In a number of Real Estate Transaction, for many different reasons, we cannot do a Normal Closing, Protocol Closing or a Title Insurance Closing and the Cash Closing is the only way we can proceed. See “On Time” Closings.
THE MAIN ISSUE THOUGH IS THAT THE REGISTRATION DATE IS AFTER THE CLOSING DATE.
In the circumstance set out above, the Buyer will get possession of the Property on the Closing Date AND the Buyer will have to pay interest to the Seller from the Closing Date until the Registration Date.
The rate of interest payable depends upon the reason for the delay in closing. For instance, if the reason for the delay was because of the Seller, then the usual interest rate is “Mortgage Amount-Mortgage Rate” which means the Buyer pays to the Seller interest on the amount of the Buyer’s Mortgage at the rate the Buyer is paying on his Mortgage. Since the Mortgage funds won’t be advanced until the Registration Date when the Mortgage is registered, there is NOT an additional cost to the Buyer for what he is really doing is paying his Mortgage interest to the Seller instead of the Lender.
There will, however, be an additional interest cost to the Buyer on the difference between the mortgagee amount and the proceeds due to the Seller. This interest rate will change, however. The convention is that this “preferred rate” (Mortgage Amount-Mortgage Rate) will be applicable to the Buyer for the Turnaround Time at the Land Title Office plus two days. So if the Turnaround Time is 9 business days, plus 2, then for 11 business days the Buyer will enjoy this rate.
If the Transfer of Land is still not registered when the preferred rate period has run out, then the Buyer is obliged to pay the Seller interest at the Contract Rate which is usually higher, such as the Alberta Treasury Branch Prime Rate plus 3% for the remaining time until the Registration Date.
If the delay in Closing is related to the Buyer, then the usual practice is for the Seller to receive the Contract rate of interest on the Cash to Close from the Closing Date to the Registration Date.
The Seller does not earn any interest on the Cash Shortfall from the Buyer while it is held by the Seller’s Lawyer. This whole area of paying interest and at what rate and whose fault it is, is really a pain, and that is why every effort is made to complete transaction ON TIME. Please see Time and Money for more information on the interest costs to the Buyer for a late closing..