Repair Clauses in Real Estate Contracts
Repair clauses in real estate contracts must be carefully worded.
Most real estate agreements are conditional on the buyer being satisfied with a home inspection. The buyer inspector then usually finds problems and the buyer wants the seller to correct them in order to go through with the deal. As the following case illustrates, if you are not careful in how you word this repair obligation, court proceedings can arise:
Mark Rosenhek agreed to buy a home from Elizabeth and Angelo Breda at 17 Doncliffe Dr. in the City of Toronto on June 9, 2004 for $1,995,000. The home was built by the Bredas in 1997, and they lived there until the home was sold. The agreement was conditional on a home inspection.
The home had sloped roofs except for two areas where the roof was flat. The home inspector found some deficiencies with the property, including the elimination of water pooling on the flat roof area, which could later lead to leaks. There were other items identified to be repaired, such as a broken window, flue caps for the chimney and some minor electrical repairs. The parties met and the buyer signed a waiver of the condition with wording that said that the waiver was being provided on the understanding that the seller would repair the deficiencies before closing. The Bredas stated that they completed these repairs before closing.
The deal closed on September 14, 2004. The buyers and their lawyer made no inquiries before closing as to whether the repairs had been completed. After closing, he noticed from his bedroom that it still appeared that water was ponding on the flat roof, however, he did not contact the Bredas about it. 3 years later, a leak appeared in the dining room beneath the flat root. The buyers received quotes of over $20,000 to replace the flat roofs with a sloping roof, to eliminate the ponding problem. They sued the Bredas for these losses.
In a decision dated June 2, 2010, Judge Laurence Patillo of the Ontario Superior Court of Justice decided that any repair obligations ended when the deal closed. It was up to the buyers to inquire about the status of the repairs and make any complaints on or before closing, since this was not a warranty that went past closing. He accepted the seller evidence that all repairs that they agreed to make before closing had been completed.
Sellers, buyers and real estate agents are sometimes confused about how to deal with repair obligations. In my opinion, the best way is to just get an estimate as to how much it will cost and give the buyer a credit for the amount on closing. Let the buyer fix it after closing. Otherwise, there are almost always arguments over whether the work was done correctly.
Buyers are also often mistaken, thinking that they can automatically hold back money on closing if repairs are not completed as promised. In most cases, the buyer has to close and sue for the cost of repairs later. If you want the ability to hold back money, then a clause must be inserted into your contract in the first place that says specifically that money will be held back until both parties, acting reasonably, determine whether the repairs have been adequately completed.
Make sure you are properly protected before signing any real estate contract, to avoid unnecessary court proceedings later.
Mark Weisleder is a Toronto real estate lawyer.
Contact him at email@example.com