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Be clear about rental items in real estate contracts

By Robert Hof

When you sell your home, if you expect the buyer to take over any of your rental obligations, be clear, or you will end up paying for it yourself later.

Here’s why:

A seller sold his home in Niagara Falls on July 19, 2012. The deal closed on August 17, 2012. About 18 months before the sale, the seller installed an alarm system with Reliance Protection in his home and signed a 3 year contract for monitoring the home, at $39.95 per month plus HST of $5.19. When he sold the home, under the chattels included section of the real estate contract, it said “Alarm System and equipment.” Later, under the rental item paragraph, it said that the buyer agreed to assume the rental contract for the hot water tank. No mention was made of the buyer assuming the monitoring contract associated with the alarm system.

The alarm system included a working modem, which continued to activate communication with Reliance after the deal closed and resulted in the original owner continuing to be billed the monitoring charges after the deal closed. He thought that the buyer was going to take over the payments after closing and when he learned that she wouldn’t, he sued, claiming that she was getting the benefit of the system after she moved in. The real estate agent who prepared the contract testified that it was his understanding that the buyer would take over the contract but that was clearly not what the contract said.

The buyer testified in court that she knew nothing about the modem and never agreed to assume any of these payments. She expected to receive the alarm system equipment with the understanding that if she wanted to activate it later, she would call someone at Reliance to arrange this. She said she knew nothing about the monthly payments being charged or the modem. In a decision dated September 11, 2013, Deputy Judge Terry Marshall of the Welland Small Claims Court preferred the evidence of the buyer that she was unaware of the ongoing monitoring charges and dismissed the claim. It was clear to the judge that the alarm system should have been listed as a rental contract, so the seller’s claim was dismissed.

More and more consumers are taking advantage of offers in the marketplace to buy home equipment on rental contracts, including hot water tanks, furnaces, air conditioners, water softeners and alarm systems. When it comes time to sell a home, sellers must be clear as to which contracts must be assumed by the buyer and should disclose the details of every contract, so that the buyer can make an informed decision.

If the listing for a home does include several rental contracts that need to be assumed, buyers should consider making any offer conditional on their reviewing and being satisfied with all the terms of the rental contracts, especially if there are any penalties relating to cancellation of the contract before it ends. By being clear and prepared before signing any real estate deal, there will be no unwanted surprises or unanticipated charges after the deal closes.

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