In Ontario, real estate deals are supposed to close by 5 p.m., since that is when the government registration system shuts down. By 5 p.m., the buyer lawyer is supposed to have sent the required paperwork and money to the seller lawyer trust account and the seller lawyer must send the required paperwork to the buyer lawyer, including the keys. What happens if someone is late?
The Ontario Real Estate Association Agreement says the deal can close until 6 p.m.
Even though the government registration system closes at 5 p.m., the contract that most buyers and sellers sign in Ontario gives everyone until 6 p.m. to close. What this means is that as long as the buyer and seller lawyers have sent the items noted above, especially the closing funds and keys, before 6 p.m., then the deal can close in escrow, according to the document registration agreement signed by the buyer and seller lawyer as detailed in the OREA purchase agreement.
What does closing in escrow mean?
This means that while the closing documents will be registered the next business day, the buyer can immediately be given the keys and the closing funds will be released to the seller, all according to the Document Registration agreement.
What happens if the property is damaged or a lien registered before the title is changed the next day?
The buyer’s insurance will have to pay for any damage and title insurance will protect any buyer from any “surprise” liens that may be registered prior to actual registration. This is one of the reasons lawyers always recommend title insurance.
What happens if the money is not delivered before 6 p.m?
This happens more than you think, especially when documents are sent by courier and run into traffic or weather issues. If the buyer lawyer does not make sure that the seller lawyer has the closing funds before 6 p.m. on the closing day, the seller may be able to cancel the deal. This can be very painful, especially when the seller lawyer needs these funds to close another deal for the seller who is buying that same day.
This is even worse if this happens on a Friday of a long weekend, as the buyer will have to stay at a hotel at their expense over the weekend and their belongings may need to be put into storage. In addition, the seller may demand extra compensation before they will even agree to extend.
Lesson: More and more law firms are recognizing that it makes much more sense to just electronically transfer funds from buyer to seller lawyer trust accounts, usually using a wire transfer, to avoid these problems from arising in the first place. The money transfer occurs immediately and the deals can close much more quickly and efficiently, especially when someone is buying and selling on the same day.
This also permits a firm to close deals on time even if the buyer lender is late in transferring funds to the lawyer trust account. To make this easier, always insert in your agreements that the balance due on closing is to be paid only by wire transfer, using the Large Value Transfer System.
As for the keys, at our firm we have our sellers leave the keys in our own company lockbox so that the code can immediately be given to the buyer lawyer at closing, to avoid any issues with the courier.
Mark Weisleder is a senior partner, author and speaker at the law firm Real Estate Lawyers.ca LLP. Contact him at firstname.lastname@example.org or toll free at 1-888-876-5529