Sherry-Ann McGregor, Contributor

MCGREGOR

Real estate transactions vary in complexity, and there are several steps which must be taken before a purchaser can take possession of his newly-acquired property. It could take several months from the date on which an agreement for sale is signed until the keys to the property are delivered to the purchaser.

Have you ever wondered what would happen if the property is damaged while the sale is pending and who would be required to absorb the losses?

Losses

It is commonly accepted that the owner of property will, subject to any policy of insurance, absorb losses which result from damage to his property. However, this is not so in all cases, because the fact that one person is the owner of a property does not mean that he bears the risk of damage to it.

In a typical real estate transaction, the purchaser will sign an agreement, make a deposit and further payments, but will only become the legal owner of land when his name is registered on the title. Generally, the moment an agreement for sale is signed, the risk of accident or damage to the property, which will normally rest on the owner of property, will pass to the purchaser.

Sale agreement

In other words, if an agreement for sale is signed, and then a hurricane damage, the property, the purchaser will have no choice but to complete the sale and assume the burden of repairing the property. This may sound unfair, since he is not yet the legal owner.

This situation could become more complicated if the vendor had a policy of insurance on the property at the time it was damaged. As the vendor would still be the legal owner, he would have the right to recover the proceeds of that policy of insurance. In that scenario, the purchaser would have no right to claim the amount payable under the insurance policy from the insurance company or from the vendor.

What should a purchaser do?

One approach would be to insure the property in his own name immediately upon signing an agreement for sale, since he automatically assumes the risk of accidents even before he becomes the legal owner of the property. Alternatively, the purchaser could ask the vendor to note his interest on the policy of insurance.

Special condition

The third, and more practical approach, would be to insert a special condition in the agreement for sale stating that "the premises shall remain at the risk of the vendor up to the time of completion or possession, whichever is earlier." In this way, the purchaser can avoid the additional expense of insuring the property before he becomes the legal owner.

There are many persons who believe that real estate transactions are simple and that they can proceed without the assistance of an attorney-at-law. They often contend that agreements for sale are standard form contracts, and only the names of the parties, description of the property and the value of the transaction vary. The topic of this article provides one example of cases in which one would be well-advised to get sound legal advice when contemplating a real estate transaction.

Sherry-Ann McGregor is a partner and mediator with the firm Nunes, Scholefield, DeLeon & Co. Send feedback and questions to lawsofeve@yahoo.com.