Generally, when a client contacts a real estate law firm to inquire about pricing, the firm discloses its fixed fee for the service but also that the ultimate expense will include payment for HST and "disbursements." Some individuals may not be well-versed in the term "disbursements" and may concentrate on the quoted fee, which could lead to a misinterpretation of the total cost of finalizing the transaction.

In a real estate transaction, disbursements pertain to the expenditures and fees incurred by a lawyer on behalf of their client. The lawyer does not gain any profit from these disbursements; rather, they are simply transferring the cost of these services to the client. It is crucial for the client to be aware that these disbursements can accumulate.

Disbursements play a crucial role in real estate transactions. They are essential in ensuring the proper registration of property transfer, conducting necessary searches, and organizing all required documents. It is vital for clients to have a clear understanding of the disbursements involved in their transactions and plan their budgets accordingly. The following are the main disbursements that are charged in most real estate transactions.

Land Transfer Tax

The Land Transfer Tax is a one-time cost paid by the buyer of residential property. It is not incurred by the seller and must be paid in cash at the closing of the property; it cannot be rolled into a mortgage.

The land transfer tax in Ontario is calculated based on the value of the home, and the marginal tax rates increase based on tiers up to the purchase price. The tax rates are as follows:

  • First $55,000: 0.5%
  • $55,000.01 to $250,000: 1.0%
  • $250,000.01 to $400,000: 1.5%
  • $400,000.01 to $2,000,000: 2.0%
  • Over $2,000,000: 2.5%

For homes in Toronto, the municipal land transfer tax is also applicable in addition to the provincial land transfer tax, resulting in a double payment of the tax for properties within the specified boundaries of Toronto.

Title Search

To ensure that there are no potential problems that could impact the transaction, the lawyer must use Teraview to conduct a title search and confirm the clarity of the property title.

Teraview, a privately owned online system, is utilized by real estate professionals and lawyers in Ontario for the registration and management of land registry records. This service is not free, and users are required to pay a fee. The fees collected are used for the maintenance and updates of the system, as well as for providing support and training to users.

Registration

A legal professional is obligated to make two payments for each instance of registering a title transfer, recording a new mortgage, or registering any other document on a title: one is a mandatory statutory fee and the other is an ELRSA fee. These charges are imposed by the government and Teranet, respectively, for the provision of necessary services to finalize the registration process.

The government imposes a statutory fee for transferring the ownership of a property to the buyer. This fee, which is determined by the government, remains consistent for all properties with occasional increases.

The ELRSA fee, also referred to as the E-reg fee or Electronic Land Registration System Administration fee, is a charge imposed by Teranet to maintain and update the digital land registry system. In the past, lawyers were able to register title transfers by physically waiting in line at the Land Registry Office and having the transaction recorded in a book. However, the option to register electronically was considered a luxury and incurred an extra cost by Teranet. Presently, all title transfers and other related documents must be registered electronically, thus the ELRSA fee is now mandatory for every registration.

Execution Search

The act of filing an execution against a client's name is a lawful procedure that allows a creditor to take possession of the client's assets in order to repay a debt. This may involve seizing a real estate property, if the client happens to possess one.

As part of the due diligence process in a real estate transaction, a real estate lawyer must conduct a search for any executions filed against the client's name. This is crucial because a client's name being associated with an execution could negatively impact their ability to sell or transfer the property, potentially causing complications or delays in the transaction.

If the lawyer uncovers an execution in the client's name, it will be necessary to collaborate with the client to resolve the matter and prevent any impact on the transaction. This may entail discussions with the creditor, obtaining a release of the execution, or pursuing other legal measures.

Law Society Levy

The Law Society of Ontario implements a transaction levy surcharge to collect funds for programs and services that support the legal profession and the public. This fee applies to specific legal services, including real estate transactions.

Software Surcharge

The disbursement for software may include charges related to the use of real estate-specific software. Real estate lawyers may incur expenses for using specialized software for tasks such as conducting title searches, completing writ searches, and managing the various legal aspects of real estate transactions. These software-related costs are typically passed on to the client as part of the disbursements associated with the transaction.

Tax Certificate

A tax certificate is a type of “off-title” search that gives details about a property's tax, such as outstanding property taxes and any overdue taxes that must be settled. The cost of obtaining a tax certificate from the City responsible for property tax collection will differ depending on the tax office. Other “off-title” searches that have to be conducted are determined on a case-by-case basis. Depending on the property, there would be a need to search for unregistered easements, hydro, zoning, conservation authority, etc.

Postage and other administrative fees

The lawyer might have to cover the expenses of using courier services to transport papers to the purchaser or any other individuals involved in the deal. Additionally, there may be postage fees for sending out documents. There are also banking charges, and for virtual signings, there is a DocuSign and ID Verification fee.

Title Insurance

Title insurance in Ontario is a form of insurance that protects property owners and lenders from potential financial losses related to the property's title. It is designed to provide coverage against specific risks and issues related to real estate transactions that may not be evident during the initial property search or due diligence process. The costs of this one-time payment vary depending on the purchase price of the home.

Status Certificate

If the property you are purchasing is a Condominium, a Status Certificate will be necessary for the lawyer to conduct a review of the Condominium's management, by-laws, financials and reserve fund. Further, the Title insurance company requires status certificates to be less than 60 days old from the closing date before they are willing to issue title insurance for the property. 

Summary

Disbursements are a complex element of the real estate process, yet they play a crucial role in ensuring a seamless completion of the transaction. In addition to disbursements, there are other charges that a client should be aware of, including but not limited to, realtor commission, mortgage insurance through CMHC (if applicable), and HST.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.