What is a holdback? 🏡 Top customer rated real estate agents Toronto
Saturday Dec 19th, 2020
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What is a holdback when it comes to real estate transactions? 🏡
You might come across a holdback if you are purchasing a home or even selling a home.
Toronto's real estate lawyer Jazz Dhillon joins Toronto real estate broker Karen Law, to discuss holdbacks.
Check out the video to learn what a holdback is, what are some common reasons for holdbacks, whether a holdback can be used as a means of recourse if any issues in the property are found before closing, and more.
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Below are the clickable TIMESTAMP links for the video
00:20 - What is a holdback?
00:39 - some common reasons for real estate holdbacks
1:03 - common reason for holdbacks when purchasing a condo
1:27 - a recent transaction where a holdback was used unilaterally
2:08 - the problem that the purchasers found when they visited the house before closing
2:22 - how the purchasers initially approached the problem
2:53 - can a seller's lawyer (vendor's lawyer) agree to a holdback without their client's consent if the purchaser is adamant about a holdback on repairs prior to closing?
4:25 - what you can do as a purchaser if the vendor refuses to make repairs that are needed and the vendor is also refusing to a holdback of funds
5:08 - is it correct to say that once a deal is firm, a purchaser cannot use a holdback as a means of recourse to remedy any repairs before closing?
5:26 - when there is a holdback, how quickly will the purchaser receive the funds from the holdback?
6:15 - Jazz Dhillon's contact information for a great family lawyer or real estate lawyer in Toronto
6:23 - Karen Law's contact information for a great real estate agent in Toronto
JAZZ: Hi Karen. How are you? Nice to be here with you again.
KAREN: great to have you back again. And today's topic is on holdbacks. And before we share a recent scenario, where a holdback was used, I think it would be helpful to mention what a holdback is. Jazz, would you like to explain what's a holdback?
JAZZ: absolutely. So a holdback is a certain dollar amount in a real estate transaction that's held back. And it's agreed upon between the buyer's lawyer and the seller's lawyer.
So some common types of holdbacks might occur as in repairs, or replacements needed into the home, or if there are other deficiencies that the buyer didn't get a chance to inspect and then, you know after closing they see something that was supposed to be inspected, but wasn't. So those are usually common ones.
In the issue of condos, sometimes property managers don't know what the special assessment is. So there could be a holdback depending on what comes out of the special assessment, or when the status certificate is received. It's a certain dollar amount that's held back, essentially.
KAREN: Okay great. Now that we understand what a holdback is, I'll share some background information on a real estate transaction that recently closed and involved a holdback. So one of the associates on our team was working with a purchaser and the purchaser bought a home here in Toronto. When they first saw the house for sale, the owner still had all of their furniture and belongings in the property. So in this case, when the purchasers saw the closets, they were full of clothing and empty suitcases. Everything seemed fine. They loved the house and proceeded to submit an offer. The offer was accepted and all the conditions were eventually fulfilled.
So typically, a purchaser is allowed to visit the house again before they officially receive the keys on closing. And what the purchasers noticed was a substantial amount of mould in one of the bedroom walk-in closets. The purchasers did not see the mould during their first visit because the mould was hidden by all of the clothing and empty suitcases.
Since mould poses a health issue, the purchasers asked the owners to remedy the mould in the closet, and unfortunately the owners refused to pay for the mould removal. They insisted that the deal was already firm and that it was the purchaser's responsibility.
In this case, the purchaser spoke to their lawyer and their lawyer managed to arrange a holdback of $3,500 which would be used by the purchaser to remedy the issue. Now I imagine most transactions involving a holdback would require the consent of both parties involved. In this case, only one party was consenting since the homeowners were not willing to remedy the mould issue and they were not agreeing to a holdback of funds. In cases like this, where a homeowner is not willing to remedy issues with the property and they're not agreeing to a holdback of funds to pay for these issues, if the purchasers are adamant that certain issues are fixed in order to close, could the seller's lawyer agree to a holdback without the consent of their clients?
Jazz: Yeah. So thank you for that scenario. And I guess that's very unfortunate of the mould issue. But as you know, that with inspections, you know buyers buy without having any inspections done and these certain deficiencies do come up. The proper way of going about a holdback, if an issue like this arises, is that both lawyers should actually get consent and approval from their clients and let them know what that holdback is, how much it is, why it's being held back and that full knowledge should be made aware to both vendor and the purchaser.
So I don't have particulars about this case that you're talking about and how one lawyer was just able to holdback unilaterally. It's better to have both lawyers agree and their clients agree on it. That's the proper way of going about it.
Now, your question in regards to if they can do that, no. It's not. It's improper. Like I said, to holdback. So where you have a situation where one party is refusing to the holdback, what can happen is, the buyers would close with protest. And making, you know, an issue in letting the vendor know that okay, we're going to close but we know that this issue is on the table and if you're not agreeing to a holdback, then what they can do, the buyers, is they can sue the vendor for the abatement of the purchase price. So they can seek a court order, for a reduction of the purchase price. And that would be their kind of remedy if they can't get the holdback.
KAREN: I see, okay. So based on this information, once a real estate transaction is firm, is it correct to say that a purchaser is not able to use a holdback as a means of recourse to remedy any issues before closing?
JAZZ: Right, right. Exactly. Yes.
KAREN: Alright. So in cases where a holdback is in place, how quickly will a purchaser receive the funds from the holdback?
JAZZ: I think it varies depending on if it's residential or commercial transactions. But for residential transactions, I would say that anywhere between 30 to 60 days is a good timeline of when that holdback can be released. That is in line with when lenders would like their final report and usually within 60 days of closing. So I know at my office we follow that procedure. Usually, clients will get their holdback within 60 days of closing.
KAREN: okay, awesome. Thank you so much Jazz for sharing your legal knowledge and expertise.
JAZZ: Absolutely. It's always a pleasure to be with you and do these meetings with you.