It’s no surprise that one of the most frustrating challenges in residential real estate transactions is the Buyer taking issue with the condition of the property on Possession Day. These issues can lead to dissatisfaction among clients, Realtors, and Real Estate Lawyers alike especially since there is limited recourse. In this article, we will explore scenarios where problems arise, provide insights into the Contract language, and offer recommendations to manage expectations effectively.
Understanding the Contract: Key Clauses for Property Condition
The standard form residential purchase and sale Contract used in Alberta by Realtors, known as the “Contract,” addresses property condition concerns. Let’s examine the Contract’s relevant clauses to understand their purpose and implications.
Substantially Same Condition
On possession, the property should be in “substantially the same condition” as it was when the Contract was accepted. This clause sets the baseline expectation for property condition.
Normal Working Order
On possession, All included Attached Goods (fixtures) and Unattached Goods (chattels) are to be in “normal working”. These clauses ensure chattels, such as appliances, are functional.
Access to the property prior to the Possession Date
The Contract does not allow for access to the property between condition removal and the Possession Date (unless an additional term is added providing for access)
Dealing with Pre-Possession Deficiencies
- Issues Apparent at the Time of Offer: If the Buyer identifies specific concerns about the property’s condition during the offer and negotiation stage, they can address these issues directly in the Contract.
- Condition on Possession Day: Buyers may express dissatisfaction with the cleanliness or overall condition of the property upon taking possession. However, unless additional terms are negotiated, Sellers are not obligated to clean or repair the property beyond what is outlined in the Contract.
- Potential Deficiencies: Buyers might ask about the consequences of discovering issues on Possession Day.
Navigating Deficiencies discovered during Negotations
Warning to Realtors – Minor Work & Repairs
Realtors should exercise caution when including clauses in the contract that require the seller to undertake minor tasks or repairs before possession. While it may seem beneficial to address these issues upfront, there are potential challenges that need to be considered.
Minor Nature and Low Value: The tasks or repairs specified in these clauses are typically minor in nature and often have a relatively low value, sometimes less than a couple of hundred dollars. Engaging in a legal dispute over such a small amount may not be practical or cost-effective in the event the work is not done.
Furthermore, it is crucial to recognize that any negative experience related to these clauses on Possession Day, despite an otherwise smooth transaction and excellent service provided by the realtor, can leave a lasting negative impression on the buyer. This final stage of the transaction serves as the climax, and any unresolved issues can significantly impact the buyer’s satisfaction. It is essential for realtors to manage client expectations and highlight the limitations imposed by contract terms, as the buyer may perceive the realtor and their lawyers as unable to provide immediate assistance in rectifying such issues.
Practical Recourse: It’s important to note that possession is only provided once the full purchase price has been paid to the seller. Therefore, if the seller fails to fulfill their obligations regarding these tasks or repairs, practical recourse for the buyer becomes limited. Pursuing legal action to enforce these clauses is often not practical as it is costly and takes time.
Realtors should carefully evaluate the necessity and potential consequences of including such clauses in the contract. It is advisable to have open discussions with clients about the implications and potential outcomes, ensuring they are well-informed and can make informed decisions. Read Our Script about discussing minor work with clients
Work that is more Significant
In cases where significant work must be done as a condition of the contract, it is advisable for the realtor to encourage the buyer to consider negotiating a reduction in the purchase price instead. By doing so, the buyer retains control over the completion and quality of the work. However, if the buyer insists on the seller doing the work, it becomes crucial to draft a specific term in the Contract outlining the required work, a deadline to complete, a mechanism to confirm completion, along with any holdbacks or remedies if the work is not completed as agreed upon. Learn More at our Post on Holdbacks. It is important to manage the client’s expectations by explaining that the work may not be fully completed by the possession date, and highlight the potential challenges associated with holdbacks, such as delays in receiving the funds or disputes over the release of the holdback amount.
Often we see clauses saying the seller is complete certain work prior to possession. There is often no mechanism to ensure the work is complete, or that sets out what happens if the work is not complete.
Navigating Deficiencies Discovered prior to or on Possession Day
Should the buyer become aware an issue prior to the possession day, it’s important to note that Buyers are generally required to close the transaction, even in the event of a breach of the “substantially same condition” obligation. The damage would have to be so significant that it would be considered a “material breach” of the contract. The buyer is not able to unilaterally insist on a holdback of funds or a reduction in purchase price. Buyers may become aware of an issue (or believe there to be an issue) if they receive access to the property for whatever reason, they drive by the property, someone tells them about an issue.
Other times, issues are discovered at the time of Possession or shortly thereafter.
Recommended steps:
Realtor Communication: For minor issues, encourage realtors to discuss and resolve the matter amicably without creating unnecessary stress for the clients. Open communication can often lead to quick solutions. See our suggested Script for dealing with minor deficiencies discovered on Possession Date.
Involvement of Buyer’s Lawyer: If necessary, the Buyer’s representative should inform the Buyer’s lawyer promptly. The Buyer’s lawyer will then communicate the issue to the Seller’s lawyer, who will present potential resolutions to the Seller, including compensation, repairs, or a monetary holdback.
Sometimes the Seller will be open to negotiation and other times they may ignore the proposal or take the position “sue me”.
If the issue is discovered prior to the Possession Date, there may be more leverage for negotiation. Although the buyer may still be required to close the transaction, the seller may feel more inclined to negotiation a resolution if they have yet to receive the closing funds.
At the least, having the Buyer’s lawyer contact the Seller’s lawyer will document the problem’s existence. This documentation can be valuable if the Buyer decides to pursue legal action to recover damages. See our post about claims against the Seller for defects discovered post closing.
Questioning Potential Deficiencies
Why can’t we walk have a walk through?
Unless otherwise specified, the contract does not allow access to the property between the condition removal and the Possession Day.
Contracts are intentionally designed to limit access for buyers before closing to strike a balance between the interests of both parties involved. Allowing unrestricted access could lead to potential issues such as excessive nitpicking, demands for price reductions or holdbacks, and even threats of not closing the deal. This situation would create significant challenges and complexity for all parties involved in the transaction.
Instead, the contract establishes the condition that the property must be in substantially the same state as agreed upon. This provides a legal framework and remedies in case of a breach. By focusing on the property’s overall condition, the contract seeks to strike a fair balance between the buyer’s desire to ensure a satisfactory purchase and the seller’s need for a smooth transaction.
While a pre-closing walk-through would seemingly offer an opportunity for buyers to inspect the property, it can lead to unnecessary disputes and delays.
In essence, the contract’s provisions aim to safeguard the interests of both buyers and sellers, providing legal remedies in case of significant breaches while promoting a streamlined and efficient closing process. It’s a delicate balance that strives to maintain fairness and minimize potential conflicts during the transaction.
It isn’t fair that the seller gets their money before we receive possession and confirm the property is in order?
While it may seem unfair, it’s important to understand the underlying reasons for this practice. The purchase contract typically outlines the conditions under which the seller is entitled to receive their money. This arrangement ensures a smooth and efficient closing process for both parties involved. However, it’s crucial to note that the contract also includes clauses regarding the condition of the property at possession. If there are significant issues discovered on possession day that breach the terms of the contract, buyers can work with their lawyer to address these concerns and seek appropriate remedies.
In the context of a real estate transaction, balancing the interests of both the buyer and the seller can be complex. While the current process may not always align with buyer expectations, it aims to strike a balance between protecting the seller’s interests and providing buyers with remedies to address property condition issues discovered at possession. Working closely with the Realtor and lawyer can help the buyer navigate these concerns and ensure a smoother closing process while protecting the buyer’s rights.
Read our Scripts on these 2 questions.
Conclusion:
By understanding the nuances of property condition clauses in the Contract and effectively managing expectations, Realtors can navigate potential issues on Possession Day with professionalism and minimize client dissatisfaction. Proper communication, prompt legal involvement, and documenting problems will contribute to smoother transactions and protect the interests of both Buyers and Sellers.
This article is provided for general information purposes only and does not constitute legal or other professional advice. You are advised to discuss your obligations with your broker. You may reach us at 780-473-7779.
