What is a Transfer of Land Back and Covenant to Restore

Or  (Why do I have to sign a Transfer of Land transferring the property back to the Seller when I purchase a property?)

Before answering this question, I need to give you a very simple and brief explanation of how regular real estate transactions work in Edmonton.

The Seller’s lawyer prepares a Transfer of Land which is signed by the Seller.  The Transfer of Land is the document that will transfer the property from the Seller to the Buyer.

The Seller’s lawyer sends the Transfer of Land along with some other documents to the Buyer’s lawyer.

Now, think about this:  The Seller’s lawyer is sending the Transfer of Land to the Buyer’s lawyer before the Seller is paid for the purchase price.  This means that the Buyer’s lawyer can register the Transfer of Land (transferring the property to the Buyer) without paying the Seller.  So how does the Seller’s lawyer make sure the Seller gets paid?

The documents are sent to the Buyer’s lawyer on explicit conditions called Trust Conditions.  The Buyer’s lawyer must follow those conditions (if they don’t they are in big trouble!).  I like to explain Trust Conditions as promises made between lawyers and that we trust each other to keep them.

[Here’s a quick plug about the legal profession – lawyers get a bad rap for being dishonest but really our profession and the rules that we are governed by are based on honesty and trust between each other and with our clients] 

Some of the conditions that the documents get sent to the Buyer’s lawyer on are:

The Buyer’s lawyer must have the down payment from the Buyer and must make sure that the Buyer’s mortgage is ready to be advanced before the Transfer of Land is sent for registration;

Once the Transfer of Land and Mortgage are registered (usually on or before the Possession Date), the Buyer’s lawyer must pay to the Seller’s lawyer the Purchase Price.

It takes a few days for a Transfer of Land to get registered and it must be registered on or before the Possession Date. So, the Buyer’s lawyer sends the Transfer of Land to get registered a few days before the Possession Date (the day on which the Seller gets paid and the Buyer gets the property).

During those few days that the Transfer of Land has been sent in to be registered something could happen with the Buyer’s money.  For example, the mortgage lender might decide not to advance the mortgage money because they have discovered that the Buyer was dishonest on their mortgage application.

Once the Buyer’s lawyer sends the Transfer of Land to get registered, it usually can’t be stopped.  This means that the title will transfer to the Buyer no matter what once the Transfer of Land has been sent in.

What happens if the Buyer becomes the owner and they suddenly don’t have the money to pay the Seller?    How is the Seller protected?

and here finally is the answer to your question …

Before sending the Transfer of Land to get registered, the Buyer’s lawyer must get the Buyer to sign what I call Just In Case Documents.

The first is an agreement that if the Buyer becomes the Owner of the property and does not pay the Seller within a certain number of days after becoming the Owner, the Buyer will transfer the property back to the Seller.  This agreement is called a Covenant to Restore Title.

The second is the Transfer of Land (Back) which is the document that will actually transfer the property back from the Buyer to the Seller.  The Buyer’s lawyer will hold this document on their file and it will only be used in the event that the Covenant to Restore Title agreement applies.  The Buyer must sign the document in advance because the Buyer’s lawyer might never see the Buyer again after the Bank does not advance the funds.

These are signed Just In Case the Buyer becomes the Owner and does not pay the Seller.

2019-10-17T02:55:05+00:00