Because there are many duties which volunteer members of the condominium council do not have the time, skill, or inclination to fulfill, such as maintenance, repair, and the administration of routine matters, a management company is frequently hired under contract with the condominium corporation to deal with those tasks; or other procedures are set up to deal with routine matters.

The Condominium Property Act in most provinces permits the council to employ a professional management company to carry out these daily functions. The management company’s authority and responsibility are limited to matters affecting the security and maintenance of the common (shared) elements, and the assets and facilities of the condominium corporation. This limitation is to ensure that the management company does not take over the decision-making role of the council.

There are essentially three forms of condominium management: self-management, resident management, and professional management. A combination of these alternatives may also be employed.

Self-Management
In smaller condominium developments, it is often more practical for the owners to be responsible for the management of the development directly. For example, in a condominium duplex or development of up to approximately 15 units, this self-management alternative could be attractive. Another example would be a bare land condominium corporation with detached houses, and which has minimal common elements and facilities to maintain.

It is not necessary in a self-management situation that the owners themselves clean the grounds, cut the grass, do the gardening, and sweep the driveways. It does mean, though, that the owners, or a representative of the owners, would have to be directly involved in supervising the performance of these types of services. Frequently the jobs are done by volunteers, part-time or full-time employees, contracting firms, or combinations of this type of help. For the sake of continuity and accurate delegation of responsibilities, it is important that someone on the condo board of directors be responsible for communicating with those who are providing the services.

In addition to communicating with the staff, some form of supervision will have to be put into place to monitor such services as maintenance of the pool, grounds, and elevators, painting, garbage removal, and accounting and typing functions. Various federal and provincial government responsibilities relating to employees will also have to be considered, such as unemployment insurance, income tax deductions from employees’ wages, and Workers’ Compensation Board contributions. If the board of directors negotiates with a contractor to provide services, then deductions do not have to be taken off in the same fashion as with employees, because the contractor would be signing a written agreement to the effect that he or she will hire and pay his own employees. In that event, the board of directors would simply pay the negotiated contract fee for services rendered by the contractor.

Another reason for self-management is that a condominium development may be outside the metropolitan area, and so there may be difficulty in obtaining the services of a professional management company.

Resident Management
In this situation, the condominium corporation employs one or more people directly to perform the daily management requirements. These people would normally operate out of an office in the development and would be paid a full-time or part-time salary. Because the manager would be an employee of the condominium corporation, he would in effect be an employee of all the owners; it is therefore important to be very careful in selecting the manager, in order to maintain harmony with the members. Generally only large condominium developments can financially justify employing a full-time resident manager.

Professional Management
Many condominium corporations use a professional management company to some extent. These companies tend to be experienced at condominium management, and have many systems and procedures for efficient operation of their support function. This would include computerized accounting procedures and management systems, experienced staff, access to suppliers who can provide bulk-buying discounts and goods service, and careful selection of competent tradesmen. The condo management company designates a specific individual staff member to act as the property agent for the management of the condo.

One of the key benefits of using a professional management company is that due to the periodic turnover of the condo board of directors members, such a company will provide the continuity of management to ensure a consistent level of quality in the condominium development. The responsibility of the condominium board of directors would be one of providing instructions to the management company and monitoring the company’s performance.

It is important to determine the real motivation for the owner of a re-sale condo to sell the property. This will assist you in knowing how to negotiate in terms of your offer price and terms and general strategies. The motivation for sale could be a positive or negative one. If the vendor is selling in a buyer’s market, be particularly thorough in finding out why the vendor is selling in a market that is clearly disadvantageous in terms of the negotiating climate and eventual sale price.

Why Principal Residence Properties Might Be For Sale

• Separation or divorce.
• Death of owner or co-owner.
• Loss of job of principal wage earner or of one of two wage earners, when two wage earners are necessary to pay for the home expenses.
• Job relocation.
• Ill health of one or both home owners.
• Retirement and therefore relocation or downsizing house size needs, or desire to take some of the equity out of the house for retirement purposes.
• Owner lost money in a business or other investment venture and needs to sell the house to pay off the debt.
• Owner has not made payments on the mortgage due to personal or financial problems, resulting in court proceedings by the lender. This could be in the form of an order for sale or foreclosure proceedings. The length of time before the house could be sold in the above circumstances varies depending on the provincial jurisdiction.
• Owner wants to sell in a seller’s market.
• Owner is concerned that the market is changing and could become a buyer’s market.
• Owner is testing the market to see what the market will pay, without any serious attempt to sell.
• Children leaving the home and therefore downsizing of house size needs.
• Desire to buy a larger home due to increasing family size or needs. This could also be due to having an extended family (e.g., parents or relatives).
• Desire to trade up to a nicer home or better neighbourhood.
• Desire to buy a house with a rental suite in basement for revenue purposes.

Why Investment Properties Might Be For Sale
There are many reasons why a condo bought for investment could be listed for sale. It does not necessarily mean the property has serious problems or is a bad investment. Possibly the property is poorly managed, poorly maintained, or has excessive vacancies. In many cases, an astute investor could turn the property into an attractive investment by identifying the exact problems and opportunities, devising a plan for turnaround, and buying at below market value. Explore to find out the real reasons why the property is for sale.

Here are a few of the common reasons for sale:

• Inexperienced Owner. Possibly the owner was a first-time investor who bought beyond his skills, resources, and “comfort zone,” and feels intimidated by the responsibilities, time, and risk involved. He may now have changed his mind and wishes to sell due to the personal stress being experienced.
• Partnership Disputes. About 75% of business partnerships at some point break up or have conflict. Maybe the property is for sale due to unresolved disputes. Another possibility is that some investors need to get out for financial reasons or changed investment goals, therefore the partnership splits up and that triggers the sale.
• Tax Benefits. Maybe the owner has depreciated the building as much as possible and wants to sell because the land value on which the condo is situated has gone up substantially in value. The owner wants to minimize the capital gain aspects by selling in the current market.
• Settling of an Estate. If the owner of the property has died, the executor of the estate wants to settle the estate reasonably quickly, and the property could therefore be priced at fair market value or below in order to entice a sale.
• Run-down Properties. Due to management or financial difficulties, the property could visibly deteriorate, causing the owner to want to sell. Some of the reasons are discussed in further detail below.
• Poor Management. This could be because the owner is attempting to manage it himself, but lacks the skills, knowledge, or personality to do it profitably. Maybe the owner has hired the cheapest management firm and they do the least amount possible. If an owner lives outside the city, province or country, possibly the management company is indifferent and allows the property to deteriorate, causing problems to occur. Another reason for poor management is that the owner is draining the revenue property by taking out too much money personally. This could result in a shortfall of the revenue required to meet necessary expenses.
• Excessive Vacancies. If a condo development has a lot of condos for rent, and suffers from ongoing vacancies, it could be because the building is run-down or has poor management; there are unstable employment opportunities in the community; there is the wrong mix of tenants in the building; there are more attractive competing condo buildings, or the rents are too high. Whatever the cause, the vacancy situation is probably causing serious cash flow problems for the owner.

Here is the rest of the discussion in of the topic of the purchase and sale agreement.

Fixtures and Chattels
This is an area of potential dispute between the purchaser and vendor, unless it is sufficiently clarified. A fixture is technically something permanently affixed to the property; therefore, when the property is conveyed the fixtures are conveyed with it. A chattel is an object which is moveable; in other words, it is not permanently affixed. Common examples of chattels are clothes washer and dryer, refrigerator, stove, microwave, and drapes.

A problem can arise when there is a question of whether an item is a fixture or a chattel. For example, an expensive chandelier hanging from the dining-room ceiling, gold-plated bathroom fixtures or drapery racks, or television satellite dish on the roof might be questionable as to whether they are a fixture or a chattel. One of the key tests is whether an item was intended to be attached on a permanent basis to the property and therefore should be transferred with the property, or whether it was the intention of the vendor to remove these items and/or replace them with cheaper versions before closing the real estate transaction.

In general legal terms, if it is a fixture and it is not mentioned in the agreement, it is deemed to be included in the purchase price. On the other hand, if it is not a fixture and no reference is made to it in the agreement, then it would not be included in the purchase price. To eliminate misunderstanding, most agreements for purchase and sale have standard clauses built into them which state that all existing fixtures are included in the purchase price except those listed specifically in the agreement. In addition, a clause should list the chattels specifically included in the purchase price, and they should be clearly described.

Adjustment Date
This is the date that is used for calculating and adjusting such factors as taxes, maintenance fees, rentals, and other such matters. As of the adjustment date all expenses and benefits go to the purchaser. For example, if the maintenance fee has been paid for the month of March by the vendor and the purchaser takes over with an adjustment date as of the 15 of March, there will be an adjustment on the closing documents showing that the purchaser owes half the amount of the prepaid maintenance fee to the vendor for the month of March.

Completion Date
This is the date when all documentation is completed and filed in the appropriate registry office, and all monies are paid out. The normal custom is for all the closing funds to be paid to the purchaser’s solicitor a few days prior to closing. As soon as all the documents have been filed in the land registry office and confirmation has been obtained that everything is in order, the purchaser’s solicitor releases the funds to the vendor’s solicitor/

Possession Date
This is the date on which you are legally entitled to move into the premises. It is commonly the same date as the adjustment and completion date. Sometimes the possession date is a day later in order for the vendor to be able to move out; in practical terms, though, many purchasers prefer the adjustment, completion, and possession dates to be the same, if it can be arranged. One of the reasons is that the risks of the purchaser take effect as of the completion date, and there is always a risk that the vendor could cause damage or create other problems in the premises if he or she remains there beyond the completion date. As soon as your solicitor has advised you that all the documents have been filed and money has changed hands, your realtor or lawyer arranges for you to receive the keys to the premises.

Merger
This is a legal principle to the effect that if the agreement for purchase and sale is to be “merged” into a deed or other document, the real contract between the parties is in the document filed with the land registry. To protect you, it should be stated in the agreement for purchase and sale that the “warranties, representations, promises, guarantees, and agreements shall survive the completion date.” There are exceptions to the document of merger in cases of mistake or fraud–technical areas that require your lawyer’s opinion– but it is important to understand the concept.

Commissions
At the end of most purchase and sale agreements there is a section setting out the amount of the commission charged, which the vendor confirms when accepting an offer.

Most purchase and sale agreements come in standard formats, with standard clauses, and are drafted by the builder or real estate board. There are generally spaces throughout the agreement for additional, customized clauses to be added.

It is recommended to have a lawyer review your offer to purchase before you sign it. Regrettably, relatively few people do this, because they either don’t realize they should, perceive it to be an unnecessary or costly legal expense, or could cause delay that could cause a purchase to be lost to someone else, or otherwise kill the deal.

Alternatively, rather than seeing a lawyer before submitting an offer to purchase, some people may wish to insert a condition that states the offer is subject to approval as to form and contents by the purchaser’s solicitor within X days of acceptance.

There are many common clauses and features contained in the purchase and sale agreement, many of which vary from contract to contract according to various circumstances-whether one is purchasing a new or a resale condominium or house, etc. A brief overview follows of some of the common features of the agreement for purchase and sale. This article is Part I of a two part series.

Amount of Deposit
A deposit serves various purposes. It is a partial payment on the purchase price, a good-faith indication of seriousness, and an assurance of performance if all the conditions in the offer to purchase have been fulfilled. The deposit is generally 5% to 10% of the purchase price. If there were conditions in the offer, and these conditions were not met, then the purchaser would be entitled to receive the full amount of the deposit back. This is one reason why it is important to have conditions or “subject to” clauses in the offer to protect one’s interests fully. When making a deposit, it is very important to be careful whom the funds are paid to. If you are purchasing through a private sale and no realtor is involved, never pay the funds directly to the vendor; pay them to your own lawyer in trust.

If a realtor is involved, the funds can be paid to the realtor’s trust account or your own lawyer’s trust account as the situation dictates. If you are purchasing a new condominium from the builder, do not pay a deposit directly to the builder unless it is held in trust by the builder’s lawyer or real estate agent. The money should go to your lawyer’s trust account, or some other system should be set up for your protection ensuring that your funds cannot be used except under certain conditions as clearly set out in the agreement,

Another matter you have to consider is payment of interest. If you are paying a deposit, you want to ensure that interest at the appropriate rate or based on the appropriate formula is paid to your credit. In many cases, deposit monies can be tied up for many months, or in a condo presale situation for many years. These delays could represent considerable amounts of interest.

Conditions and Warranties
It is important to understand the distinction between conditions and warranties, as it is very critical to the wording that you would be using in the agreement. A condition is a requirement that is fundamental to the very existence of the offer. A breach of condition allows the buyer to get out of the contract and obtain the full amount of the deposit back. An inability to meet the condition set by a vendor permits the vendor to get out of the contract.

A warranty is a minor promise that does not go to the heart of the contract. If there is a breach of warranty, the purchaser cannot cancel but most complete the contract and sue for damages. Therefore if a particular requirement on your part is pivotal to your decision to purchase the condominium or not, it is important to frame your requirement as a condition rather than as a warranty. Both vendors and purchasers frequently insert conditions into the agreement, sometimes referred to as subject clauses. You can see why the services of an experienced real estate lawyer are important to protect your financial interests.

Risk and Insurance
It is important that the parties agree to exactly when risk is going to pass from the vendor to the purchaser. In some cases the agreement will state that the risk will pass at the time that there is a firm, binding, unconditional purchase and sale agreement. In other cases, the contract states that the risk will pass on the completion date or the possession date. In any event, make sure that you have adequate insurance coverage taking effect as of and including the date that you assume the risk. The vendor should wait until after the risk date before terminating insurance.

When selecting recreational property for investment purposes, there are specific cautions you need to research when doing your due diligence that could impact negatively on the quality of your investment property. Whether you are buying a vacation home for rental purposes only, a combination of personal use and periodic or seasonal rentals, or personal use with a long-term hold plan, the following points are applicable in many purchase scenarios. Some of the categories relate to single family homes, and others to resort condos. In all cases, you need a local real estate lawyer familiar with the area to research the issues on your behalf.

For more information on tax, legal, and estate planning strategies, and upcoming seminars on the topic of Buying Vacation Property for Pleasure or Profit, refer to www.homebuyer.ca.

Local Zoning and Building Restrictions and Opportunities
Check for restrictions on use and other matters. For example, is there a community plan? What type of zoning bylaw is there, and is it subject to change? Is there a rezoning potential for higher or different use? Is there a land-use contract? What about non-conforming use of older or revenue buildings? If you want rental revenue to help pay for your annual expenses, or as an investment property, are nightly or weekly rentals to tourists permitted for your house or condo? Are you restricted to seasonal use? Is there a limit on mobile homes permitted on the property at certain times of the year? Are you restricted from constructing other buildings on the property?

Municipal Taxes
On what basis is the property annually assessed for tax purposes? If a condo property, is it zoned commercial rather than residential? If the former, the property taxes could be three times the residential rate. Many condos in hotels or in core areas are zoned commercial or could be at some future point. Have your lawyer check this issue out thoroughly, as it will have a dramatic impact on your bottom line.

Property Management Are property rentals restricted to a specific property management company, or do you have complete autonomy which company you use? If you are restricted to use the company designated by the developer, what are the terms and do the numbers work for you. Can you rent out the property yourself? Are you obliged to put your property in a rental pool for a fixed period of time each year?

Right of Way
This generally means a statutory (legal) right for certain companies, Crown corporations or government departments to use or have access to part of your property. Examples include hydro, telephone, sewer, drainage, dike, and other public access purposes.

Easement
An easement is similar to a right of way, but normally is the term used when one neighbour gives another neighbour the right to use or have access to a piece of land, e.g., permission to reach a waterfront by crossing a neighbour’s land. This agreement is put into writing and filed in the nearest land titles office. Alternatively, there could be an easement by the municipality to give access to the public to the lake or river.

Restrictive Covenants
A restrictive covenant limits the use of a property for the benefit of another property, the municipality, or the provincial or federal government (the Crown). These restrictions can include such matters as the number and location of buildings, cutting of trees, septic fields, subdivision of the land, and allowable uses of the land. A builder could also place a restrictive covenant on the property.

Building Schemes
This document is registered by the builder on all lots in the subdivision. It controls such matters as size and location of buildings, and the number of buildings permitted. It can also control the materials used on the buildings (e.g., all shake, shingle, or metal roofs), and sometimes the type of landscaping required. The intent is to have consistency in the appearance of the development.

Waterfront Boundaries and Restrictions Properties bordering a water body such as a lake, river, stream, or ocean have special boundary issues you need to research. When you have a survey of land, you have precision. A natural water boundary lacks this type of precision, so there are various tests and formulas used to determine where private property ends and where the government rights begin (i.e., Crown land).

You need to check on what local, provincial, or federal restrictions there are to regulate the use of marine areas adjacent to private property. The purpose of these provisions is to control the construction and use of private floats, breakwaters, docks, sea walls, and the commercial or industrial use of the foreshore.

In these scenarios, the government concern is that the above types of structures or use could impair the aesthetics of the view from the land and sea, or impede the ability of the public to walk along the foreshore.

Are you interested in buying recreational property in the near future? For example, a cottage, cabin, or chalet – maybe own it outright, or jointly buy the property with family, relatives or friends? Maybe you want to buy an apartment or townhouse condo in a resort or recreational community – and own it outright, or own a ¼ or 1/10 share in it with others? Maybe you already own recreational property? Possibly the property has already been passed down through various family generations?

Whatever scenario above best describes your current circumstance or wishes, there are tax implications when it comes time to sell, transfer, or bequeath your recreational property. If you have not yet bought a property, you have some tax planning advantages.

Here is an overview of the types of tax issues and strategies to consider. As in any tax planning, you need to get customized advice for your own situation from professionally qualified accountants with tax expertise. You also want to have the coordinated advice from a skilled estate planning lawyer to avoid future potential conflict in the family. As tax, legal, and estate planning issues are frequently intertwined, planning needs to be strategically integrated. This article is simply intended to stimulate awareness, and motivate you to do some prudent tax and estate planning, by giving general guidelines.

Selling the Property

There is no capital gains tax on disposition of a principal residence. Up until 1982, a couple could own two properties, eg the home primarily lived in, and a recreational property for example, and each designate one of the properties as his or her principal residence, and therefore sell or transfer both properties tax-free. The federal government changed the tax laws as of 1982, so there can only be one principal residence for tax purposes.

However, let’s say that you do not have any children, or your children do not want to use your vacation property as they own their own second properties, or live too far away geographically. In this situation, passing the vacation property down through the generations is not an option. You wish to sell it for your retirement, lifestyle, or financial needs. Maybe due to health reasons, you do not use the property much anymore, or it is becoming too costly to maintain.

You could still have some tax saving options available. Depending on your circumstances you might be able to designate one of your two properties as your principal residence for tax purposes. For example, if you owned a Whistler, B.C., chalet that had appreciated $2 million over 15 years, that originally cost you $500,000, that would be a $1.5 million capital gain. If the residence you lived in primarily was located in Chilliwack, B.C., that cost you $100,000 five years ago, and is now worth $300,000, that would be a $200,000 capital gain. If you deemed or designated your Whistler property as your principal residence for tax purposes when it was sold in 2006, you would not have to pay capital gains tax.

What about your Chilliwack property in this scenario? When it was sold, you would calculate the portion of the time you held the property prior to the sale of the Whistler property, eg five years, and add one year. Then calculate the total number of years before you sold the Chilliwack property. For example, if you sold the Chilliwack property in 2016 and therefore had held it for 15 years in total, the portion of capital gains that you would need to declare would be 5 years + 1 = 6 over 15 years, or 6/15th of the capital gains on sale. If it sold for a $500,000 gain, you would need to declare a gain of approximately $200,000, and pay tax on 50% of that gain, eg $100,000. Depending on your personal taxable income and marginal tax rates in that taxation year, and based on tax advice, you might have to pay up to $50,000 for the property sale.

You see, you still might be able to have your cake and eat it too!

There are instances where either the vendor or the purchaser may wish to back out of the agreement. You have to be careful because legal problems can result in litigation, and litigation is expensive, time consuming, stressful, protracted, and uncertain in outcome. You want to get legal advice before you act from a streetsmart real estate lawyer. Some of the various types of legal options are discussed below. Generic examples are given, as you could be buying property in Alberta, B.C., or other provinces.

Rescission
In several provinces of Canada and states in the United States there is a “cooling-off” or rescission period, whereby the purchaser of a new property has a period of time (usually from three days to thirty days) to back out of the contract by giving notice to the vendor in writing before the deadline. The vendor is obliged to pay back without penalty all the money that the purchaser has placed on deposit. In cases where legislation does not give an automatic right to rescission the documents that are a part of the property package may have a rescission period built in. If you do not have a statutory (by legislation) right to rescission and it is not part of the documents relating to the purchase of a new property, then you may want to make it a condition of your offer.

Specific Performance
If the vendor or purchaser refuses to go through with a purchase and sale agreement when there are no unfulfilled conditions attached to the agreement, the other party is entitled to go to court and request the court to order that the breaching party specifically perform the terms of the agreement, eg, complete the transaction. The party who succeeds in obtaining the court order would be entitled to ask for the costs of the application from the court. Costs are based on a tariff schedule established by provincial legislation. Generally, court costs awarded represent about 25% to 40% of the actual legal costs incurred; therefore those who “win” at court ultimately “lose” financially in terms of total cost recovery of legal costs expended.

You may have heard of people who invest in private mortgages by buying an existing residential mortgage. This can be done directly with the owner, or through a mortgage broker. This form of investing may or may not interest you, but it is helpful to at least understand the concept.

When buying an existing mortgage, you buy it at a discounted rate, depending on the yield or return you want to receive on your money. In legal terms, normally the mortgage is assigned to you, and the original lender notified and any consents obtained. Any associated costs are normally borne by the person selling the mortgage. The benefits of buying a discounted mortgage are that you:

receive additional interest on your money because you are receiving interest on the amount of the discount immediately. For example, if you pay $30,000 for a $45,000 mortgage, you are receiving interest on the $15,000 discounted amount that you are presumably saving. This is assuming you already have the money sitting in a term deposit, GIC, etc. You are also making money on the interest on the full $45,000.
receive additional money because your discount calculations are based on the current outstanding principal balance of the mortgage, and not on a reducing principal balance which occurs as the loan payments progress. The amount of principal reduction on mortgages in the first three years is fairly minimal anyway. Most of the payments go towards interest. It is a quantifiable financial advantage to you, though.
have the potential opportunity to refinance the mortgage with the original lender before the end of the term, but only for the duration of the term, if the interest rates drop lower than the original mortgage. You would only want to do this if you are still financially ahead, after taking into account any pre-payment penalties. There are several other creative options available to increase your yield, or return on your original investment.

There is a “rule of thumb” for quick calculation of the discount amount. For example, if the rate of interest on an existing second mortgage is 10 per cent, and you wish to have the mortgage produce a return of 15 per cent, the five per cent difference is multiplied by the number of years remaining in the mortgage term (the time left until the maturity date, when the principal balance is due and payable). The outcome of the calculation will be the discount which is subtracted from the mortgage amount to determine the purchase price of the mortgage. This is just a guideline. You will want to obtain a spreadsheet of the precise amount.

Here are some examples to illustrate the point:

Now that you have a better understanding of investing in discounted mortgages, you can see why having a real estate lawyer to protect your interests is so critical. You can also understand why having a tax accountant to advise you is so essential to maximizing your net profit and minimizing your taxable income.

If you are selling a property, you need to be aware of your options when listing it with a realtor. The real estate listing agreement is usually a partially preprinted form with standard clauses and wording. The balance of the agreement, completed by the agent and the vendor, covers the specific information with respect to the property being offered for sale and the nature of the contractual bargain between the agent and vendor. Since the listing agreement is a binding legal contract, you should be very cautious about signing it, and fully understand the implications of what you are signing.

A listing agreement performs two main functions. First, you are giving the real estate agent the authority to act on your behalf to find a purchaser for your property. The agreement sets out the terms and conditions of this agency relationship, including the commission rate or method of compensation for the agent’s services, the length of time of the appointment, when and how the fee or commission is earned, how and when it will be paid to the agent, and the various marketing steps the agent will take to sell your property.

A second part of the listing agreement is setting out of the details of the property being offered for sale. All pertinent details should be included, such as civic and legal address, list price, size of property, description of the type of property, number and size of rooms, number of bedrooms, type of heating system, main recreational features and other amenities. Any chattels or extra features that are to be included in the list price should also be included, such as appliances, draperies and drapery track, and carpeting.

You should also insert other particulars in the listing agreement relating to the property for sale, including details of existing financing, the balance on the mortgage, the amount of monthly payments and the due date on the mortgage. Any other mortgages should be listed as well. Annual property taxes should be noted, as well as any liens, rights of way, easements or other charges on the property.

Once you have come to an agreement on all the terms and are satisfied with them, the agreement is signed and witnessed, and you receive a copy.

There are two types of agreements that you may wish to consider when listing your property with a real estate agent: exclusive listing, and multiple listing.

Exclusive listing
In this example, the vendor gives to the real estate agent an exclusive right to find a purchaser for the property. This right is given for a fixed period of time, normally 30, 60, or 90 days. You can always extend the listing if you are satisfied with the performance and service. The commission is generally about five per cent on the first $100,000, and two and a half per cent thereafter. If it is raw land, a flat 10 per cent commission is common, as it is generally more difficult to sell. Commissions can vary and can be negotiable, depending on the circumstances.

Multiple listing
With a multiple listing, a realtor is given the right to list the property with the multiple listing system (MLS). This system is computerized, and is available to all members of the real estate boards who participate in the MLS. In practical terms, this constitutes almost all real estate companies; the entire real estate network becomes a group of sub-agents for the sale of your property. If some other agent finds a buyer, the selling company and the listing company split the commission. Multiple listings are generally for a minimum of 60 days, but this is negotiable. Commission rates are generally seven per cent on the first $100,000, and two and a half per cent thereafter. As with exclusive listings, the commissions can vary and can be negotiable, depending on the circumstances.

You may prefer to work at home and not rent office space. Or you may prefer to minimize the risk of leasing and rent an office in an executive suite business centre. However, if you decide to take the jump and rent office space and commit to a number of years, you should be aware of the variations available to you. That way you can assess the pros and cons and negotiate a lease that is suitable for your present and projected business needs.

Possibly you may wish to buy a commercial property and become a landlord. Whatever you plans, here is an explanation of the options.

The following types of leases are the most common ones. The name used to describe each lease may vary in your region, but the concept behind the description is the same.

Net lease
In a net lease situation, the tenant pays a flat rate which is all-inclusive of heat, light, water, taxes, common area use, ground maintenance, building repairs, etc.

Net lease plus taxes
This is similar to the net lease, except that there is an agreed-upon extra expense for taxes. Any taxes over and above the base tax rate are passed on to the tenant totally or partially, depending on what is negotiated. The extra cost for taxes would normally be passed on once a year once the tax assessment has been obtained and paid by the landlord.

Triple net lease
In this type of lease situation the base rent is a certain price (for example, $10 per square foot of area rented), but the tenant is responsible for paying his proportionate share of all the extra charges incurred by the landlord. These are normally outlined in the lease agreement. These extra costs or operating expenses could add up to the equivalent of another $6 or $7 per square foot, for example. The total monthly rental outlay would therefore be approximately $16 per square foot. The operating costs may fluctuate each year based on taxes, maintenance, insurance, administrative and management costs. When one refers to a cost per square foot for lease space, it is quoted on an annual basis; to calculate the monthly rent, you multiply the square footage of the premises by the cost per square foot, and divide by twelve.

Index lease
This type of lease is one in which the rent varies based on a formula of costs incurred by the landlord. For instance, the lease may vary every year based on the cost-of-living index to account for inflation.

Variable lease
A variable lease is one in which the annual rent is agreed upon in terms of how it is calculated, but the monthly rent may vary depending on the seasonal nature of the cash flow of the business. For example, there could be a very low or no-rent period of three or four months because business activity is slow. The rent for the remaining months of the year would be high, to compensate for the period when the business was unable to pay rent.

Graduated lease
This type of lease requires an increase in rental payment every month for a specified period of time. This is usually done to assist a business in its first year of start-up, so that the monthly payments are related to the increase in cash flow and revenue of the business. At the end of the graduated period, the rental payments by the tenant would then be at a fixed rate, usually as in a net or triple net lease.

Percentage lease
The percentage lease is commonly used in the renting of retail stores in shopping centres. The landlord therefore obtains the benefit that the tenant obtains in terms of the large traffic volume going through the shopping centre, which the landlord has established. Some of these types of leases are based on net profit and others on gross profit, with a base minimum. The landlord also requires stringent accounting and reporting controls. In effect, they have become your quasi-business partner. Such a relationship can be risky and de-motivating. It depends on the deal.

Always make sure that you have a lawyer, experienced in leases, give you objective and candid feedback on the lease terms. Leases are full of jargon that has significant legal implications. You want to understand every aspect of the terms of the proposed lease. The landlord’s lease is almost invariably one-sided in the landlord’s favour. You need to have your lawyer negotiate a more balanced lease on your behalf, if at all possible. Otherwise, take your business elsewhere.