November 3rd - 2011

Reaching an agreement: Learn the essentials of the APS

One of the most important forms used in real estate on a regular basis is the Agreement of Purchase and Sale (APS).

One of the most important forms used in real estate on a regular basis is the Agreement of Purchase and Sale (APS).

An APS is a written contract that allows real property and title to pass from seller to buyer once an agreed-upon price is paid and other contract terms are mutually satisfied.

“Everything comes together in the APS after all the hard work is done,” says Lou Radomsky, a real estate lawyer and instructor for the Ontario Real Estate Association. “This document ultimately sets the rules by which the real estate transaction proceeds to completion.”

Certain basic requirements are imposed by the common law of contract in order for any agreement -- including an APS -- to be valid and enforceable. These elements include offer and acceptance, capacity, lawful purpose, valuable consideration, certainty, and a meeting of the minds. The Statute of Frauds also contains requirements for documents that deal with conveyances of real property. In addition, provisions that affect the APS can be found in the Real Estate and Business Brokers Act, 2002 (REBBA 2002) and its regulations.

If questions or disputes arise between the parties about the validity or enforceability of an APS as a result of the absence of these basic requirements or for any other reason, the parties’ lawyers should be contacted.

When drafting an APS, ensure that the result is a clear, well-written agreement that accurately reflects client or customer instructions and best interests as well as the intentions of the parties, advises Radomsky, who teaches the OREA course titled APS: Make Me an Offer You Can Refuse.

Even one incorrect word can cause a transaction to fall apart, he cautions. When teaching the course, he relays the story of a phone call he received from a member who encountered a problem. A clause in the APS was conditional on obtaining a satisfactory home inspection report.

“The wording was such that if the report revealed deficiencies which the buyers were unwilling to accept or which the seller was unable or unwilling to remedy, then the transaction was over.” In this case, the buyers discovered some deficiencies which the seller was prepared to remedy. However, the buyers’ lawyer advised them that they were no longer obligated to accept the seller’s offer to remedy because of the clause wording. The issue hinged on the use of the word ‘or’ instead of the word ‘and’. “As a result, the buyers could’ve backed out of the contract.”

The member who called Radomsky claimed that OREA’s standard clause was flawed. However, the clause in that document was created elsewhere and it was not an OREA standard clause, although the wording was similar. “As soon as I heard it, I knew that it was not our clause,” he says. “The wording in all of our forms and clauses undergoes a stringent system of review and revision to ensure clarity.” 

Radomsky describes the OREA standard form APS as “a work in progress” that is constantly scrutinized.  The association has a standard forms committee that reviews the wording on this and other forms and clauses to ensure they are current and relevant, he says.

Radomsky feels that many members are becoming more skilled at drafting agreements, but problems can occur when they re-use a clause from a previous document or create their own.

“We provide REALTORS® with access to many quality standard forms and clauses,” he says. “These resources can help them to avoid problems and feel confident that their documents are clear and accurate.”
As a caution, remember that each transaction is unique and the provisions in the forms and standard clauses may not address the circumstances in every deal. Take care to ensure that the forms and any clauses used are appropriate to address the needs of the parties and the requirements and idiosyncrasies specific to each deal.

The member must also ensure that buyers and sellers understand all of their rights and obligations under the agreement. These duties are vital to complying with sections 4 and 5 of the REBBA 2002 Code of Ethics (Best Interests and Conscientious and Competent Service, Etc.) as well as with common law fiduciary responsibilities.

As well, members should always encourage consumers to consult an expert such as a lawyer, insurance broker or home inspector for matters outside of their expertise or lawful authority. In fact, this is required by section 8 of the REBBA 2002 Code of Ethics.

“When all is said and done, the APS gives the buyer the right to a good title to the property and the seller the right to a certain sum of money – subject to the specific provisions within the form,” Radomsky says. “Although there are provisions in the APS that are standard to all transactions, each clause or section has a significant role to play in every case.”

To learn more about the APS, check out the many OREApedia items on the APS, including: APS – Contract Essentials; Offers/APS -- Parties, Signatures and Property Descriptions; and Offers/APS – Conditions. For answers to common questions on the APS, also look in Legal Forum under the topics of Buying Properties, Offers, and Selling Properties.
 

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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