Inspection clauses in real estate contracts can make the difference between walking away or having the seller pay for necessary repairs to a home you buy.
Caveat emptor! Buyer beware — waiving home inspections in Ontario could rob you of vital legal options if your home purchase goes wrong.
Axess Law makes amendments to agreements of purchase and sale to protect home buyers’ interests before you close a deal that’s too good to be true.
It’s our experience you need to:
- try all the faucets and fixtures
- look behind paintings and furniture
- check for recent building permits
- and have a professional do the serious investigating for you.
Your right to inspect a home before final possession.
Typical Contingencies in Home Inspection Clauses What’s at Stake
When a home buyer finds serious issues with a seller’s property in Ontario, they can be entitled to walk away from the purchase.
Surprisingly, while home inspection clauses are found in many residential real estate transactions, buyers and sellers often don’t fully understand typical contingencies available to them and how they affect their rights.
Typical contingencies are conditions that can be added to an agreement of purchase and sale by a buyer or seller. Using a real estate lawyer to draft home inspection clauses can ensure a contract is free of legally binding loopholes.
What is an Inspection Clause?
Generally speaking, property buyers are expected to act honestly, reasonably and in good faith when looking to satisfy any condition, including a home inspection clause.
How home inspection deficiencies affect you.
The Ontario Court of Appeal has reiterated this point and Marshall v Bernard Place Corp (2002) offers some insight. To begin, the home inspection clause read:
“This agreement is conditional upon the inspection of the property by a home inspector of the purchaser’s choice and expense, and receipt of a report satisfactory to him, in his sole and absolute discretion.”
This is what happened —
The buyer received the report and wasn’t pleased. After saying he was dissatisfied, he asked the seller for his deposit back. The seller felt the buyer’s decision was unreasonable. An objective look at the report revealed there were only very minor issues with the home. The seller balked at returning the deposit.
To the seller’s annoyance, the court agreed with the buyer, saying the words “sole and absolute discretion” meant the buyer was allowed to take a subjective view to the home inspection report.
4 ways to ensure your home inspection is a success.
What “Sole and Absolute Discretion” Means
In this case, “sole and absolute discretion” was interpreted in a way that was favourable to the buyer. While buyers are expected to act reasonably, the wording in the purchase and sale agreement allowed the buyer to walk away if they weren’t satisfied for any reason; even if that reason wouldn’t be considered reasonable by the average person.
Before you make or accept a real estate offer, check out the buyer’s right to cancel.
If You’re a Seller….
Since this 2002 decision, sellers try to avoid “sole and absolute discretion”, which allows buyers to act unreasonably. Adding additional wording can protect your right to correct all deficiencies less than $1,000 in value and still require the buyer to close the deal.
Patent defects that a buyer or home inspector can easily spot, like a stained carpet, can be excluded from your liability as seller. Provided you didn’t hide it, the buyer has every opportunity to request minor fixes before the deal closes.
Latent defects like foundation issues that weren’t visible during a home inspection can still be your fault. While some lawyers (not us) advise home sellers not to complete a SPIS to avoid liability, that can be false reassurance. To see why, see Who Pays Repairs.
If You’re a Buyer….
As a buyer, it’s imperative to review any changes a seller makes in a home inspection clause with an Axess Law real estate lawyer. The slightest wording change can greatly impact your rights and the entire sales transaction.
Hiring an unqualified home inspector, or skipping the home inspection entirely, may be considered unreasonable or acting in bad faith. Cancelling your purchase could be difficult, unless you:
- completed the actual inspection
- hired a certified or qualified home inspector, not a friend or contractor who may be biased
- or the home inspection condition allowed you to act unreasonably.
What to do if your home inspector is negligent.
What a Home Inspector is Not Allowed to Do
Home inspectors can inspect your home for patent or visible defects. You expect an inspector will find cracks in walls or exposed wiring you might miss. Latent defects below the surface are off limits.
Don’t ask your inspector to be a plumber or electrician. Your inspector won’t test for radon, asbestos, or mould (beyond what they can obviously see), You need a certified environmental assessment for that, and the seller’s permission.
What a home inspector is not allowed to do is to:
- move furniture or make holes in walls
- take apart fixtures to see why they don’t work
- assess a home’s fair market value
- comment on a home’s appearance
- condemn a property
- cite potential building code violations
- make estimates, such as how long an appliance might last.
Who Pays Repairs
Damages to a home between the time you signed the agreement of purchase and sale and take possession as buyer are typically the seller’s responsibility. The risk allocation clause in the agreement of purchase and sale — assuming one exists — kicks in, forcing the seller’s home insurance policy to absorb the expense.
What to include in the agreement of purchase and sale.
At this point, cancelling the deal is unlikely unless damages are extensive. Talk to a real estate lawyer before entering negotiations to return a deposit.
Buyers, confirm when your insurance starts to prevent costly gaps in coverage. And be sure to make a pre-possession walkthrough to ensure you are getting what you paid for.
Who pays repairs after a buyer takes possession depends on whether the seller honestly disclosed what they knew or hid defects that might affect the sale or price. As long as a latent defect the seller knew about makes a home uninhabitable, dangerous or unfit for the buyer’s purposes, they could have a case. Axess Law refers buyers and sellers to our trusted legal partners for newly discovered flaws that cost time and money to repair.
Why You Need a Lawyer
Axess Law’s real estate lawyers in Ontario review agreements of purchase and sale for home inspection clauses that may cause legal problems later. We ensure the offer to purchase protects you if you need to walk away from a worrisome home inspection report.
See what happens to deposits if a sale falls through.
Home inspection problems can cause sellers to offer to make repairs. Be sure fixes are done to a buyer’s satisfaction by having Axess Law put it in writing. Working with our real estate legal team ensures the small details are on everyone’s radar.
If you’re worried about If a deal falls through, who gets the deposit, our licensed legal professionals can answer your questions.
Common real estate questions you ask us.
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