We have all heard the horror stories.  The new homeowner buys a house and discovers a problem after the title is transferred.  A leaky basement.  A leaky roof.  Pool or hot tub equipment not working.  Septic system has failed and needs to be replaced.  What now?  The deal that you thought you had has now gone sideways.  You feel ripped-off.

The Doctrine of Merger

When the title of ownership in land transfers from the seller to the buyer, all of the liabilities for any damages are transferred with it.  That means if it is broken before you buy it, then you are buying something that is already broken.  You cannot sue someone for its repair after you have taken possession of the property.  So how does one protect themselves from being deceived?

Let me back up a bit.  In every Agreement of Purchase and Sale, there is an execution date (date of signing the agreement) and a completion date (the date for transferring the keys and the title of the house to the new owner).  In contract law, it is normally considered that the date of signing is the date when ownership changes hands.  With home sales, however, it’s a bit more complicated.  The finalization of a home sale ends with the transfer of title.  New homeowners wanted protection from unknown broken things or systems, while home sellers wanted protection from lawsuits well after the transfer of the title.  So, legal clauses were invented to protect both sides and a completion date when the remainder of the money is transferred along with the title to the property.  You’ve probably seen clauses like this:

The Seller represents and warrants, to the best of the Seller’s knowledge and belief, that, during the
Seller’s occupancy of the building, the sewage system has been and will be in good working order on
closing. The Parties agree that this representation and warranty shall survive and not merge on
completion of this transaction, but apply only to the state of the property existing at completion of this
transaction.

or, this:

The Seller represents and warrants that the swimming pool and equipment are now, and on the
completion date shall be, in good working order. The Parties agree that this representation and
warranty shall survive and not merge on completion of this transaction, but apply only to the state of the
property existing at completion of this transaction.

These legal clauses are warranties.  The warranties expressed above means that the seller is promising that something will be in working order at the time of signing the agreement, up until the closing of the agreement.  If it is discovered after the closing that something is wrong, the home buyer has to prove that that something was not in working order before closing.  Sometimes that requires an expert to give evidence that the problem could not have happened after the closing date of the Agreement of Purchase and Sale.

Special Cases:  Pools & Hot Tubs

There are three ways in which a home buyer can protect themselves with a pool or hot tub on the property.

1. A seller’s promise that the pool or hot tub is in good working order by a certain date, such as June 15.  If there is a problem when the pool is opened, and a problem is discovered, it is directly in the hands of the seller to fix the problem.
2. A seller’s promise that the pool is working and covenant at the seller’s expense, that the pool will be opened by the seller and put into good working order by a certain date.
3. A seller’s promise that the pool is in good working order and a holdback of a sum of money used as a security that can be used to fix the pool if something goes wrong.

With all of the above suggestions, it is best to speak to your Realtor® or Real Estate Solicitor to protect your interests while drafting your Agreement of Purchase and Sale.

If it all goes wrong…

If your repair is $25,000 or less, I can help you with a Small Claims Court claim.  Contact me for more information.