Who Pays for Title Insurance in a Real Estate Transaction?

What is Title Insurance?

Title insurance is a one-time payable insurance policy that protects a person’s ownership title. It covers potential losses arising from issues such as someone else claiming an interest in the property, identity fraud, or violations of municipal zoning bylaws. The cost of title insurance typically depends on the purchase price of the property or, in some cases, the amount of the registered mortgage.

Unlike other types of insurance, title insurance does not need to be renewed monthly or annually. It is a one-time premium that remains valid as long as the owner holds title to the property. The policy can be transferred to one’s heirs, but not to a new owner in the event of a sale.

When examining the Certificate of Location, the notary will determine whether irregularities exist, such as encroachments or zoning bylaw violations, that require title insurance. For example, if a building or pool is not compliant with municipal zoning bylaws, title insurance will be required.

Read more on what title insurance is here: https://www.babalegal.ca/post/what-is-title-insurance 

When Is Title Insurance Required and who pays for it?

Title insurance becomes necessary in several situations, including:

• When title issues are revealed in the notary’s title examination (in this case, title insurance is normally payable by the seller)

• When required specifically by the buyer’s financial institution as a condition of the financing (in this case, title insurance is normally payable by the buyer)

• When the seller is unable or unwilling to provide a valid and up-to-date Certificate of Location before signing the Deed of Sale (in this case, title insurance is normally payable by the seller)

• When the Certificate of Location reveals irregularities or non-conformities related to the property or its dependent structures (can be payable by either party, depending on certain factors)

The case of irregularities or non-conformities related to the property or its dependent structures, as revealed in the Certificate of Location

Previously, in the case of irregularities or non-conformities, title insurance was payable by the seller unless otherwise agreed upon by the parties. This stems from the seller’s obligation to provide the buyer with a clear and valid title.

However, recent updates to the OACIQ promise to purchase form have introduced some nuance to this standard.

Clause 10.3 and Clause 10.5 Explained

Clauses 10.3 (for residential immovables with fewer than five units) and 10.5 (for divided co-ownerships) in the OACIQ promise to purchase forms specify that the seller is responsible for violations of public law, only if such violations are not disclosed in the Certificate of Location provided before the buyer submits their offer.

This means:

• If the irregularity appears in the Certificate of Location and this document was provided to the buyer before they made their offer, then the buyer is responsible for paying for title insurance.

• If the irregularity was not disclosed in any document given to the buyer before the offer was signed, then the seller remains responsible for the cost.

The parties may, however, amend these standard terms by mutual agreement within the promise to purchase.

The Notary’s Role

The notary’s role is to apply the terms agreed upon in the promise to purchase. If the parties wish to change who is responsible for title insurance, they must do so through their real estate broker, who will inform the notary of any amendments.

The notary’s responsibility is to determine whether title insurance is necessary to protect the buyer and their lender, not to renegotiate contract terms.