Part one of this two-article series focused on the conveyancing process and what happens at each step. In part two, we will explore common issues that arise in the conveyancing process and how they can be avoided or addressed.

While there are many issues that can arise during the conveyancing process, this article will focus on the following issues:

• Back-to-back / same-day closings
• Private lenders and commercial loans
• Absence of a corporate record book
• Seller or buyer loses capacity or passes away
• Leasehold properties
• Delays in engaging a lawyer or notary
• Buyer failing to move closing funds in time
• Failure to obtain insurance

Back-to-Back / Same Day Closings

Closing a sale and a purchase on the same day can be very problematic, as the proceeds from the sale are typically needed for the purchase. Sale proceeds often aren’t available until late afternoon or early evening on the closing date. This poses many issues as there may not be enough time to deposit the sale proceeds into trust and complete the purchase on the same day. Additionally, if there are any issues with the sale, such as the closing date needing to be extended by a day or two, or the sale proceeds aren’t received until the morning after closing, then the client won’t have the funds needed to close their purchase on the completion date.

To avoid these issues, it is best practice to stagger the purchase and sale completion dates by at least one to two business days. This buffer allows time for funds to be received and processed, reducing the risk of delays.

Private Lenders and Commercial Loans

When a purchaser is obtaining commercial financing, or financing from a private lender, a separate lawyer will act on behalf of the lender. These types of financing arrangements need to be disclosed to the buyer’s lawyer or notary immediately, as there will be additional pre-funding requirements for the loan that need to be satisfied, and the lender’s lawyer usually requires executed documents returned to them three to five business days prior to the completion date. Additionally, there will be significantly more paperwork for the buyer to sign related to the loan. Some of the pre-funding requirements may require obtaining additional searches and information from third parties, which can take time to request and order.

Absence of a Corporate Record Book

Whenever a buyer or seller is a company, their lawyer or notary will need to obtain the corporate record book (also known as a minute book) to confirm that the company is duly incorporated and legally valid. Additionally, the corporate records will confirm who the shareholders, officers, and directors of the company are. This information is needed for identification purposes, and to complete the forms needed for the transaction. The corporate record book also contains important information regarding what kind of transactions the company can enter into, how they are approved, and the individuals authorized to sign on its behalf.

If a company doesn’t have a corporate record book, then it will need to be re-created prior to the completion date. This re-creation or rectification of the corporate record book can take some time and often requires information to be gathered from the client and the company’s accountant.

REALTORS® should ask their corporate clients if they have a corporate record book, and where it is located. The REALTOR® should also advise them that their lawyer or notary will need to see this corporate records book prior to closing.

Seller or Buyer Loses Capacity or Passes Away

When a party to a transaction loses capacity or passes away prior to closing, it can significantly impact the transaction. In both instances, the party who has lost capacity or passed away is still bound by the contract and is not relieved from completing the transaction.

If a party loses capacity prior to closing, their attorney appointed under an existing enduring Power of Attorney (POA) agreement can act for them. However, this POA agreement needs to be established prior to the person losing capacity. If the buyer loses capacity, their lender may not allow for the loan security documents to be executed by the attorney acting under the POA. If the party who has lost capacity does not have a valid POA agreement in place, then an application must be made to the court to have a committee appointed to act on behalf of the incapacitated person. This process can take time; often more time than is available prior to closing.

If a party passes away prior to closing, their estate is still required to complete the transaction. For the executor of the estate to act on closing of a transaction, a grant of probate must have been received from court. Obtaining a grant of probate can take months if not years. A simple estate often takes approximately six months from the time the information is first gathered for the court application to the date the court delivers the grant of probate. If the deceased passed away without a valid will, then a grant of administration is needed to grant authority for someone to legally act on behalf of the deceased’s estate. This is a very similar process and timeline to obtaining a grant of probate.

In both situations, time is not on anyone’s side. REALTORS® and those close to, or related to, the incapacitated or deceased party must act quickly to determine if someone has the legal authority to act on behalf of the incapacitated or deceased party. Often, an extension of the closing date is needed; however, without a valid POA agreement in the case of an incapacitated person, or a valid will in the case of a deceased party, there may not be anyone to legally agree to the extension.

Although it is an uncomfortable conversation to have, REALTORS® should consider discussing with their clients whether they have valid POA agreements or wills in place in case something happens prior to closing. If the client does not have both in place, the REALTOR® should refer the client to a lawyer or notary for legal advice.

Leasehold Properties

Timing issues with leasehold properties are a very common conveyance issue. Leasehold properties require the execution by three sets of parties on the transfer forms: the lessor, the transferor, and the transferee. Coordinating the execution of all three sets of parties can prove problematic. To add to this issue, some lessors (such as the City of Vancouver) require both the transferor and transferee to execute the transfer forms before submitting the originally signed documents to the lessor for execution. In the case of City of Vancouver leasehold properties, the city currently requires the original transfer forms, executed by the transferor and transferee, to be submitted at least five business days prior to closing.

Some leasehold properties have secondary agreements, or tripartite agreements with lenders, that must be signed along with the transfer forms. This can cause timing issues for signing.

REALTORS® and their clients should immediately advise the lawyer or notary engaged in the transaction that the property is a leasehold property, that way, arrangements can be made to have the closing documents prepared well in advance of closing.

Delays in Engaging a Lawyer or Notary

Clients can sometimes get so wrapped up in receiving an accepted offer, subject removal, and working out the mechanics of their move, that they forget to engage a lawyer or notary early in the process. This can be especially problematic with pre-sales, where closing notices may only be delivered ten days prior to the completion date, or around holidays when lawyers and notaries may have limited capacity to take on files prior to, or during the holidays.

REALTORS® should advise their clients to engage a lawyer or notary immediately after subject removal. If the timeline between subject removal and closing is short (less than three weeks), the REALTOR® should advise their client to reach out to their lawyer or notary prior to subject removal to make them aware of the possible transaction and the compressed timeline.  

Buyer Failing to Move Closing Funds in Time

Buyers may need to move funds from investment accounts, savings, family members, or foreign bank accounts in order to complete a purchase. This transfer of funds should occur well in advance of closing in case there are any delays. It can take several business days to liquidate investments or wire funds from foreign jurisdictions. Additionally, funds coming in from others (such as family members) to the buyer’s bank account may be placed on hold for five business days. Buyers often leave the transfer of funds till the last minute, which causes unnecessary stress, and at times, the need for an extension of the closing date (if the seller is amenable).

REALTORS® should advise clients to move any funds needed to close the transaction into the buyer’s bank account approximately one to two weeks prior to the completion date (depending on the nature and source of the funds being moved).

Failure to Obtain Insurance

Property insurance is required in order for the buyer’s mortgage to be funded. Sometimes buyers simply don’t leave enough time for these policies to be bound and put in place, whereas other times, there are factors related to the property or its location that make it uninsurable or more difficult to insure.

Often, buyers will wait too long to try and obtain property insurance. This can result in delays to closings, the need for extension, and occasionally it can collapse a deal. Insurance companies require detailed information regarding the property to determine if they can insure the property. During wildfire season, it is very common for insurers to refuse to insure properties that are within a certain proximity to a fire (typically 100 km as the crow flies to an active fire). Properties that have fireplaces or wood-burning stoves can also be problematic to insure if there isn’t a valid Wood Energy Technology Transfer inspection, or special conditions / exclusions can be placed on the insurance policies that lenders will not accept. Proximity to a fire hall, fire hydrants, and recent natural disasters (such as flooding, wildfires, and landslides) can also impact whether or not an insurer will insure a property. Additionally, the age and state of repair of structural aspects of a property can impact the ability to obtain full replacement insurance policies, which is often required by lenders.

REALTORS® should advise their buyers to request, obtain, and bind insurance policies early on in the conveyancing process. Depending on the type of property and environmental conditions, a subject condition related to the buyer’s ability to obtain insurance may be needed in the Contract of Purchase and Sale. The BCFSA’s Knowledge Base provides specific clauses to address wildfire, property insurance, and wood-burning stoves.  

Summary

Many issues can arise during the conveyancing process; however, most can be resolved or avoided by acting early and proactively anticipating potential issues. REALTORS® should advise their clients to engage a lawyer or notary early in a transaction to address and avoid these issues.

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