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Professional Standards Manual

Trading Services

4. General Information

(a) Contract Clauses - View Entire Section

(XVII) Financing Information - View Subsection
(11) Agreement for Sale (Right To Purchase)

Although not in common use, an agreement for sale is a contract for the sale of an interest in land under which the buyer agrees to pay the purchase price, over a period of time and, on full payment, the seller is obliged to convey title to the buyer.

Licensees should note that, when performing title searches, they may discover the notation ‘‘RP’’ or Right to Purchase. This is what the Land Title Office uses to denote an agreement for sale. Agreement for Sale is the term used in the real estate industry to denote a Right to Purchase. Licensees should also note that only one RP can be registered on a title.

The time period involved in an agreement for sale, whereby a seller can take action against a buyer who is in arrears on payments in an agreement for sale, is now the same as that for a mortgage.

Agreements for sale may still be advantageous in certain circumstances, for example, where the seller has an existing mortgage at an interest rate which is lower than current market rate. In that case, the interest rate on the agreement for sale would be at least either the current interest rate or a higher rate than the seller has on the current mortgage. In this case, the clause for an agreement for sale with an underlying mortgage would be the appropriate clause to use. The term of the agreement for sale should be concurrent with and not exceed the term of the first mortgage.

Some lenders do not allow assumption of an agreement for sale. It is important to ensure that the clients have confirmation in writing from either the mortgagee or the mortgagee’s lawyer.

When proposing agreements for sale, licensees should keep in mind the particular requirements of the seller and the buyer. The most important concerns will be the interest rate to be charged, the payments on the agreement for sale and the term of the agreement for sale. The terms of the underlying first mortgage will influence the position of the principals to the agreement for sale.

Agreement for Sale (With No Underlying Mortgage Which Allows Resale) Clause

The Seller will carry the remaining balance of $ (amount) by way of an Agreement for Sale, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date) and approved by the Buyer on or before (date) ), at an interest rate of % per annum, calculated (frequency) not in advance, with a _____year amortization period, ______-year term and repayable in blended payments of $ (payment) per month, including principal and interest (plus 1/12 of the annual taxes, if required by the Seller).

The Agreement for Sale will provide that if the Buyer disposes, or agrees to dispose of his or her interest in the property, the full amount then owing under the Agreement for Sale will immediately become due and payable at the Seller’s option.

The Seller will draw and register the Agreement for Sale at the Buyer’s cost.

The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date).

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.

Agreement for Sale (With Underlying Mortgage) Clause

The Seller will carry the balance of $ (amount) by way of an Agreement for Sale, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date) and approved by the Buyer on or before (date) ), at an interest rate of %per annum calculated (frequency) , not in advance, with a (number)-year amortization period and a term to expire (date) ** and repayable in blended payments of $ (payment) *** per month including principal and interest (plus 1/12 of the annual taxes, if required by the Seller). The Seller covenants and agrees to pay the existing first mortgage in favour of according to the terms of the mortgage.

* Amount includes underlying mortgage.

** Term expiry date to correspond to underlying mortgage.

*** In order to protect the Buyer, this amount should be at least as large as monthly payments on the underlying mortgage.

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.

In most cases, the term expiry date of the agreement for sale will correspond with the underlying mortgage. In any event, the parties are advised to seek expert advice from a mortgage broker or accountant with regard to the terms.

Licensees must ensure that the parties are adequately informed regarding their risks if payments on the underlying mortgage are not made.

Licensees should also advise the buyer and seller to seek legal advice regarding their respective risks in this situation.

The Agreement for Sale Clause will contain the following additional provisions:

Agreement for Sale Clause

The Agreement for Sale is subject to an underlying mortgage held by (name) with an outstanding balance of approximately $ (amount) at an interest rate of % per annum calculated (frequency), not in advance, with a ‘‘balance due’’ term date of (date) , and with blended payments of $ (amount) per month including principal and interest.

The Seller covenants to maintain the underlying mortgage in good standing and to pay and satisfy in full when due or when the Agreement for Sale is paid off, and on any failure to do so, the Buyer may pay the underlying mortgage directly, and deduct such payment from amounts owing to the Seller under the Agreement for Sale.

If the Buyer disposes of or agrees to dispose of the property, the full amount then owing under the Agreement for Sale shall immediately become due and payable at the option of the Seller, and any penalty payable because of the resulting prepayment of the underlying mortgage will be paid by the Buyer.

The Seller will draw and register the Agreement for Sale at the Buyer’s expense. The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date).

This condition is for the sole benefit of the Seller.

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.