Legal Brief for April, 2024

Real Property Report Or Title Insurance?

An issue that commonly arises when a seller and a buyer are negotiating the terms of a residential real estate transaction is whether the seller will be required to provide to the buyer documents known as a real property report and a compliance certificate.  A real property report is a survey of the property.  It shows what buildings are located on the property, and the distances from the buildings to the lot lines, and whether there are any structures encroaching from the property onto other properties or vice versa.  A compliance certificate is a certificate issued by the City of Edmonton confirming if what is built on the property complies with the zoning regulations for the area and whether all necessary permits have been obtained for what is built on the property.

The standard form real estate board contract makes it an obligation of the seller to provide these two documents.  This term is however open for negotiation.  If for example the seller has owned the property for 25-30 years they may no longer have the documents they received when they purchased the property or the documents might be outdated.  If that is the case the seller would be looking at an approximate cost of $1,000.00 to obtain and provide new documents.  Understandably a lot of sellers will be looking to avoid that expense.

A substitute to providing a new real property report and compliance certificate that has developed over the last 10-15 years is for the seller to pay for the purchaser's cost of obtaining what is known as a title insurance policy.  The term "title insurance" is actually a bit misleading.  A purchaser's title is basically guaranteed by the Province of Alberta through the Land Titles System.  The title insurance policy covers a wide variety of "other" issues that can come up in terms of property ownership.  The coverage provides for an insurance claim to be made by the new homeowner after the date of purchase if the owner discovers that there are zoning infractions or missing permits or structure encroachment issues.  The title insurance policy gives protection to a new owner against the sorts of issues that might be revealed by the production of a real property report and compliance certificate.

The advantage to the seller in providing title insurance is the saving in cost.  A typical title insurance policy usually costs no more than $250.00.  The cost saving is therefore attractive to a seller.  From the purchaser's side they may feel that having an insurance pool of funds to go over provides them with satisfactory coverage.

My personal view on the matter is that I think a purchaser is better off requiring a seller to provide a new real property report and compliance certificate rather than accepting title insurance.  If you have a "clear" pair of reports disclosing no issues, then you can rest assured that there won't be any problems in the future with your property.  If you accept the title insurance option you are literally always going to be in the dark about the actual state of the legal compliance of your property, and you may always be wondering in the back of your mind if everything is in order.  In addition, there is always the risk, hopefully small, that the insurance company that issued the policy goes banktrupt or that the insurance company tries to void the coverage due to a loophole they have found in the policy.

More often than not by the time purchase contracts come across my desk the parties have already elected as to how they are going to handle this issue - and these days more often than not the seller is "winning" the issue of what to provide by having the "new documents" section crossed out and a new term added providing for title insurance.  In those cases it is too late for the buyer's lawyer to exercise any influence as to how the issue is dealt with in the contract.