Consider buying rental items along with the home
By Rob Lamberti, AdvocateDaily.com Contributor
When purchasing a home, consider buying out any utility and appliance rental contracts to avoid a notice of security interest being registered against title to your property, says Toronto real estate lawyer Sarita Samaroo-Tsaktsiris.
Rental contracts for water heaters, furnaces, air conditioners and other appliances are now staking a claim on the home's equity — behind a mortgage — by registering the items against the home's title, says Samaroo-Tsaktsiris, principal of SST Law Professional Corporation.
"It's acting like a lien," she tells AdvocateDaily.com. "I've been told by the providers that consumers have taken new equipment, sold it on the black market and replaced it with older items."
Samaroo-Tsaksiris says "legislation is in place — as governed by s. 54 of the Personal Property Security Act — to allow providers to register notices of security interests to ensure a consumer doesn't abscond with the equipment."
Previously, the provider would not typically secure their interest in the rental item on title, but that's changed as the provider seeks to have their interest in the equipment secured behind a mortgage, Samaroo-Tsaktsiris says.
"It's a fairly new requirement that we have seen more frequently registered on title by providers — regardless of the credit history of the consumer," she says.
"It's a terrible inconvenience to the homeowner because when it comes time to renew one’s mortgage, the consumer must ensure the provider’s interest is postponed and remains secondary to that of the mortgage provider. The lender will not permit their mortgage to be considered behind the interest of a provider of a fixture" she says.
It will cost consumers some money as real estate lawyers must ensure the rental units are placed behind the mortgage, Samaroo-Tsaktsiris says. In some cases, administration fees are required to seek the provider's permission to place their interest behind the mortgage, "as the provider will want to ensure there is sufficient equity in the property to cover their interest," she says.
Some suppliers will request a certified appraisal of the home, which could cost a homebuyer up to $850, plus a further $250 administration fee, plus sales tax, "to consider" allowing its rental item to be placed immediately after the first mortgage, Samaroo-Tsaktsiris says.
"Where there is insufficient equity in the property, the homeowner is then forced to buy out the item, as the provider will not grant the postponement of their interest," she says.
"Sometimes this may stall a refinancing deal or purchase," she says. "The process is quite costly, as each time you seek to refinance, you may end up spending in excess of $1,000, excluding legal fees."
Samaroo-Tsaktsiris also suggests real estate agents should negotiate the purchase of rental appliances and fixtures on behalf of their clients.
The best option — and possibly the cheapest — is to purchase the items outright.
"Within a purchase, force the seller to purchase the fixtures for the purchasers, as a condition of the offer," Samaroo-Tsaktsiris says.
"That would be my advice - to buy the fixtures outright and enter into a monthly maintenance plan to ensure ongoing maintenance of the fixture," she suggests. "That will save the cost at each time of re-financing and will ensure the provider will replace the fixture if it breaks down."
If not dealt with by the agents, then lawyers are required to postpone the notices of security interest behind any mortgage registered on title, Samaroo-Tsaktsiris says.
She says a homeowner should receive copies of all existing rental contracts, which should also be listed in the agreement of purchase and sale.
"If items are listed as rental items under Paragraph 6 of the OREA form, Agreement of Purchase and Sale, then a purchaser is required to assume all existing rental contracts, unless otherwise amended by way of an 'amendment to the offer,' requiring a buyout of these items," says Samaroo-Tsaktsiris.
"Purchasing and owning the fixtures, which at one time may have been an onerous cost, is now the best way to save money and avoid future headaches — especially when the homeowner wishes to refinance in the future."
Samaroo-Tsaktsiris says "it comes as no surprise" that effective March 1, 2018, the Ministry of Consumer Services will make it mandatory that providers of rental items that are sold door-to-door give consumers a 10-day cooling-off period, in which they have the ability to rescind a contract for services offered.
"This will better provide the opportunity for consumers to review their rental contracts carefully," she says.