Condition of Property at Possession

One of the most common and frustrating issues for both real estate industry members and lawyers in closing residential real estate transactions is a dispute over the condition of the property on Completion Day. Rarely are buyers entirely happy with the condition and cleanliness of the property when they take possession. While occasionally their concerns are valid, in most cases they are not. In any event, there is not much that lawyers can do to assist buyers in this regard. This column will explain why the Purchase Contract is worded the way it is and what buyers’ representatives can do to protect their clients where specific concerns are identified when writing up the offer.

The condition of the property is addressed in clause 4.2 of the Residential Real Estate Purchase Contract (the “Contract”) as follows;

“When the Buyer obtains possession, the Property will be in substantially the same condition as it was in when this Contract was accepted.”

In addition, clauses 6.1(b) and 6.2 of the Contract require that when possession is granted, all included Attached Goods (fixtures) and Unattached Goods (chattels) be “in normal working order”.

So what does this really mean?

In general, and unless additional terms are inserted in clause 7.6 of the Contract, it means that with the exception of appliances (which have to work), the seller doesn’t have to clean up or repair the property in any way for the buyer. In fact, the words “substantially same condition” imply that some deterioration resulting from normal wear and tear, and the scrapes and blemishes resulting from the moving out process, are acceptable. The seller is certainly not required to paint walls, clean carpets or fix small holes in walls where pictures have been removed.

Even if, contrary to the terms of the Contract, an appliance doesn’t work or more significant damage (such as a broken window) constituting a breach of the “substantially the same condition” obligation is discovered on possession day, the buyer’s lawyer may not be able to refuse to close or otherwise secure compensation for the buyer. In general, the buyer is only entitled to refuse to close if the damage to the property is so major that it would constitute a “material” breach of the agreement. In this case, it is important that the buyer or the buyer’s representative bring these issues to the attention of the buyer’s lawyer quickly. The buyer’s lawyer will communicate the matter to the seller’s lawyer, which will result in one of two possible outcomes:

1. The seller’s lawyer may be able to convince the seller to offer some compensation to the buyer, repair the problem or agree to a monetary holdback until the problem is resolved; or
2. The seller will refuse to take responsibility for the problem, but at least it will be documented that the problem existed at the time of possession which will help the buyers if they choose to prosecute a small claims action for recovery of damages.

Because the problem of not being able to force the issue when the condition of the property is not “substantially the same”, industry members sometimes suggest that a default holdback provision be incorporated in the standard Contract to routinely allow buyers to withhold a predetermined sum (such as $1,000 for example) until the condition of the property is found to be satisfactory. This is not, unfortunately, possible on a practical level. The inevitable result of this provision would be that, rightly or wrongly, buyers would take advantage of the holdback entitlement in almost all cases. Sellers would then have to accept the loss or be forced to sue buyers to receive their full sale proceeds.

Building an early walkthrough or condition inspection provision into the contract is also not a practical solution to the problem. Since damage to the property is only likely to occur when the seller is moving out or only apparent after the furniture is removed from the premises, a walkthrough conducted prior to the seller’s move is virtually useless. It should be mentioned that unless it is specifically written into the Contract, the buyer is not entitled to insist on access to the property in the period between the removal of conditions and possession day.

Although the current Contract could, as a result, appear to be biased in favour of sellers receiving their money from the sale, I always point out to unhappy buyers that the same Contract will protect them for their sale proceeds when it comes time to sell their home in the future.

In cases where a buyer wants the seller to carry out a specific task prior to possession, such as the shampooing of carpets, the removal of car parts from the backyard, or a specific repair to the property, the buyer’s representative has to insert specific additional terms into the Contract in clause 7.6. To be effective, such terms should contain: a firm deadline; a monetary holdback provision if the work is to be completed post closing or an inspection provision if the work is to be done prior to closing; and a term setting out the consequences if the work is not carried out as required.

Courtesy of AREA

Big Ideas

Whether you are looking to sell right away or in a few years, there are several sound renovation investments that are worth the money, according to HGTV real estate expert Heather Unger, a Sales Associate with RE/MAX Central Realty in Lake Mary, Fla.

Here are some tips for potential sellers:

Rev up curb appeal – A green lawn and fresh exterior paint are sure ways to attract potential buyers. Plant colorful flowers or hang flower boxes from windows, repair cracked walkways and choose a neutral, pleasing exterior color to maximize your home’s appeal.

Upgrade the kitchen – This is where you’ll get the best return on your investment. Buyers want granite countertops, stainless steel appliances, modern cabinets and hardware, and updated light fixtures. Think IKEA kitchen: modern and functional. For the average kitchen in a 2,000-square-foot home, you’ll spend $8,000 or more for basic upgrades.

Redo the bathrooms – After kitchens, bathrooms are the next places to get the best bang for your buck. Granite countertops, modern faucets and light fixtures and tile floors are popular with buyers. The more you can do yourself, the more money you’ll save. Expect to spend about $3,000 or more. You can save even more by buying store floor models for sinks and vanities, or going to granite bone yards for materials.

Add space – If you have the money, consider adding square footage to your home by finishing your basement, expanding the master closet or knocking down some walls to create a more open floor plan.

Economical options

If you don’t have time or a ton of money for major renovations, don’t worry, says Laura Smith, a Sales Associate with RE/MAX First in Baton Rouge, La. A clean, clutter-free home goes a long way for many buyers, says Smith, who has appeared on HGTV’s "Bang for Your Buck."

Here are Smith’s tips:

Make your home smell incredible – Get your air-conditioning unit professionally serviced and cleaned. Most companies charge under $150, and it goes a long way in removing household odors and allergens. Also, use plug-in fresheners and fabric deodorizing sprays.

Steam-clean the carpets – Instead of replacing carpets, call a professional to have them steam-cleaned and watch the transformation! You will be delighted to see that steam cleaning the carpets (price depends on carpet area) is money well spent.

Remove clutter – Check your closets and donate old clothes, shoes or other items that you haven’t used in the past year. Buyers want to see storage space; this goes for the other closets in your home, as well as garages. If you’re having showings, remove all personal photos and clear off all appliances and knickknacks from countertops and display shelving.

Create an outdoor living space – Adding a sense of comfort to your patio, deck or backyard adds value to your home. Stage your patio or deck with a table and chairs, as well as an outdoor rug, lively plants, some colorful flowers or a small fountain. Get rid of unsightly weeds and keep the lawn mowed and presentable.

Good luck,