Real estate transactions are often carefully timed and structured. Financing approvals, inspections, title searches, and closing dates are coordinated weeks or months in advance. When one of the parties to the transaction dies before the deal is completed, the legal and practical consequences can be significant. A death can delay closing, create uncertainty regarding authority to proceed, and in some cases fundamentally alter the obligations of the parties.
In Ontario, whether a transaction can continue after a death depends on several factors, including the timing of the death, the wording of the Agreement of Purchase and Sale, the ownership structure of the property, and whether an estate trustee has authority to act.
Death of a Seller Before Closing
When a seller dies before the closing date, the property does not simply become unavailable for sale. In most cases, the Agreement of Purchase and Sale remains binding on the seller’s estate.
However, complications frequently arise because the deceased seller can no longer sign transfer documents or closing authorizations. The estate trustee (formerly referred to as the executor) must step in and demonstrate legal authority to complete the transaction.
This often requires:
- locating the original will;
- confirming the appointment of the estate trustee;
- obtaining legal advice regarding the estate’s authority to sell;
- preparing additional estate documentation; and
- in some cases, obtaining a Certificate of Appointment of Estate Trustee (probate).
These steps can cause delays, especially if the death was unexpected or the estate planning documents are unclear.
Where there is no will, the complications increase substantially. An estate trustee without a will must usually seek court appointment before dealing with the property, which can take considerable time.
Death of a Purchaser Before Closing
The death of a purchaser before closing creates a different set of issues. In many cases, the purchaser’s estate remains obligated to complete the purchase. The contractual obligations do not automatically disappear upon death.
The estate trustee may therefore need to:
- determine whether sufficient funds exist to complete the purchase;
- secure mortgage financing if financing had not yet been finalized;
- decide whether the property should still be acquired for the benefit of the estate; and
- address insurance and liability concerns.
Family members are often surprised to learn that a real estate contract can survive death. Unless the agreement contains a specific condition addressing death or impossibility, the estate may still be legally bound.
Practical issues can also arise where the deceased purchaser was relying on employment income to qualify for financing. A lender may refuse to advance mortgage funds after learning of the death, potentially placing the estate in default.
Joint Ownership Issues
The nature of property ownership can dramatically affect what happens after death.
Joint Tenancy
Where property is owned in joint tenancy, the surviving joint owner typically acquires the deceased owner’s interest automatically through the right of survivorship. In many situations, this allows a transaction to proceed more efficiently because the surviving owner becomes the sole owner.
Joint tenancy is common between spouses.
Tenants in Common
Where owners hold title as tenants in common, the deceased person’s share forms part of the estate and must be dealt with through the estate administration process.
This can complicate matters considerably, particularly if:
- there are multiple beneficiaries;
- family members dispute the will;
- probate is delayed; or
- creditors have claims against the estate.
Delays and Closing Risks
Even where everyone intends to proceed with the transaction, death frequently causes closing delays.
Common causes include:
- delays obtaining probate;
- difficulties locating estate documents;
- uncertainty regarding signing authority;
- title complications;
- lender concerns; and
- disputes among beneficiaries or family members.
Buyers and sellers may need to negotiate extensions to avoid litigation or claims for breach of contract.
In some circumstances, parties may seek mutual releases where completing the transaction is no longer practical.
Litigation Risks
Deaths occurring during real estate transactions can also lead to litigation.
Potential disputes include:
- claims that the estate is refusing to close improperly;
- allegations that financing could not be obtained because of the death;
- disputes over deposit funds;
- challenges to the validity of the will;
- disputes between beneficiaries regarding the sale; and
- claims for damages arising from delayed closing.
Litigation becomes particularly likely where property values have changed significantly between signing and the intended closing date.
Importance of Estate Planning
Many of these complications can be reduced through proper estate planning.
Clear wills, properly designated estate trustees, organized records, and thoughtful ownership structures can help ensure that real estate transactions proceed with minimal disruption after death.
Individuals involved in significant real estate transactions should also consider:
- powers of attorney;
- title ownership structure;
- insurance coverage; and
- contingency planning for unexpected incapacity or death.
Conclusion
Death introduces emotional and legal complexity into an already detailed process. While most real estate agreements survive the death of a buyer or seller, the administration of the estate, financing issues, title concerns, and procedural requirements can significantly delay or complicate closing.
Early legal advice is essential when a death occurs during a transaction. Prompt communication between lawyers, lenders, real estate agents, and estate representatives can often prevent disputes and help preserve the deal where possible.