Choose your words wisely…

Posted on: Wednesday, May 15th, 2013

Sample Clauses for:

1.    Vermiculite Insulation (Asbestos)

2.    Surveys

3.    Warranties and Representations

4.    Lawyers Approval

5.    Hot Water Tank Rentals

6.    Status Certificates

7.    Septic Systems

8.    Water Potability

1. Vermiculite Insulation – Asbestos

With the consent of the vendor, samples can and should be taken if vermiculite insulation is discovered. Clauses that can be inserted in the APS to ensure that the buyer’s agent is able to control who takes the samples if vermiculite insulation is suspected are as follows:

This offer is conditional upon the Buyer’s agent investigating the subject property for the presence of asbestos in the vermiculite insulation within the house located on the property at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion.

The Buyer’s agent shall be authorized to obtain and submit samples taken in accordance with the vermiculite sampling procedure and chain of custody guidelines.

If the Buyer has not provided written confirmation that a report that is satisfactory to the Buyer, in the Buyer’s absolute discretion, has been obtained within 10 days from the acceptance date of this offer this offer will be deemed void and the deposit shall be returned without interest or deduction.

What if Asbestos is present?

If vermiculite insulation that contains asbestos is discovered, it is contained solely in the attic AND your client wants to proceed with the offer, I would recommend the following clauses:

The vendor warrants that to the best of the vendor’s knowledge the vermiculite insulation that is impacted by asbestos is restricted to the attic.

The vendor agrees to discount the purchase price by 50% of the estimate provided for the removal and reinstatement of the insulation in the attic by a qualified environmental consultant chosen by the purchaser.

2. Surveys

Oftentimes, vendors think they have a survey, but what they really have is just a photocopy of the registered plan of subdivision showing no buildings. Prior to drafting the APS, it is important to determine whether or not the vendor does in fact have a legal survey, and if not, you can avoid your vendor promising to produce a document they do not have.

If the Vendor has a survey a clause in the APS which requires the vendor to provide the existing survey should be included. An example of a safe clause to be inserted in the APS is as follows:

Attached to this agreement is a copy of the information available that depicts the property boundaries.

-OR-

Immediately upon acceptance, the vendor will provide any relevant documents in their possession that depicts the property boundaries on the property, including but not limited to, a survey if one is available.

Note: these clauses are drafted to provide only the information which the vendor has in his/her possession.

If you add on to the recommended survey clause the following, your purchaser gets what it needs and the vendor gives what it has.

The seller will further deliver, on completion, a declaration providing information on any additions to the structures, buildings, fences, and improvements on the property since the date of the information provided.

The purchaser will now have all the information the vendor has to give, a declaration providing information on any changes and title insurance.

3. Warranties and Representations: merge v. survive

Warranties and representations can either ‘survive’ or ‘merge’ on closing.

  • To ‘survive’ closing indicates that the seller will be held accountable to the purchaser for that warranty/representation even after the closing of the transaction (typically until a certain date).
  • To ‘merge’ on closing indicates that once the transaction is complete, the seller is no longer responsible for the items discussed.

Recently it has become more common for a hybrid of the merger and survival clause to be used.

Survive closing

An example of a clause to indicate survival is:

This warranty (or representation) shall not merge, but shall survive the completion of this transaction.

This wording indicates that both parties agree that the representations or warranties made shall remain in full force and effect for a certain time period following the closing. This clause keeps the seller on the hook to the buyer.

Merge on closing

Representations and warranties made by the seller herein and all other provisions of this agreement shall be deemed merged on closing.

This clause relates to the legal doctrine of merger which indicates that the contractual warranties and representations will be “merged” into the final representations and warranties that are stated within the closing documents that conclude the transaction. The seller’s obligation ceases to exist and claims cannot be made.

Hybrid clauses

The seller warrants that the chattels are in good working order and this warranty shall survive the closing but only to the condition of the chattels on the day of closing.

This is a way to ensure that the main items (fridge, stove, dishwasher etc.) that have been sold with the property are in good working condition the date of the sale, but it does not provide any guarantees from the next day forward.

4. Lawyers Approval

Once an APS is signed and conditions are fulfilled or waived, the contract becomes binding and amendments cannot be made unless both parties approve the changes. Typically amendments are difficult to obtain once the deal is firm because any changes are often for the sole benefit of one party. A clause pertaining to lawyers approval can help to avoid these problems because a lawyer can make recommendations before the contract becomes binding. An example of a clause that could be inserted is as follows:

This offer is conditional upon solicitor approval of the terms of this Agreement of Purchase and Sale in his sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller within 5 banking days following the date of acceptance excluding Sat/Sun & Statutory holidays, that the above condition has been fulfilled or waived, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller within the time period stated herein.

If you want the lawyer to be in a position to make any and all changes he/she wants upon review of the agreement let the lawyer review it before it is signed.

5. Rental Agreements – Hot Water Tanks

A new trend in residential agreements is for purchasers NOT to automatically agree to assume rental agreements such as those for hot water tanks. The purchaser should ensure that they are given the opportunity to review the contract before consenting to assume it as oftentimes, the terms are not attractive. An example of a clause to insert is as follows:

The Seller agrees to provide a copy of the rental contract for the hot water tank within 5 days of the acceptance date herein. The Buyer will have 3 days after receipt of a copy of the rental contract to confirm whether the Buyer intends to assume the contract or not. If the Buyer does not communicate his/her position within the time set out, the contract will be deemed to be assumed on completion.

This provides the purchaser with the opportunity to review the terms of the rental agreement and if they choose not to assume the contract, the seller is required to cover the associated costs (exit fees/charges imposed by water tank rental companies).

If you act for the vendor you want the purchaser to accept the contract so that your client does not have to break their contract and pay exit fees. If you act for the purchaser you want to protect your client from an unfavourable contract or for them to at least be aware of the terms. I do not recommend that this be inserted as a condition rather a negotiated item. Just like the fridge or stove –is it included or not.

6. Condominium Status Certificates

There is one section included in all status certificates that agents should be aware of:

It is the purchaser’s responsibility to review the declaration and description pertaining to the unit including any exclusive use common element area, to determine whether or not the vendor or any previous owner has carried out a structural change to the unit or has modified the common elements in circumstances where the Board has not given its prior written consent. As this unit and any appurtenant exclusive use common element (if applicable) has not been inspected prior to the making and execution of this certificate, the Condominium Corporation cannot comment upon matters of non-compliance which may be revealed by an inspection of the unit, and the Corporation reserves its right to enforce any matters of non-compliance notwithstanding that they may have existed prior to the issuance of this certificate.

This clause makes it the responsibility of the purchaser to determine if the unit and/or any exclusive use common elements have been modified or replaced. The reason for this is that if they are modified or replaced by the owner, and not the corporation, those items will become the responsibility of the new owners going forward.

I have a standard acknowledgement that I require the vendor to sign in order to confirm that they (nor the previous owner to their knowledge) have not made any changes to the unit. In order to be entitled to this acknowledgement I include the following clause in my requisition letter:

Required: On or before closing a declaration to be provided by the Vendor confirming that the Vendor, or any previous owner or occupant of the unit, has not carried out any structural change to the unit or modified the common elements without prior written consent of the Board of Directors.

If this issue is not raised when the agreement is drafted, there is no way to predict what remedy can be obtained for the purchaser. Since this matter can go to the center of why someone purchases a condo, I would recommend to agents that they include the following clause in the agreement:

The Vendor confirms that the Vendor has not, nor to his knowledge has a prior owner or occupant of the unit, carried out any structural changes to the unit or modified the common elements.

Since this matter can go to the center of why someone purchases a condo I would recommend to agents that they include the following clause in the agreement:

The Vendor confirms that the Vendor has not, nor to his knowledge has a prior owner or occupant of the unit, carried out any structural changes to the unit or modified the common elements.

If the vendor is unable to provide this representation because modifications have made, the following clause can be used:

The Vendor confirms that he or a prior owner or occupant has carried out the following (insert structural changes or modifications) but that prior written consent was obtained from the Board of Directors.

If consent has not been obtained, the vendor should be required to seek approval prior to the completion of the agreement or an abatement in the price should be negotiated.

7. Septic Systems

When acting for a purchaser, it is preferable to request that the septic system be inspected, however, in many cases this is not practical (especially during the winter months in which access is restricted). Due to this, I recommend that a clause is inserted into the agreement of purchase and sale to warrant the septic system. When you obtain a representation or warranty for your client you need to explain to your client what they have. It is something that can be relied upon if there is a need for a claim in the future. For big items this is important because it will lay the basis for a claim to be commenced. An example of a clause to be inserted is as follows:

The Seller represents and warrants, to the best of the Seller’s knowledge and belief, that at the time of installation:

1)    all sewage systems serving the property are wholly within the setback requirements of the property, and had received all required Certificates of Installation and Approval pursuant to the Environmental Protection Act;

2)    all sewage systems serving the property had been constructed in accordance with the Certificates of Installation and Approval;

3)    all sewage systems serving the property had received all required Use permits under the Act or any other legislation; and

4)    all sewage systems serving the property have been maintained in good working order during the Seller’s occupancy and will be in good working order on closing.

Further, the Seller agrees to provide any and all documentation relating to the sewage system, within the Seller’s possession, or which may be made available to the Seller by the appropriate authorities, and given to the Buyer prior to the last date set for examining title. The Parties agree that these representations and warranties shall survive and not merge on the completion of this transaction, but apply only to the state of the property existing at the completion of this transaction.

The Seller agrees to provide evidence if the septic system has been pumped in the past two years or to have the septic system pumped out before the completion of this transaction and will provide a receipt to the Buyer on closing.

8. Water Potability

If you are obtaining a mortgage for the purchase the lender will insist on a Water Potability Certificate. Even if you are not required to obtain this Certificate for your lender, when you sell, that person will require this and for your own health you want the water to be potable. Therefore, I can think of no situation when it would be appropriate to waive the requirement to have a Water Potability Certificate.

I have received a large number of offers in the past few months where there is either no clause to address the private water well or merely a statement that a Water Potability Certificate is required prior to closing. It is my strong opinion that a clause pertaining to this MUST be included in all offers for properties with a private water system.

This Offer is conditional upon the Buyer determining, at the Buyer’s own expense, that:

1)    there is an adequate and potable water supply to meet the Buyer’s household needs;

2)    the pump and all related equipment serving the property are in proper operating condition; and

3)    the Buyer obtaining a Certificate of Potability from the authority having jurisdiction indicating that there is no significant evidence of bacterial contamination. 

Unless the Buyer gives notice in writing delivered to the Seller no later than _____ p.m. on the _______day of ___________, 20____ that these conditions have been fulfilled, this Offer shall become null and void and the deposit shall be returned to the Buyer in full without deduction. These conditions are included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller within the time period stated herein. The Seller agrees to allow access to the subject property to the Buyer or the Buyer’s agent for the purpose of satisfying this condition.

The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

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