Understanding The Contract of Purchase and Sale
Understanding The Contract of Purchase and Sale: FAQs for Buyers and Sellers
When buying or selling a home, most people focus on price, deposit, and subjects. However, the standard terms of the contract are just as important to understand. The Standard Contract of Purchase and Sale (CPS) is the backbone of most real estate transactions. While it is a commonly used document, many buyers and sellers find its legal language confusing. To help you better understand your contract, we’ve put together answers to some of the most frequently asked questions about key clauses in the CPS.
View a sample Contract of Purchase and Sale here >>
What Does 'Possession' Mean in the Contract?
(Section 5 – Possession) Possession refers to the date and time when the buyer officially takes ownership and can move into the property. However, things can get complicated if there are tenants living in the home.
- By default, sellers must provide vacant possession unless otherwise stated in the contract.
- If there are existing tenants, they must be disclosed in this section of the CPS.
- If a buyer wants the property to be empty, the seller must serve proper notice to tenants in accordance with tenancy laws.
- Another potential issue arises if the possession date is the same as the completion date. Since closing can happen at any time on completion day, the buyer may not get access to the home at the expected time.
To avoid surprises, buyers and sellers should ensure they fully understand the possession terms and make any necessary modifications to the contract.
What Happens if the Property is Damaged Before I Move In?
(Section 16 – Risk & Section 8 – Condition of Property) Property risk (meaning responsibility for damage) shifts to the buyer at 12:01 AM on the completion date, even though they may not take possession until later. This can create concerns:
- If the property is damaged after risk transfers but before possession, who is responsible?
- The contract requires the seller to maintain the property in "substantially the same condition" as when the buyer viewed it.
- Buyers should obtain home insurance starting on the completion date.
- Sellers should also keep their insurance active until possession is fully transferred.
Having overlapping insurance coverage can protect both parties from unexpected costs.
What is 'Title' and Why Does It Matter?
(Section 9 – Title to the Property) Title refers to legal ownership of the property. The CPS states that buyers will receive a title that is free and clear of most legal restrictions, except:
- Charges in the original Crown grant
- Certain rights of way or restrictive covenants from public authorities
However, private easements or building schemes are not automatically included as exceptions. If not properly disclosed, the buyer can demand these be removed, which may not always be possible.
Sellers should carefully review their title documents and disclose any restrictions before signing the CPS.
What Are the Time-Sensitive Clauses in the Contract?
Timing is crucial in real estate transactions. Several sections of the CPS set deadlines, including:
- Completion Date (Section 4) – When the property legally changes hands.
- Possession Date (Section 5) – When the buyer gets access.
- Document Lodging Deadline (Section 11) – All necessary paperwork must be submitted by 4 PM on the completion date.
While the contract sets a 4 PM deadline for document submission, courts have ruled that as long as funds are available on the completion date, a delay past 4 PM may not invalidate the sale. Still, it’s best to meet all deadlines to avoid disputes.
What Does 'Buyer Beware' Mean in a Real Estate Deal?
(Section 18 – Representations and Warranties) Real estate transactions operate under the buyer beware principle, meaning it’s up to the buyer to inspect the property and confirm its condition. The CPS limits a buyer’s ability to claim damages against the seller unless specific warranties are included in the contract.
- Any verbal promises made by the seller or their agent may not be legally binding unless they are written into the contract.
- Buyers should request a Property Disclosure Statement (PDS) and include it in the contract to ensure certain representations are legally enforceable.
- Sellers should be careful about any claims they make regarding the condition of the home, as they can still be held accountable in some cases.
Why is the Contract Signed 'Under Seal'?
(Section 22 – Acceptance Irrevocable) The CPS includes language stating that it is executed "under seal," which helps prevent legal disputes over whether the contract is binding. In simple terms, this ensures:
- Once accepted, an offer cannot be revoked by the seller.
- The contract remains enforceable even if there is no direct exchange of money at the time of signing.
To ensure enforceability, buyers and sellers should avoid vague conditions that could make the contract appear non-binding.
Final Thoughts
Understanding the CPS can help buyers and sellers avoid costly mistakes and surprises. While real estate professionals can guide you through the contract, it’s essential to read it carefully and ask questions before signing. If in doubt, consult a real estate lawyer to ensure you fully understand your rights and responsibilities.
By staying informed, you can confidently navigate your real estate transaction and protect your interests every step of the way!