Alberta Wildfires & Real Estate

The 2023 wildfire season has started, and many communities are under evacuation orders or threat of evacuation. Since the Government of Alberta has declared a provincial state of emergency, we wanted to provide some guidance to Alberta brokers on the issues that affected regions need to think through.

New Home insurance policies on current transactions

Many insurance companies have temporarily stopped writing new home insurance policies in affected areas. As you all know, nearly every mortgage approval from a lender is conditional, and one of those conditions is always the binding of a home insurance policy on the property. If the buyer has removed conditions and cannot obtain insurance to satisfy their mortgage approval requirements, they will be found in default and unable to close. The current wildfire situation does not alter the contractual elements of the purchase contract. These situations should be discussed by the clients with their respective legal counsel, but below are some considerations:

For buyers in a firm transaction on a property within a threatened area:

• The buyer and seller may, but are not obligated to, extend the completion day until the threat passes
• Shop around. Insurers have different limitations/ restrictions for properties in threatened areas
• Ask your broker or agent what options may be available to secure insurance for the home
• Ask if you can add the new home onto your existing policy instead of trying to secure a new insurance policy with a different provider.

For buyers entering a transaction on property in a threatened area

• Ensure the buyer has an additional buyer’s condition, such as:

• “Subject to the buyer obtaining and being satisfied with confirmation of a new insurance policy on the property on or before xxxxxxx”

• Suggest the parties have a term in the contract such as:

• “The buyer and seller agree that they will not withhold consent to extend the completion date of the contract by amendment to allow reasonable time for the parties, lenders, brokerages, and lawyers to close the transaction should the wildfire threat change.”

An additional suggestion that should be made to sellers of property within threatened areas is to maintain their existing home insurance without a set cancellation date to line up with closing. If the property closes successfully, then insurance can be cancelled but setting up the cancellation beforehand could cause the seller problems if the threat changes, the transaction cannot close on time, and insurance coverage lapses.

The Insurance Bureau of Canada has produced a valuable document as well as a contact info page found at this link (http://www.ibc.ca/ab/disaster/wildfires/).

As mentioned, AREA advises that all members direct their clients facing these situations to seek legal advice on their particular situation, especially in cases where physical property damage from wildfires becomes a reality during a real estate transaction.

AREA will continue to monitor the situation and offer best practice advice where needed through our Provincial Practice Advisor, Bryan Statt.

On behalf of AREA and staff, our hearts go out to the members, clients, and all Albertans affected by these devastating fires.