LEGAL INFORMATION
The following is a selection of links for legal information related to the purchase and selling of real estate.
Buying & Closing Costs
Legal Costs
Legal costs for a purchase with a mortgage usually range from $750 - $1000 regardless of whether the buyer retains the services of a Lawyer or Notary Public. It is important for the buyer to understand what is or is not included in a quote and what might be added as additional charges. Costs that are usually included in a quote are professional fees, land title search and registration fees and miscellaneous office disbursements. GST and PST are usually added to fees and disbursements as with other services and products.
Third-Party Closing Costs
These costs are usually quoted separately from “Legal Costs” as they vary from one transaction to another. For example, the lawyer or notary will need to obtain a Municipal tax certificate, the cost of which varies from $25 to $50 depending on the municipality. Similarly the lawyer or notary will obtain an insurance binder showing loss payable to the lender, the cost of which varies but usually ranges from $25 to $35. Finally, for strata title property, the lawyer or notary will require a Form F stating there are no arrears in maintenance fees, the cost of which varies but usually ranges from $25 to $35. The Strata Corporation may also charge a “Move-In” fee which usually ranges from $50 to $200.
Many lenders will require the lawyer or notary to obtain on behalf of the buyer a Survey Certificate, Title Insurance or Western Law Societies Conveyancing Protocol. A Survey Certificate is used by the lender to ensure that the buildings on the property do not encroach on adjoining property or into “set backs”. If a Survey Certificate is not available lenders may accept Title Insurance or the Western Law Societies Conveyancing Protocol. Title Insurance and Western Law Societies Conveyancing Protocol provide insurance to protect the lender from any encroachments that would have been identified by a survey certificate. Title Insurance has some additional coverage that may be important to a buyer. The cost for a new Survey Certificate or Title Insurance for mortgages less than $500,000 usually ranges from $200 to $250. In the event of a subsequent refinancing an owner may need to buy a new Title Insurance policy. Most law firms will charge only a nominal fee for the Western Law Societies Conveyancing Protocol. It is important to review with your lawyer or notary the appropriateness of each product to your situation.
Closing Adjustments
Closing adjustments cover a number of items including municipal
taxes, municipal water and sewer fees, strata maintenance fees,
rent and security deposits.
Strata fees are charged and paid monthly on the first day of each
month. The monthly strata fees will be pro rated between the buyer
and the seller, with the buyer reimbursing the seller based on the
number of days between the date of adjustments agreed to in the
Contract of Purchase and Sale and the last day of the month.
Rent is adjusted on a similar basis with the buyer receiving a
credit for a portion of the rent. In the case of a continuing
tenancy, the buyer will receive a credit for the security deposit
with accrued interest as the buyer will be responsible for
reimbursing the correct amount when the tenant vacates at a later
date.
Municipal property taxes will also be adjusted. Property taxes are
based on a calendar year. Some municipalities such as Vancouver
provide for an advance payment in February with the balance due
and owing usually at the beginning of July. Other municipalities
do not have an advance tax payment but the full years taxes are
payable usually at the beginning of July.
The adjustment between buyer and seller will therefore vary
depending on the time of year of closing of the transaction and
the municipality in which the property is located. The tax
adjustment is one of the more complicated adjustments to
understand but it is based on the parties being responsible for
any costs associated with the property only for the period of time
in which they are in possession.
These adjustments are set out in a document normally referred to
as the Statement of Adjustments. The Statement of Adjustments sets
out the buyers total costs and identifies the sources of funds to
pay these costs. The sources of funds will include the initial
down payments pursuant to the Contract of Purchase and Sale, the
Mortgage proceeds, any credits in terms of rent, tax or other
adjustments. The final line item on the Statement of Adjustments
will identify the amount of money required to complete the
transaction. The balance required to complete will need to be
delivered by certified cheque or bank draft payable in trust to
the lawyer or notary firm.
The Closing Process
To help alleviate the stress of buying it is important to
understand the closing process step by step:
Step 1
Retain the services of a lawyer or notary. You should retain your
lawyer or notary as soon as you have an accepted Contract of
Purchase and Sale and have removed all subjects. Ask your other
professional advisors for a referral.
Step 2
Your lawyer or notary will need to gather information from you
including how you wish to hold title to the property if you are
buying with your spouse or partner. Don’t hesitate to contact your
lawyer or notary if you have not heard from them at least 3 – 4
weeks before the closing. Most couples hold title as “joint
tenants” which conceptually means that the couple jointly owns a
100% as opposed to “tenants-in-common” which means that the couple
each owns 50%.
Step 3
Your lawyer or notary conducts a title search and obtains tax
information and any additional information necessary to prepare
Statement of Adjustments. If you are taking a more your lawyer or
notary will need to obtain and insurance binder with “loss
payable” to your lender.
Step 4
Your lawyer or notary prepares closing documents including title
transfer, mortgage, property transfer tax forms and Statement of
Adjustments. Your lawyer or notary will forward the seller’s
closing documents to the seller’s lawyer or notary for execution.
Step 5
1 - 3 days before closing is when you usually meet with your
lawyer or notary to sign documents and deliver the balance of the
down payment or equity. the balance of funds will need to be paid
to your lawyer or notary by certified cheque, bank draft or
inter-bank transfer. If your funds are invested ensure that they
will be available for deposit in advance of closing.
Step 6
Your lawyer or notary will register the transfer and mortgage
documents, arrange for the seller’s lawyer or notary to pick up
funds and notify you that the purchase has completed.
Step 7
Normally you receive the house keys directly from your realtor on
the Possession Date as set out in the Contract of Purchase and
Sale.
Step 8
Move in and enjoy your new home!
Property Transfer Tax
The Property Transfer Tax is a tax payable to the Provincial
Government by purchasers of real estate. The tax applies to all
types of real estate, whether residential, commercial or
industrial.
The amount of the Property Transfer Tax is 1% on the first
$200,000.00 of the property's fair market value and 2% on the
remaining fair market value.
For example, if the fair market value of the property is
$200,000.00, the tax payable would be $2,000.00 (1% of
$200,000.00). If the fair market value of the property is
$250,000.00, the tax payable would be $3,000.00 (1% on the first
$200,000.00 = $2,000.00 and 2% on the remaining $50,000.00 =
$1,000.00).
"Fair Market Value" is best described as the price that would be
paid for a property on the open market (which is usually the
actual purchase price paid for the property). If the transfer of
property is taking place without the exchange of money, the fair
market value must be the fair value of the property if same was
sold on the open market. In some situations, the fair market value
is determined by the recent Assessment received from the
Assessment Office.
There are a number of exemptions available to purchasers so that
the tax is not payable. The most common is the exemption for
"First Time Home Buyers". To qualify for an exemption to the
Property Purchase Tax as a First Time Home Buyer, the following
criteria must be met:
• Purchaser must never have owned an interest in a principal
residence anywhere in the world at any time;
• Purchaser must be a citizen of or a permanent resident of
Canada and have resided in B.C. for at least one year prior to the
purchase or have filed two income tax returns as a British
Columbia resident within the last 6 years;
• To obtain full exemption, the purchase price must not exceed
$425,000.00. A partial exemption is available for homes between
$425,000.00 and $450,000.00 (see formula below);
• Purchaser must move into the property within ninety-two days
after registration of the purchase of the property and reside in
the property for at least one year;
• Pro rata exemption where property exceeds .5 hectares or a
portion of the property is not residential (i.e. commercial lofts)
- purchase price of entire property must not exceed the price
limitations.
To calculate the amount of tax payable on homes between $425,000.00 and $450,000.00, use the following formula:
Amount of PTT X ($450,000.00 - Purchase Price)
$25,000.00
For example, assume a house is being purchased for $445,000.00.
Normal Property Transfer Tax would be $6,900.00 (i.e. 1% on the
first $200,000.00 and 2% on remainder). Using the formula:
$6,900.00 X ($450,000.00 - $445,000.00)
$25,000.00
= $1,380.00
Subtract $1,380.00 from $6,900.00 leaving $5,520.00
as the amount owing for the Property Transfer Tax.
Other exemptions exist as well, such as a transfer of a principal
residence between family members. For details on this and other
exemptions, go to http://www.rev.gov.bc.ca/RPT/
and pick the "Property Transfer Tax" button located on the right
hand side on this screen.
Property Transfer Tax should not be confused with Property Tax.
The Property Transfer Tax is a onetime tax paid to the Provincial
Government by purchasers of real estate. The Property Tax is the
tax paid on an annual basis to the local City/Municipality.
Please remember that the Property Transfer Tax Act may frequently
change along with the exemptions for payment of this Tax.
Non-Resdient Buyers
Welcome to British Columbia. Non-residents can own property in
British Columbia but there are some important considerations.
Mortgage qualifications in Canada are different for non-resident
buyers than for Resident Buyers. Non-resident buyers should
consult with a lender or mortgage broker to understand the
qualifications for a non-resident buyer. Non-resident buyers will
need to open a Canadian bank account and will need to do so in
person with identification acceptable to the lender.
Non-resident buyers do not need to be present in B.C. to execute
closing documents. A number of lawyer and notary firms, including
Bell Alliance, utilize technology to streamline the closing
process for non-resident buyers. Documents can be forwarded
electronically and executed in front of a lawyer or notary in most
foreign jurisdictions. It is important to make arrangements for
the transfer of monies well in advance of closing.
Non-Resident Buyers should also consult with a Canadian tax
professional to discuss tax treatment both during the period of
property ownership and on disposition. A non-resident owner of
rental property will be subject to a 25% withholding of taxes on
the gross rental income. Administrative rules require that the
owner or agent remit these amounts to the Canada Revenue Agency.
An non-resident owner may file a special form to have the
withholding taxes reduced which essentially treats the
non-resident as a resident with respect to the rental income. This
form needs to be filed before January 1st of each year. For
further information please refer to the Guide for Electing Under
Section 216.
First-Time Buyers
Congratulations, you have made the decision to buy your first
home. We want to help make the process as easy and understandable
as possible. We’ve included on this page some information that is
of particular importance to First Time Buyers.
My number one recommendation to First Time Buyers is to make sure
you create your team of professional advisors including your
realtor, mortgage broker, lender and lawyer or notary.
First Time Buyers are usually looking for answers to the following
questions:
• Do I qualify for an exemption under the provincial Property
Transfer Tax?
• Can I take money out of my RRSP under the federal Home Buyers’
Plan?
• What are my Closing Costs and adjustments going to be?
• I’m buying a new condo, can I claim a GST rebate?
• I have a binding Contract of Purchase and Sale and been approved
for a mortgage, what is the process when dealing with a lawyer or
notary?
Home Buyer's Plan
The Home Buyers’ Plan is available to “first time buyers”. Unlike the Property Transfer Act, a purchaser can qualify as a “first time buyer” more than once if they or their spouse have not owned a principal residence for approximately four years. The Home Buyer’s Program allows a first time buyer to withdraw up to $20,000 without paying tax on the withdrawn amount. The home being purchased must be a principal residence, can be existing or being built and the RRSP must be repaid within 15 years with minimum payments of 1/15th of the withdraw amount.