Representations And Warranties In Real Estate
What Are Representations And Warranties?
Legally, representations and warranties have unique individual meanings as well as a collective meaning that people use contractually. For example, the following explain the nature of this term:
Representations
A representation is a statement that a buyer or seller makes as to a specific fact. It is a promise by that party that something specific is true. Specifically, they include promises as to the state of the property or about themselves as the seller themselves. Below we examine frequent representations found in real estate purchase contracts in Alberta.
Warranties
Whereas a representation is a promise is something that is accurate, a warranty is a contractual promise to make the other party whole if that promise is false. It is like a guarantee offered by one party to the other.
Representations And Warranties
Some contract contain specific contractual penalties if someone breaches the contract in a specific way. Others have specific representations and warranties without these outcomes. In the real estate context, representations and warranties have the general promise to make the person whole for a breach. For example, if the representation made in the contract is actually inaccurate or false, then the person who made that promise has to indemnify, or pay back, the party that suffered damages due to the breach of promise.
Real Estate Representations And Warranties
The following reflect the representations and warranties found in the contract prepared by the Alberta Real Estate Association for real estate agents to use. It is important to note that these remain negotiable. For example, if you buy a foreclosure, the bank or court selling the home, delete most of these promises. This means that buyers assume more risks in buying these homes. The following include the usual contractual promises by the seller including that the seller:
- Has the legal right to sell the Property;
- Is not a non-resident for the purposes of the Income Tax Act (Canada)
- And no one else has a legal right to the included attached and unattached goods
- Promises that the current use of the land and buildings complies with the existing municipal land use bylaw and any restrictive covenant on title;
- Represents that the location of the buildings and land improvements is on the land and not on any easement, right-of-way or neighboring lands unless there is a registered agreement on title or, in the case of an encroachment into municipal lands or a municipal easement or right of way, the municipality has approved the encroachment in writing and complies with any restrictive covenant on title and municipal bylaws, regulations and relaxations, or the buildings and improvements are “non-conforming buildings” as defined in the Municipal Government Act (Alberta);
- If they know of any Material Latent Defects, if any, have been disclosed in writing in this contract; and lastly
- Promises that any government and local authority notices regarding the Property, and lack of permits for any development on the Property, known to the seller have been disclosed in writing in this contract.
What Happens When These Are Not True?
A breach of representations and warranties by a party means that the other person, if they suffer any loss from that breach, can sue for breach of contract. Fortunately, most breaches of representations and warranties do not result in a financial loss. This lack of damage to the buyer results from two usual situations. For example, they often occur for a breach occurring without a corresponding consequence. Alternatively, they occur in situations where the seller fixes and / or pays for the cost of fixing the breach. For example, structures often encroach onto a neighboring property. The seller then pays for an encroachment agreement allowing the structure to remain in place. This satisfies the contract after the fact.
In situations where a seller cannot or will not remedy the breach, the buyer, depending on the specific breach may have the option of not closing on the deal. In the event where the buyer has to close, they retain the ability to sue the seller for the amount of money it takes to put them into the position they would have been in if there was no breach. Unfortunately, suing someone often takes a long time. It is also expensive if you hire a lawyer. In many instances, when suing in small claims court, a person represents themselves in court. This makes the process much more affordable.
Need More Real Estate Purchase Contract Help?
If you need more help with representations and warranties or any other aspect of the contract, connect with us. We work with your real estate agent, often at no extra cost to you, to help draft a contract that protects you. We also help explain the terms to our clients so that they understand the contract before they sign. For us to help in this way, it is important that you reach out with your specific questions or concerns before signing the contract. Connect with our real estate lawyers today. feel free to email our residential real estate team directly here. If you prefer a call, feel free to call us at either of our locations in Alberta. In Calgary, call 403-225-8810. In Edmonton, call us at 780-571-8463. Kahane Law Office is here to help you for all your real estate related legal needs.