Navigating Work Orders in Real Estate Transactions: A Guide for Buyers and Sellers in Toronto
When buying or selling real estate in Toronto, one of the common hurdles that both parties may encounter is dealing with work orders. These work orders, typically issued by municipalities, outline required repairs or modifications to a property to comply with local building codes or safety standards. Understanding how to navigate these work orders is crucial to ensuring a smooth transaction.
What is a Work Order?
A work order is an official document issued by a municipal authority, such as the City of Toronto, indicating that certain work must be completed on a property to address issues like safety hazards, code violations, or unauthorized construction. These orders can stem from various inspections, including building, electrical, plumbing, or fire safety.
The Implications of Work Orders in Real Estate Transactions
For Sellers:
Sellers are generally required to disclose any outstanding work orders to potential buyers. Depending on the circumstances, failing to do so may complicate the sale process and may result in liability of the seller that can extend beyond the closing date.
Sellers must decide whether to complete the required work before listing the property or to disclose the work order and negotiate with the buyer on how to address it. Some buyers may request a reduction in the purchase price or ask the seller to resolve the issues before closing.
For Buyers:
Buyers should conduct thorough due diligence to identify any outstanding work orders on the property. This can be done by requesting a property compliance report from the municipality. A title insurance policy is often an invaluable protection for buyers, and for buyers in Ontario this is the most common method of protecting against a work order that exists on closing but has not been discovered by the buyer.
Buyers should negotiate with the seller on how to handle any outstanding work orders. Options include asking the seller to complete the work, agreeing to a price reduction, or taking on the responsibility of addressing the work order post-closing.
Steps to Handle Work Orders
1. Identify Outstanding Work Orders
Both buyers and sellers should start by identifying any outstanding work orders. Sellers can obtain this information from the local municipality, while buyers can request it as part of their due diligence process.
2. Understand the Scope and Cost of Work
Once a work order is identified, it's important to understand the scope of work required and estimate the associated costs. Consulting with contractors or specialists can provide a clearer picture of what needs to be done and the financial impact.
3. Negotiate Terms in the Agreement of Purchase and Sale
Include specific terms in the agreement of purchase and sale regarding how the work order will be addressed. This can include:
Seller completing the work before closing.
Price adjustment to reflect the cost of work.
Buyer assuming responsibility for the work order post-closing.
4. Obtain Legal Advice
Engaging a real estate lawyer is essential to navigate the complexities of work orders. A lawyer can help draft appropriate clauses in the agreement of purchase and sale, ensure compliance with disclosure requirements, and advise on potential legal implications.
Work orders can pose challenges in real estate transactions, but with proper due diligence and clear communication between buyers and sellers, these challenges can be effectively managed.