The Ontario government recently announced that it would be presenting legislation this spring to ban the use of NOSIs (Notice of Security Interest) going forward. In addition, the government indicated that the legislation would also attempt to retroactively cancel all existing NOSIs. The legislation is the result of lobbying from various groups including homeowners and lawyers. This column will explain what a NOSI is and how a NOSI can cause so many problems in the course of a real estate transaction.
A NOSI is a notice that can be registered on title to a property in the land registry system when an individual finances or leases equipment such as an HVAC unit. The security interest is granted by the individual to the company supplying the equipment. In the context of a residential property, I have recently seen a number of instances where a NOSI has been registered on title to a property without the knowledge of the owner. When the owner sells or refinances the property, the Buyer will discover the NOSI when its lawyer does a title search on the property. What follows is often a dispute between the parties as to who is responsible for discharging or paying out the NOSI on closing. This column will discuss this issue and provide some guidance for realtors on how to avoid disputes which could result in deals not closing.
A NOSI often comes in the form of rental equipment on the property such as a water heater, air conditioner, furnace or water softener. In many cases, an unsuspecting or vulnerable homeowner may receive an offer from a company to install equipment on the property and a contract would be signed setting out the terms of repayment. Unfortunately, many of these companies are unscrupulous and fail to explain to the homeowner that the equipment is not a true rental, but essentially a rent to own contract which entitles the company to register a NOSI on title to the homeowner’s property. Once registered on title, the NOSI is like a mortgage which would normally have to be fully paid off and discharged by the Seller on a sale of the property. The terms of the contract may require monthly payments and in many cases, the cost to buyout the equipment would be exorbitant and much higher than the actual value of the item. NOSIs often extra work for lawyers and often lead to disputes between the parties.
What can a prudent and careful realtor do to address these NOSIs? Below are some tips:
- If you are the listing agent, you must ask your client to confirm if any of the equipment on the property is a rental or if it is a rent to own and subject to a NOSI. This can be discovered by looking at the contract and calling the supplier to confirm the exact nature and terms of the contract between the supplier and the owner; and
- Ensure that the Agreement of Purchase and Sale has clear and explicit language stating that the Buyer agrees to assume the terms of the contract between the supplier and the Seller and that the Buyer understands and agrees that it will agree to assume any NOSI registered on title to the property and will not require the Seller to discharge the NOSI on closing.
Conversely, If acting for a Buyer, it is important to confirm that any equipment on the property is owned by the Seller and not subject to a rental contract or NOSI. Unfortunately, many Sellers are unaware of the nature of the Agreement between themselves and the supplier. However, as a co-operating realtor, you can protect your Buyer’s interest by inserting a clause into the Agreement of Purchase and Sale that obligates the Seller to discharge any NOSIs registered on title relating to any equipment located on the property. This clause will protect your clients and ensure that they are not forced to assume a costly contract with potentially large buyout.
If you are unsure if your home has a NOSI registered on title, the best and quickest way to determine this and avoid surprises is to contact a real estate lawyer to do a title search on the property. This can be done for a modest cost usually under $100.00.