House Repairs in an Agreement of Purchase and Sale

How do you deal with repairs when buying a house?  The recent case of Rosenhek v. Breda, 2010 ONSC 2786 deals with this question and illustrates the importance of having clear contractual terms in order to avoid expensive legal battles.

The buyer commenced a claim for $23,000 in respect of an alleged breach of contract arising out of an Agreement of Purchase and Sale for a property of almost $2 million.  The facts are as follows:

• The Agreement contained a clause that the purchase was conditional on the buyer obtaining a home inspection. If the inspection revealed deficiencies in the property which the buyer was unwilling to accept and the seller was unwilling to fix, then the offer would be at an end.
• A home inspection was carried out.
• The home inspection identified a number of deficiencies.  The buyer identified a number of items to be repaired.
• The buyer signed a document waiving the inspection condition (in the standard form provided by real estate agents) but inserted wording that the waiver was conditional upon certain items being repaired before the closing of the transaction.  The new wording was accepted by the seller – this became known as the Repair Agreement.
• Work was done on the property by the seller to rectify the deficiencies.  The deal closed.  Approximately a week after closing, the buyer noticed that the deficiencies had not been completely repaired.

The parties argued first whether or not the repairs had in fact been carried out.The Court considered whether the obligation to carry out the repairs was terminated when the property was conveyed to the buyer.  The Court considered the doctrine of merger, which provides that the acceptance of a deed in the sale of land is prima facie full execution of the agreement to convey the land, and any preliminary understandings or agreements relating to the Agreement of Purchase and Sale become merged in the conveyance.  The Court then sought to determine whether it was the intention of the parties that the Repair Agreement survive closing.  The Court found that the Repair Agreement was not intended to survive closing.The Repair Agreement was found to be different from a clause where the seller warrants that fixtures and chattels are in working order and will be on the completion of the transaction.The Court found that, based on the wording of the Repair Agreement, once the property was conveyed, the Agreement was no longer conditional, and the Repair Agreement merged, and the obligation to repair was ended.The case demonstrates the importance for sellers, buyers and their agents to carefully draft clauses regarding repairs and deficiencies which are very specific and detailed to avoid costly disputes which may arise after closing.