligated to know their client to prevent the misuse of legal services (such as for laundering funds or other illegal transfers). Realtors can help move transactions more efficiently by encouraging their clients to have the necessary documents ready long before the file is referred to the lawyer. The necessary documents depend on whether the lawyer’s client is an individual or a corporation.

Individual Client. If the client is an individual, the lawyer needs the individual’s:

• Full legal name.
• Full address.
• Telephone number.
• Occupation.
• Employer’s full address and telephone number.
• An original government-issued identification document such as their driver’s licence, birth certificate, or passport.

Corporate Client. If the client is a corporation, the lawyer needs the corporation’s:

• Full legal name.
• Full business address.
• Business telephone number.
• Incorporation or Business Identification number.
• Place of issuance of their Incorporation or Business Identification number.
• The type of business they conduct.
• The designated authorized individual with signing authority on behalf of the corporation, and that individual’s full name, position, full address and telephone number, and an original government-issued identification document such as driver’s licence, birth certificate or passport.
• The names and occupations of all its registered directors.
• The names, addresses and occupations of any and all its owners and shareholders who hold a 25% interest or more in it (or its shares).
• Original identifying documentation, such as its Certificate of Corporate Status, Annual Filings, Partnership Agreement, Trust Agreement, or Articles of Association.

10. Are there legal differences between a residential and a commercial real estate deal?

Yes. In addition to the fact that a commercial real estate deal is typically much larger both in price and in complexity, the legal considerations in a commercial real estate transaction are also different and typically more complex than the legal considerations in a residential real estate transaction.

Please contact your McInnes Cooper lawyer or any member of our Real Estate Team @ McInnes Cooper to discuss how we can help you with your real estate transaction.

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