The Importance Of Representations And Warranties

real estate; alberta; lawyer; changes to buyin a home; changes to selling a home

The Importance of Seller’s Representations and Warranties

When it comes to the nitty gritty of contracts in real estate transactions, your real estate professional must discuss what the seller’s representations and warranties are before entering into a contract.  If you are purchasing a property, your real estate professional has duties to fulfil to ensure the transaction runs smoothly and you don’t encounter any hiccups.

If the contract indicates dower consent, a corporation is selling property, power of attorney, special power of attorney, and enduring power of attorney. Ask yourself, is the enduring power of attorney who they say they are?  The truth in these situations can be verified. Really, asking question’s and utilizing your realtor’s expertise helps to “seal the deal”.

What Are Seller’s Representations And Warranties?

Representations are statements that a buyer or seller makes as to a specific fact. For example, the seller claims to have enduring power of attorney and they have the right to sell the property. In contrast, warranties are contractual promises to make the other party whole if that promise is false. For instance, the seller recently installed an underground sprinkler system. But recently the sprinkler system wasn’t operating properly. It was the middle of winter during the possession date so there was no way to determine if it was working. The seller offered a warranty to fix the sprinkler system should it fail to work properly within the time frame of one year.

What Do Representations And Warranties Look Like?

Representations and warranties are more frequently made by the seller. To assist in understanding what they look like, we’ve provided a series of common contractual promises seen on a contract. These promises accompany ways in which you can ensure you are fulfilling the promises.

  • The Seller Has The Legal Right To Sell The Property;

In every sale, the realtor must pull title and verify that the names are correct, accurately spelled and that they match the names of the seller. If they don’t, ask why! Go with your gut if something feels, off it usually is. Is only one name is listed on the contract, but two names are listed on title? If this is the case, consent is required from both registered owners to legally list the property.

Use Caution

Beware of special instances such as, dower issues, an estate sale, or if the property is being sold by a corporation. Extra caution should be used when pulling title, as these situations can cross over into legal practice areas. Does the spouse consent to release their rights?  An estate sale must have the power of attorney registered on title. Incorporation documents will reflect who the directors of the company are and a directors resolution will determine if they have the right to sell the company’s real estate.

  • The Seller Is Not A Non-Resident For The Purposes Of The Income Tax Act (Canada);

Are you meeting with the seller in person or over the phone? If over the phone, why? Are they living outside of Canada? Ask why! Residency status can have an impact on when lawyers can transfer funds. Keep in mind that failure to confirm this can also impact the seller’s ability to transfer title.

  • No One Else Has A Legal Right To The Included Attached And Unattached Goods;

In this case, it is important to ask the seller if there are debts or payments or contracts with any of the items at home. This can include alarms, furnaces, appliances, and water softeners. For example, if the client has a contract for a camera doorbell, they must include it in the contract, or disclose that it is not part of the contract. The seller must be transparent and the buyer should never assume information regarding the seller’s representations and warranties.

  • The Current Use Of The Land And Buildings Complies With The Existing Municipal Land Use Bylaw And Any Restrictive Covenant On Title;

Obtain a current copy of the Real Property Report, often referred to, as an RPR. An RPR  is a survey of the property, prepared by an Alberta Land Surveyor. This document clearly illustrates the boundaries of the property, it’s exact location and dimensions of the building. The RPR defines any structures, such as a garage, shed or fence built in relation to the property lines. If issues come up in the RPR your lawyer will consult with you.

  • The Location Of The Buildings And Land Improvements;

The property must be 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. Obtain a Real Property Report to ensure that there are no encroachments.

  • 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);

A simple indicator to solve this query is to pull title and see if there are any restrictive covenants. If there are, pull them and see what they are there for and make sure nothing is violating them. The property will either be compliant or non-conforming. Compliant means that the city approved the structures and they did have the appropriate permits. Non-conforming means that the structures do not meet the current zoning requirements, but they did meet the requirements when they were initially constructed.

  • Known Material Latent Defects, If Any, Have Been Disclosed In Writing In This Contract;

Upon walk through of the house, look for abnormalities and ask questions! If you see a stain on the ceiling, ask how and why it is there? Do you feel any drafts where there are no windows present? Sometimes a seller may try to conceal a defect which in turn makes it effectively latent. The courts have increasingly found the seller liable for the defect. It is best to not assume that the seller is being transparent regarding their representations and warranties.

  • 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. 

Ask the seller if they had any notices regarding the property from the city and whether they have permits for any work done in the home. Request to see the notices or permits for proof. These contractual terms are negotiable in certain circumstances such as a foreclosure property. Ultimately, it is dependent on how much of a risk the buyer is willing to take.

What Happens If You Breach A Representation And/Or Warranty?

If one party suffers a loss from the breach, the opposing party will likely remedy the situation as both sides want to close the deal. Worst case scenario, if the seller is unable or unwilling to remedy the breach, then depending on the breach, the buyer will have the choice of not closing the deal. In the event this should happen, you will have to return any deposit you were holding on to and they realtor will not receive their commissions.

Need Further Clarity?

Seller’s representations and warranties are a very serious. From the buyers perspective, you want to protect your investment. Sellers must be transparent. Our lawyers can help with work your real estate agent. We can review the contract or draft the contract to protect you and your investment. Connect with our real estate lawyers today, call us at 403-225-8810 or email today to contact us.