The Legal Side of Real Estate Deals: What a Lawyer Does for You

Buying or selling a property involves a lot more than shaking hands and signing papers. In this episode of FH&P Lawyers Law Talk, Clay Williams and associate Abu Khurana walk through what lawyers do during a real estate transaction, why the contract of purchase and sale matters more than most people realize, and what can go wrong when you sign before you fully understand what you are agreeing to.

What does a lawyer do in a real estate deal?

At FH&P Lawyers, we handle a significant volume of real estate transactions, both residential and commercial. One of the most important things we tell clients is to get us involved early. Whether you have a realtor or are doing a private deal with someone you know, having a lawyer review or draft your documents from the start protects your interests throughout the entire process.

What is the contract of purchase and sale, and who fills it out?

The contract of purchase and sale, or CPS, is the foundational legal document in any real estate transaction. It is actually a document developed jointly between lawyers and the real estate association, so it is a form that both realtors and lawyers can use.

When a realtor is involved, they typically fill out the CPS based on what the buyer is looking for and what they are trying to protect. In a private deal, there may be no realtor at all, which means someone else has to draft it. At FH&P Lawyers, we draft the CPS ourselves when needed, and we also review CPS documents that come to us already completed by a realtor.

Can a lawyer draft the contract of purchase and sale directly?

Yes. If you find a property online, want to buy from a neighbour, or are in any situation where you do not have a realtor, we can draft the contract of purchase and sale for you. The benefit of having a lawyer involved at that stage is that we can make sure your interests are protected from the beginning, including the right subject conditions, the correct offer amount, and all applicable clauses.

Why is the contract of purchase and sale so important?

The CPS is binding and covers the entire transaction. Once you sign it, there are legal obligations that fall on you. If you do not fully understand what is in that contract, you are taking on real risk. Something as small as a single word change can shift significant financial and legal responsibility from one party to the other.

Even if you trust your realtor, it is worth asking: Do you fully understand what you are signing? If subjects are removed and you are entered into a legally binding contract, you are obligated to complete. Not completing can have serious consequences.

What are subject conditions, and why do they matter?

Subject conditions are clauses in the contract that make the deal conditional upon certain things happening before it becomes fully binding. They are one of the most important protections you have as a buyer.

Common subject conditions include:

• Subject to financing - you have time to confirm that your mortgage or loan is approved before you are committed to the purchase.
• Subject to title review - a lawyer reviews the title to check for covenants, rights of way, easements, or other registered interests that may affect how you can use the property.
• Subject to property inspection - a home inspector reviews the property and flags any structural or mechanical concerns.

These conditions give you a way to back out of the deal and recover your deposit if something significant comes up. Once subjects are removed, the deal is considered firm and you are obligated to complete.

What happens if I remove subjects and then decide not to complete?

This is where things can get costly. Losing your deposit is almost certainly going to happen, and with today's real estate prices, a 5 to 10 percent deposit is a significant sum. But the seller does not have to stop there.

The seller can sue you for damages. The question the court will look at is what it took to make the seller whole again. That can include carrying costs, mortgage fees, and if the property sells later for less than your agreed purchase price, the difference in sale price. This turns into a legal battle, and it is an expensive and stressful one.

That is one of the things we do at FH&P Lawyers: we work to help collapse those disputes and negotiate something less than a full-scale lawsuit wherever possible.

What happened in a real case where subjects were removed too early?

We had a client come in after a private real estate deal where the seller had actually drafted the contract themselves. The clients came to us needing help with closing. When we reviewed the contract, we found that the only subject conditions included were financing and home inspection, and the subjects had already been removed before they came to us.

After removing subjects, they received a home inspection report full of red flags. By that point, they were asking whether they still had to go through with the purchase. Unfortunately, at that stage they may have already been exposing themselves to litigation or risking their deposit. The time to involve a lawyer is before subjects are removed, not after.

Why is title review so important?

Title review is something buyers often overlook, but it can reveal significant issues. The title to a property may have covenants, rights of way, or other registered interests that are not obvious when you are walking through the property.

For example, there may be a municipal sewer line running through the backyard where you were planning to put a swimming pool. That kind of restriction will show up on a title review. Without one, you may not find out until after you have already committed to the purchase.

Can title issues affect how you use the property?

Absolutely. We had a client who was purchasing a property with two houses on it. The title review revealed that one of the houses was designated for farm use only, meaning it could not legally be rented out for residential purposes. The seller had been renting both properties out, but that did not mean it was legally permitted.

We contacted the city on behalf of our client to get clarification. It turned out there was a letter from the 1980s in the covenant file showing the city had approved residential use, but that document was missing from the title. We were able to surface it and resolve the issue. Without a title review, this could have created significant legal and financial problems down the road.

Should I review the strata documents when buying a strata property?

Yes. When you are buying a strata unit, we review the strata documents as part of the due diligence process. There are several things you want to know:

• Is the strata involved in any litigation? If so, you are effectively buying into a lawsuit.
• What is the current budget? Is there enough set aside for future repairs?
• Are there any special levies coming up? If the strata does not have sufficient funds when something goes wrong, those costs come out of the strata owners' pockets directly.

Strata documents can tell you a lot about the financial health of the building and the community you are buying into.

Can a lawyer make changes to a contract that a realtor has already drafted?

Yes. If a realtor has drafted the CPS, we can review it and, if necessary, prepare an addendum to make additional changes or add clauses that protect our client's interests. We work alongside realtors, and we want to be clear that many realtors do excellent work protecting their clients. Having a lawyer involved is an additional layer of protection, not a replacement for what a good realtor does.

What are the three most important things to know before signing a real estate deal?

1. The contract of purchase and sale is not just a form.

It outlines your legal rights and obligations. Once it is accepted, it controls the rights, obligations, and consequences for both buyers and sellers. Small wording changes can shift significant financial and legal risk, so make sure you understand what you are signing.

2. Subject conditions are there to protect you.

They exist to give you the time and space to do your due diligence. Make sure financing, title review, and property inspection are included. Do not remove subjects until you have done the work to understand what you are buying.

3. Get us involved early.

Whether you are making an offer or have already received a drafted contract from a realtor, contact FH&P Lawyers before subjects are removed. We want to review the contract, review the risks, and make sure you fully understand what you are entering into.

Buying or selling real estate is one of the most significant transactions most people will ever make. Getting legal advice early can protect your deposit, your money, and your peace of mind. Reach out to us for a consultation, and we can help you understand your options.

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.