Agreement of Purchase and Sale

An agreement of purchase and sale (APS) is the primary contract in a real estate transaction in Ontario. It is a legally binding document that, when accepted and signed by both buyer and seller, governs the sale and purchase of real property from offer through to closing.

In Ontario, residential real estate transactions typically use the standard form APS developed by the Ontario Real Estate Association (OREA). While OREA forms are widely used, they are not mandatory — lawyers can draft custom purchase agreements, and commercial real estate transactions routinely use non-standard forms.

Once an offer is accepted (when the seller signs back an offer without changes, or when a series of counter-offers results in both parties signing on identical terms), a binding APS exists. A conditional APS is binding but subject to conditions that must be satisfied before the transaction becomes firm.

The APS is the document that defines the transaction from a legal perspective. Every significant aspect of the deal — price, deposit, conditions, chattels and fixtures, representations, closing date — is captured in the APS and its schedules.

A standard Ontario residential APS includes:

Purchase price: The agreed price. In a competitive offer situation, the price may be above asking. In a buyer's market, below.

Deposit: The initial amount the buyer pays upon acceptance of the offer, typically held in trust by the seller's real estate brokerage. The deposit is usually 5% of the purchase price but is negotiable. If the buyer fails to close without a lawful basis, the deposit may be forfeited.

Conditions: Common conditions (discussed further below) include: - Financing condition: the buyer has a specified period (typically 3–5 business days) to obtain mortgage financing - Home inspection condition: the buyer can inspect and approve the property - Status certificate condition (for condos): the buyer reviews the condominium corporation's status certificate - Sale of buyer's existing property condition

Closing date: The date on which legal title transfers and the buyer receives possession. Also called the 'completion date.'

Chattels and fixtures: The APS specifies what is included (appliances, light fixtures, window coverings) and excluded from the sale.

Representations: Sellers make representations about the property — typically limited to known latent defects, urea formaldehyde insulation, and certain other matters specified in the OREA form. These are not as extensive as representations in a commercial business sale.

Irrevocability: An offer specifies how long it is open for acceptance. Once the irrevocability period expires, the offer can no longer be accepted.

Conditions are one of the most important features of an Ontario APS. A conditional offer is binding but not final — the buyer (or seller) has a specified period to satisfy certain conditions. If the condition is satisfied or waived, the transaction becomes 'firm.' If the condition is not satisfied and not waived within the specified time, the agreement is terminated and the deposit is returned.

Financing condition: The buyer is given a specified number of business days to obtain satisfactory mortgage financing. If financing cannot be obtained on acceptable terms, the buyer can exercise the condition to terminate the agreement. In hot real estate markets, buyers sometimes waive financing conditions to make their offer more competitive — at the risk of losing their deposit if they cannot close.

Home inspection condition: The buyer retains a home inspector to examine the property. If the inspection reveals deficiencies the buyer considers unacceptable, they can terminate the agreement. Like financing conditions, home inspection conditions are sometimes waived in competitive markets.

Status certificate condition: Required for condo purchases. The buyer has 10 days after receiving the status certificate to review it (or have a lawyer review it). If the certificate reveals serious issues with the condominium corporation's finances, reserve fund, pending litigation, or special assessments, the buyer can terminate.

Waiving conditions: Conditions are typically exercised by providing written notice to the other party's agent or lawyer within the specified time. Failing to exercise the condition within the time (by waiving it or by providing notice of satisfaction) is generally treated as the condition being deemed fulfilled.

Firm offer: An offer with no conditions, or an offer where all conditions have been satisfied or waived, is 'firm.' Both parties are legally bound to complete the transaction. Failure to close by the closing date without a lawful basis can result in significant legal liability.

If the buyer fails to close (complete the transaction) on the closing date without a lawful basis:

• The deposit is typically forfeited to the seller
• The seller can sue the buyer for damages beyond the deposit — including costs of re-listing, a lower eventual sale price, carrying costs during the period the property is unsold, legal fees, and other provable losses
• In extreme cases, the seller may seek an order for specific performance requiring the buyer to complete the purchase, though this is rare

If the seller fails to close (for example, by refusing to transfer title or by failing to have the property in the required condition):

• The buyer can sue for specific performance — an order requiring the seller to complete the transfer
• The buyer can sue for damages — including the cost of alternative housing, professional fees, and other provable losses
• The buyer's deposit is returned

Under Ontario's Real Estate and Business Brokers Act, 2002, failure to close can also have regulatory consequences for licensed agents involved in the transaction.

The requisition date is an important deadline in the APS — the buyer must submit any title requisitions (objections to title) by that date. Failure to submit requisitions by the requisition date may preclude the buyer from raising certain title issues as a basis for not closing.

Commercial real estate transactions in Ontario typically use custom-drafted purchase and sale agreements rather than OREA standard forms. Key differences:

More extensive due diligence conditions: Commercial buyers conduct detailed environmental, zoning, planning, and financial due diligence. The commercial APS includes conditions for each due diligence workstream.

Environmental representations and indemnities: Sellers of commercial property typically make representations about the environmental condition of the property and provide indemnification for pre-closing contamination.

Title and zoning compliance: Commercial APS deals often include representations about compliance with zoning, building permits, and development charges.

Assignment provisions: Commercial buyers (developers, investors) often want the right to assign the APS to a related entity before closing, which is less common in residential transactions.

Deposit structure: Commercial deposits are often larger (10–20% of purchase price) and may be released to the seller before closing once the transaction becomes firm.

Representations about tenancies: If the property is income-producing, the APS will include representations about existing leases, rent rolls, and the status of tenants.

For any commercial real estate purchase, retaining a real estate lawyer to review or draft the APS before signing is essential — the OREA standard form is not suitable for commercial transactions.

Priya and Omar make an offer to purchase a semi-detached home in Hamilton for $875,000 with a 5% deposit ($43,750). Their offer includes two conditions: 1. Satisfactory home inspection within 5 business days 2. Financing satisfactory to the buyers within 5 business days

The seller accepts the offer. Priya and Omar have their home inspection and receive a report identifying minor issues but nothing material. They also receive a mortgage pre-approval from their bank for the full purchase price at an acceptable rate.

Within 5 business days, Priya and Omar's real estate agent submits written notices waiving both conditions. The transaction is now firm — both parties are legally bound to close on the agreed closing date.

Priya and Omar's lawyer conducts a title search, reviews the title insurance commitment, obtains a tax certificate, and arranges the mortgage. On closing day, the lawyer receives the mortgage funds, registers the transfer in Priya and Omar's names, pays land transfer tax, adjusts for property taxes, and releases the balance of the purchase price to the seller's lawyer.

Priya and Omar receive the keys and take possession of their new home.