WE'VE MOVED! FH&P HAS RELOCATED TO LANDMARK 4 (400 – 1628 DICKSON AVE).
March 26, 2024 by Clay Williams, Tanvir Gill
Clay: Welcome to another edition of the FH&P Lawyers Law Talk Podcast!
I'm Clay Williams and I'm a partner at FH&P Lawyers, and with me as per usual is our associate Tanvir Gill. So we are trying something new today, we are in the Podcast Studio of Twin Creek Media and we're trying a video podcast! For those of our listeners who have been following us, we've done quite a few episodes on audio and it's really changed over time, but this time is a big change: it's video!
Tanvir: So Clay's been pushing for video for a long time because he likes to look at himself versus I'm a little nervous about videos.
Clay: Well, now our listeners can look at me, too. Yeah. So there's nothing wrong with that.
Tanvir: It's not as easy. We can't hit cut as much, so you have to be on it.
Clay: The edits are very different. So on an audio podcast, it's very easy to edit and in a video podcast like this, you've gotta be better.
Tanvir: That means you can't make as many mistakes as you make when we do audio.
Clay: Oh cut! Start again. I don't like that.
Clay: We've got an interesting topical topic today.
So for those of you who don't know, we are located in Kelowna, British Columbia, and we have just been through the worst fire season that we've had,
Tanvir: After 20 years or something.
Clay: Yeah, you know we've had big fires in Kelowna before. Especially in 2003, but this is the worst since then. And So there were something like 189 structures lost in Kelowna and in the surrounding areas to the Shushwap got hit.
And so we thought we'd talk about how that affects the real estate. Buying and selling houses. You know, how does that affect it?
First of all, I think we should start with some basics and the fact that
“All real estate contracts are done on a standard form contract.”
Tanvir: All those standard form contracts will cover something called risk. So, if anything happens to a property up to the day of completion, the standard form clause will say that the property is to the risk of the seller. So, you know, fires happen in summer, that's the busiest fire season and that's also coincidentally the busiest real estate season. So, when the fires here were getting bad and in that first couple of days, we had tons of calls from realtors and clients freaking out about what was going to happen to their deals.
Tanvir: And it just depends. So you know there are 189 homes that were completely lost. So one of the questions was what happens if my house completely burns down before I'm able to complete my sale or complete my purchase?
Clay: And that's probably the easiest one to answer, isn't it?
Tanvir: If you have a complete loss, like a fire comes through and flattens the property, that's typically a frustrated contract.
There are things that won't frustrate a contract. We've had people try to threaten that they won't close on the day of closing because the property's dirty or it wasn't professionally cleaned. Those aren't items that would frustrate a contract like completely burning down and losing the home.
Clay: Burning down a home is the classic. You need to deliver the bulk in the contract.
Tanvir: Yeah, the item itself is gone, so the contract's frustrated and the deal is essentially dead.
Clay: Now, it gets more interesting when there's not the entire property burned off. If there's something like a flood in the basement or something like that. But losing your home, that's an easy one.
Clay: But the whole real estate buying and selling market, especially on the west side where the fires were, was disrupted, and it's still disrupted. Even though the fires aren't raging anymore, The fires are held but they're not out. And so, why don't you explain why the the real estate market has been so disruptive?
Tanvir: It's insurance. So when you have a house that you're looking to buy, let's say you're getting a mortgage. Even if you're not getting a mortgage, you generally want fire insurance over the property. And so, when there's an active burn happening within a set number of kilometres from the property, and it's typically twenty-five kilometres, insurance won't actually bind the policy.
So if you went to go get insurance just a couple of days before and there was no fire, you might have got lucky and they did your policy. They've underwritten it. Binded it, and you're good to go because we definitely had deals that continued to close.
But then there were those people that were a little slower to hit their insurance companies to go talk about insurance. At that time, the fire had already been actively burning, and the insurance companies will not provide you with insurance.
Clay: So you have to get fire insurance. It's a prerequisite for the mortgage company to advance funds.
Tanvir: So if you're getting a mortgage, you need insurance. Fire insurance, for sure. The mortgage will tell you what type of insurance to get; and what the requirements have to be of that policy. We have people who want to close; no mortgage, with cash, and they don't care for insurance whether it's something like a bare lot where they think they don't need it or it's a house; they're just buying with cash and they say “Don't worry about it, we're outside of the fire range, we'll get insurance down the road”. So we've seen those as well. That's up to you to do; that’s at your risk.
But when you're getting a mortgage and if they're not underwriting and binding that policy…
Clay: You've got no money to complete the deal. And so what's happened is that because we have had this experience in the past of houses burning down, most real estate contracts now have a clause written in, and it's called wildfire and flood.
Tanvir: I think it's called a force majeure, so what it'll say is that if either party, despite their best efforts [you have to use your best efforts, you can't just throw your hands up and say I'm not going to do anything] but despite your best efforts, if you're not able to close because of something out of your control like a wildfire or a flood [it says acts of god and everything that would encompass something that you can’t control] and you're not able to complete, then it will say that you're going to provide notice to the other side within a reasonable time.
It's usually two to three days before completion. And then you're going to extend for a certain period of time to allow you to get whatever it is you need to get done. So with the fires, it'll say you can extend for a period of time. If there's a fire within 25, even 100 kilometres now, we're seeing clauses done up that way; and then it it gives you time to close once the fires are either you controlled out or you're able to get your insurance.
Clay: Yeah get insurance, and meet the terms of your mortgage commitment and then get the funds to close.
So there are some weird things about that that we've seen lately, and one of those is there's no central repository that says that all insurance companies are no longer binding insurance within 25 kilometres.
Tanvir: But we generally know that they won't because they're all using underwriters who have their own policies. And most of those policies are around burning; whether it's held or whatever doesn't matter. As long as there's a fire that isn't completely out, within 25 kilometres, they're not going to bind it.
So it's not a Capri policy or a Westland policy or Johnson Meyer. It's the underwriters and the companies that they're using to underwrite their policies who are making these rules.
Clay: But it's not clear to me that the rules are the same amongst underwriters, and I think it depends. I don't know what your practice is. Do you ask a buyer to go to different insurance companies and ask, or is one enough?
Tanvir: I can't remember what I did for the last one.
Clay: I think we've accepted, basically.
Tanvir: I've had clients be able to get insurance surprisingly enough by going down to like Abbotsford or Surrey. And using different companies down there who had accessibility to underwriters that, you know, we just didn't.
Clay: That maybe didn't know about the fires.
Tanvir: I don't honestly know what they did but we've seen it done. It's rare. Usually, who's available to Johnson Meyer and Capri is it's available to all of them. They're usually underwriting with similar companies, I would say. There's no set policy but it's generally what we see.
Clay: I guess I would like to see the insurance companies coming together and saying, okay, there's a forest fire, and so we're not going to be buying new policies within this many kilometres and for this long.
The other thing I'm not sure about is when they start binding again. And I've heard this is when the fire is held. When it's contained. When it's out.
Tanvir: I remember a few years ago, I used to have to go on the website that tracks fires and take screenshots of the outlay of where the fire was and whether it was active or controlled and send that to the insurance companies and be like, “Look! you can bind this now”.
But some of them don't agree to that anymore. They want it completely out, which is very hard.
Clay: So the clause is designed to keep the deal kind of together and give the purchaser a chance to get their money and it doesn't go forever, but it does give you the chance to get the insurance to keep the deal together.
Clay: I do want to talk a little bit about what happens if you're a seller. Very often, you're selling your house, and you are buying a new place, and so if you get a notice from the purchasers that they're extending it for 30 days, that could bring your next deal into issue. You could be breaching your contract; you could be liable for damages. Could lose the place.
The human effect on this has been quite dramatic, too.
Tanvir: I think I'm pretty proud of our Okanagan realtors because generally when it comes to March, April, May, June, July, August, September, they're always putting in the force majeure. It's very rare to have realtors that aren't considering the risk of fire, if they're from here.
Clay: It's been a really real thing for us in Kelowna.
Tanvir: What sometimes gets missed is looking down the road and having these domino effect deals where, if you have other contracts that are involved. So your client is selling and then buying, making sure that you're looping those deals together. So, if anything happens on the sale, you're covered on the purchase end.
Clay: Anything else to say?
Tanvir: Were you impacted by the wildfire?
Clay: No, where we lived actually was an area that was affected in 2003. So actually, I felt pretty safe because after 2003 with the mission fires, they did a lot to control, you know, all the excess fuel and that type of thing. So no we weren't affected other than the smoke.
So you know, I do ride my bike a lot…
Tanvir: I think I saw something that said the smoke quality was so bad that if you were outside actively or even if you were just out too much, it would put particles in your bloodstream. That's how bad it got.
Clay: Really?
Tanvir: Yeah.
Clay: Oh wow. So I've avoided smoking all these years but still got the effect.
Alright, so in any event until next time. I hope you enjoyed our experiment with video podcasting.
Questions? We're ready to help. Please contact Clay Williams or Tanvir Gill, or any of the team at FH&P Lawyers.
Disclaimer: This material is provided for informational purposes only and should not be construed as legal advice on any subject matter. Consult with a qualified lawyer for advice on specific legal issues.