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Be wary of contracts with “on closing” conditions

Mary Duncan (name changed) and her husband bought a house last year. The purchase agreement contained a warranty that the appliances and fixtures (including the furnace) would be in good working order on closing.

The sellers also promised that the swimming pool as well as equipment would be in good working order. That promise only applied to the condition of the pool and equipment on the actual date of closing.

After moving in last June, the buyers discovered that the pool pump and the solar control panel to the pool heater were not working.

When a gas company employee came to turn on the natural gas supply, Duncan was told that the furnace venting and/or chimney liner had to be replaced.

A heating contractor was called in to replace the chimney liner. He informed the buyers that the heat exchanger in the furnace was defective and unusable.

As a result they had to buy a new, high efficiency furnace at a total cost of $4,237.50. In addition, the defective pool pump and solar control panel were replaced at a cost of $1,778.62/

The couple sued the former owner for $6,016.12 for breach of the “good condition” warranties in the purchase agreement. The deputy judge’s ruling contains some valuable advice to purchasers on what should and what should not be inserted in an agreement of purchase and sale.

“When buying a house,” he wrote, “it is critical to ensure that it is very clear in the Agreement of Purchase and Sale that everyone knows exactly what is being bargained for and that the Agreement of Purchase and Sale contains clear, unambiguous clauses that express the intent of the parties.”

As worded, the warranties contained in the Duncans’ agreement only spoke to the condition of the appliances, fixtures and pool equipment only on the day of closing and they expired that day. The boilerplate wording, used by many agents and realtor software programs, did not promise that the equipment would be working any time after closing.

In his ruling the judge wrote, “Purchasers should inspect the property just before closing to ensure that the seller’s warranties are true.”

The buyers’ claim was dismissed. The judge suggested that the buyers should have inserted a clause that the items be in good working order as of a date after closing, or that there could have been a cash hold-back as security that the equipment was working.

The buyers failed to ensure that they had a right to inspect the fixtures, the pool and its equipment on or just before the closing date to satisfy themselves that everything was working.

Using boilerplate clauses in realtor software programs without considering their meaning can be very risky.

I think the decision is wrong because the items were clearly defective before closing – but the judge’s comments are still valuable advice.

By Bob Aaron

Bob Aaron is a Toronto real estate lawyer. He can be reached at bob@aaron.ca.

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