Partial Discharge Undertaking
By Jayson Schwarz

I wonder a lot about builders' lawyers. Sometimes I drive myself crazy trying to figure out how they help their clients by putting things in the Agreement of Purchase and sale that are simply wrong. If you are curious where this is going, hold onto your seats; it's coming.

First of all, for those of you unfamiliar with terms, I would like to simply explain the way the process of real estate title works. The Government of Ontario keeps records of every piece of property in the Province. These records are called the title documents. The document on file naming the owner of a property is called the "transfer or deed". All of these documents are filed with the government; this is called "registering" the document. When a bank lends money and gets a record of this loan on title, the document is called the "mortgage". When the mortgage is paid off, a new document is filed with the government office; this is called a "discharge". If only part of the mortgage is paid off, a document called a "partial discharge" can be filed, releasing the paid-off portion. There are many other documents, but these are a good place to start.

Usually when a developer/builder starts the project, he will go to a bank or other financial institution and, just like you, arrange for a mortgage. The difference, however, is that his can be a huge mortgage. As an example, the builder/developer may take a twenty or thirty million dollar "Blanket" mortgage to enable the builder/developer to create and build the project, whether it is a house subdivision or a condominium project. The next thing that happens is that the house or condominium is built and sold, and it's time for closing. Remember my complaint up above? Well, here it comes. The Agreement of Purchase and Sale will include a clause that will relate to the discharge of that part of the blanket mortgage that affects the property you are buying. The good builder lawyers insert the clause that the Purchaser will accept the promise (undertaking) of the builder's lawyer to register the partial discharge in a reasonable period of time, but will give on closing two important things: a) a letter ("discharge statement") from the bank or other financial institution ("mortgagee") setting out how much money has to be paid to the mortgagee to obtain the partial discharge and b) a direction from the builder to the purchaser telling the purchaser to pay the amount of money needed to obtain the partial discharge directly to the mortgagee.

The clauses I will NOT accept stop with the purchaser being forced to accept the builder's lawyers undertaking to register a partial discharge without the other information.

Now, I don't believe the builder's lawyers that omit a) or b) would give the promise without meaning it, but there are things beyond their control, such as:

i) the builder goes bankrupt

ii) the builder has a dispute with the bank

iii) some other party seizes the money from the builder

iv) the builder has an internal shareholders' dispute and assets are frozen

v) the lawyer goes to Argentina with the money

vi) the builder goes to Tahiti with the money If we had obtained a) and b), none of that would matter. My complaint is that it doesn't cost the builder anything to give this piece of mind and security to the purchaser; it's usually the fault of some lawyer trying to prove how good he or she can be. So be careful!!! Watch for these tricky clauses and consult a good lawyer - only a lawyer can provide legal advice and care enough to catch these kinds of things.

Jayson Schwarz is a senior partner with the firm Schwarz Gillen Barristers and Solicitors. He can be reached at (416) 486-2040.