Buyer Moves In and Finds Faulty Fixtures. Oh oh.
A typical clause that is included in many agreements of Purchase and Sale is one that asks the Seller to warrant that the chattels and fixtures included in the sale are and will be in good working order on completion of the transaction. It goes on to say that the warranty applies to the condition of these items only to the date of closing but that the warranty goes on beyond. Confused?
Basically it says that the Seller promises it is in good working condition on the closing date and that the promise is valid beyond but does not apply to any change in condition after the deal is closed. Here’s a real life example that happened to one of my buyer clients several years ago.
We had some suspicions about the septic and so, I put a clause in the offer asking the seller to warrant that the septic tank was and is in good working condition and further, that is was compliant with today’s standards. The Seller agreed and even initialed that particular clause. After my buyer moved in, the septic failed almost immediately and she called the local septic company to come and have a look. Upon arrival, they said, “Not again! We told the previous owners the septic was faulty and needed to be replaced.” Bingo. She was now able to prove that the sellers promise, prior to closing, was invalid. She successfully sued the former owners for the full cost of a new septic.
So what happens if a seller gives the warranty in good faith? Here’s another example. I listed a condo with a gas fireplace for sale last summer. The buyers offer contained the aforementioned warranty clause. The seller and I discussed the condition of the chattels and fixtures one by one, including the fireplace which we even turned on for a moment. Everything was working well. After the sale closed, the new buyer turned on the fireplace AND the blower fan. Sure enough, the fan had seized. When the seller last used it many months before, it was working.
In an email to his lawyer asking what the resolution should be, the seller got the following answer:
“The general rule is buyer beware, but the seller also has an obligation:
(a) not to mislead the buyer as to the condition of the property or take steps to conceal any “defect”; and
(b) to disclose any “defect” in the property that he is aware of and that couldn’t be seen on an inspection, if the defect would have an impact on the value of the property.
The buyer is deemed to accept any “defects” that would be obvious upon an inspection of the property. The example I like to use is a broken window – if the buyer can see that a window is broken and doesn’t put a provision in the agreement of purchase and sale that it is to be repaired, then the buyer takes it as is. I understand from Marg that you indicated that last time you used to fireplace was perhaps in January, and the fan was working then. I understand the buyer inspected the property more than once, and also had a home inspection. If, according to her, she specifically wanted to know if the fireplace was working, I am a little surprised that someone would not have turned it on. So, the buyer isn’t completely blameless. The bottom line is that this is not a black and white situation. There is no absolute right or wrong answer, and the best solution is probably to find some way to resolve it.”
I am obviously not a lawyer nor am I in a position to give legal advice as each case is different but I do know that time spent in court is usually more costly than reaching a compromise so, open discussion is worthwhile as is consulting your own lawyer in a situation such as these. Sellers should always insert the words, “to the best of the Sellers knowledge and belief” into a warranty clause or, they should disclose any known defects and never attempt to hide them.