Fire Dept. Terminology and Lawyer Responsibility

[Neil1]

Hi,

A few questions regarding apartment buildings purchase, say 10-plex:

- What is the difference, if any, between a fire retrofit and fire certificate?
- Does the buyer's lawyer usually obtain one? Would you say not obtaining one is a lawyer not doing her/his job? Or is this an exaggeration as it is not that critical?
- Should the lawyer have the buyer sign a waiver if, for any reason, the lawyer does not obtain the required doc from the fire dept or from the seller?

Thanks,
Neil

 

[Thomas Beyer]

What does your purchase contract say here ?

We usually have a clause to this effect, in the warranty section:

Seller warrants building adheres to all current municipal and provincial health, safety and fire codes. Seller to provide evidence that building complies with all provincial and municipal health, safety and fire code regulations. If such compliance cannot be verified at least 10 days before closing, a holdback of $100,000 will be placed in the buyer's lawyer's trust account to remedy such deficiencies, and the remainder, if any, released after such deficiencies have been remedied.

$100,000 is a guideline for a large building. Use a lower figure for smaller buildings.

To your question: if you have such a warranty clause, but not a holdback, and the seller or your own lawyer cannot get this certificate in time (quite common, btw !!) the seller is in breach of contract but you still must close. You have now reason for damages later that you can enforce through a court action if you want !

 

[3canctheayr]

Taken literally, the difference between a fire retrofit and a fire certificate is; A certificate is a document provided by the local fire inspector assuring that the building meets current fire codes.
A retrofit is documentation and evidence showing what retrofits have been done to meet changing regulations.
The seller should provide at least the fire certificate when selling, as it would support any retrofits that have been done.

 

[Neil1]

[quote user="ThomasBeyer"]What does your purchase contract say here ?

We usually have a clause to this effect, in the warranty section:

Seller warrants building adheres to all current municipal and provincial health, safety and fire codes. Seller to provide evidence that building complies with all provincial and municipal health, safety and fire code regulations. If such compliance cannot be verified at least 10 days before closing, a holdback of $100,000 will be placed in the buyer's lawyer's trust account to remedy such deficiencies, and the remainder, if any, released after such deficiencies have been remedied.

$100,000 is a guideline for a large building. Use a lower figure for smaller buildings.

To your question: if you have such a warranty clause, but not a holdback, and the seller or your own lawyer cannot get this certificate in time (quite common, btw !!) the seller is in breach of contract but you still must close. You have now reason for damages later that you can enforce through a court action if you want !

[/quote]
Thank you,
Neil

 

[Neil1]

[quote user="3canctheayr"] The seller should provide at least the fire certificate when selling, as it would support any retrofits that have been done.

[/quote]

What if the latest fire certificate the seller has is from 5 years ago? Should the seller then invite the fire department to his/her building in order to sell you their place?

1 question which was not answered - Do you think it is the lawyer's responsibility to explain this to the buyer and ensure such a fire certificate is provided? Or just professionally yes, but not really the lawyer's responsibility legally(?)

Thanks,
Neil

 

[Thomas Beyer]

[quote user="Neil1"]

1 question which was not answered - Do you think it is the lawyer's responsibility to explain this to the buyer and ensure such a fire certificate is provided? Or just professionally yes, but not really the lawyer's responsibility legally(?)

[/quote]

It wasn't answered because you did not tell us what the contract says. What is the buyer's responsibility as per your mutually signed contract ?

Or, if it is a theoretical question then you need to be precise in your legal contract. It is usually the buyer that has to provide such current certificates, but they often do not. Then you, via your agent ( lawyer or realtor ) get this certificate as most lenders require it.

 

[Neil1]

[quote user="ThomasBeyer"]
you need to be precise in your legal contract.

[/quote]
I am not a lawyer.
The question is about lawyer responsibility - is it correct to say that yes, a professional lawyer should tell you (the buyer) that* and ensure or at least strongly recommend you include that clause in your purchase agreement?
From your feedback, it sounds like you already have a written agreement you do not expect your lawyer to review and correct.
Thanks,
Neil
* to include a clause similar to "..Seller to provide evidence that building complies with all ..fire codes.."

 

[Thomas Beyer]

[quote user="Neil1"]I am not a lawyer.
The question is about lawyer responsibility[/quote]
Neither am I. They are educated professionals, but are humans and come in all shapes and sizes, just like painters or plumbers. You hire them to do a certain job. Painters give advice on color choices, and you may or may not agree with them. Plumbers suggest certain material or piping options and you may or may not agree with them. Ditto with lawyers. They might suggest "use this clause" or "I suggest we word it this way" but in the end you, the client have to say yes or no to that. If you, or they, forget a clause and it costs you $25,000 on closing that is really on your dime, not theirs.

To be successful in single family, multi-family (or commercial) real estate you need to be 1/4 plumber, 1/4 lawyer, 1/4 painter, 1/4 interior decorator, 1/4 mortgage broker, 1/4 banker, 1/4 property manager, 1/4 accountant, 1/4 tax analyst etc .. i.e. enough of an expert to understand that expert and to make an informed decision if any of these experts tell you to do X or not do Y or reword Z. Like a decathlete, you have to be fairly good at a lot of things and not terrible at any one, as any one of these items could cost you ten's or in larger assets 100's of thousands of $s.

That makes the profession so interesting (to me, anyway), as opposed to be a 100% lawyer or 100% accountant or 100% painter..

Most commercial contracts have such a clause but it could be stronger (and we use what I wrote after 38+ deals with over $175M in asset value over the last 15 or so years). The issue is often the seller is supposed to provide certain dox by certain dates, say a fire code compliance report, but often he doesn't by condition removal date. Then what ? Do you still buy, because the deal is good, or at least good enough ? Or ask fro an extension that you may not get ? Or walk away because a one page report is missing ?

 

[Neil1]

[quote user="ThomasBeyer"][quote user="Neil1"]I am not a lawyer.
The question is about lawyer responsibility[/quote]
Neither am I. They are educated professionals, but are humans and come in all shapes and sizes, just like painters or plumbers. You hire them to do a certain job. Painters give advice on color choices, and you may or may not agree with them. Plumbers suggest certain material or piping options and you may or may not agree with them. Ditto with lawyers. They might suggest "use this clause" or "I suggest we word it this way" but in the end you, the client have to say yes or no to that. If you, or they, forget a clause and it costs you $25,000 on closing that is really on your dime, not theirs.

To be successful in single family, multi-family (or commercial) real estate you need to be 1/4 plumber, 1/4 lawyer, 1/4 painter, 1/4 interior decorator, 1/4 mortgage broker, 1/4 banker, 1/4 property manager, 1/4 accountant, 1/4 tax analyst etc .. i.e. enough of an expert to understand that expert and to make an informed decision if any of these experts tell you to do X or not do Y or reword Z. Like a decathlete, you have to be fairly good at a lot of things and not terrible at any one, as any one of these items could cost you ten's or in larger assets 100's of thousands of $s.

That makes the profession so interesting (to me, anyway), as opposed to be a 100% lawyer or 100% accountant or 100% painter..

Most commercial contracts have such a clause but it could be stronger (and we use what I wrote after 38+ deals with over $175M in asset value over the last 15 or so years). The issue is often the seller is supposed to provide certain dox by certain dates, say a fire code compliance report, but often he doesn't by condition removal date. Then what ? Do you still buy, because the deal is good, or at least good enough ? Or ask fro an extension that you may not get ? Or walk away because a one page report is missing ?

[/quote]

This is an excellent summary of what is expected from us investors.
Your earlier feedback perfectly answers my original question.
Thank you Thomas for taking the time to educate and enrich us all.
Neil

 

[snoopy]

"Seller warrants building adheres to all current municipal and provincial health, safety and fire codes. Seller to provide evidence that building complies with all provincial and municipal health, safety and fire code regulations. If such compliance cannot be verified at least 10 days before closing, a holdback of $100,000 will be placed in the buyer's lawyer's trust account to remedy such deficiencies, and the remainder, if any, released after such deficiencies have been remedied."

That is a sensible clause and is one that both your lawyer and real estate agent should make sure is included. However the Toronto market is so hot for multi unit properties, inserting such a clause would make it unlikely your offer would be accepted.

It is my experience that most smaller multi unit properties don't have an annual fire inspection and certificate issued. The sellers usually cant produce the certificate and there are many buyers behind you willing to waive this demand.

 

[Thomas Beyer]

As a multi family investor you are really in the wart management and removal business. Every deal has warts, some minor and some major. You job is to find them, size them and then decide what to do with these warts. Some fire code deficiencies are minor and cost a few hundred $s but others a major and could cost you tend of thousand of $s.

Yiu ou have to be educated enough, or have enough expertise around you, to make an informed decision on often incomplete information.