Terms and Warranties in Real Estate Contracts

You have agreed to purchase a home, or perhaps you are the seller. What happens if something that was agreed to in the contract is not being honoured by the other party? What are your options? Do you have to close and complete the deal? These are some of the questions that are discussed in this paper from a legal perspective, to shed light on the issues that come up from time to time in real estate transactions.

It is important to determine exactly what you have a problem with or disagreement over in the contract. Is it a term of the contract? If yes, does that term fall into the category of a warranty or a condition? If it is not a term of the contract, are you disputing over a representation? Terms in contracts state or make clear certain obligations on the party or parties involved in the transaction, whereas a representation is more of an assertion made by one person to the other before they enter into a contract in order to convince the other person to enter into that agreement.

When deciding these key points in any given case, the courts look at the intention of the parties by looking at the circumstances surrounding the various interactions of the parties and how the different people involved were acting, also known as the facts. In the standard real estate agreements used by real estate agents, the wording clearly states the agreement itself is the entire agreement between the parties, however, judges have been known to include statements made outside of the written agreement to be terms of the contract. Therefore, it is imperative that your written contracts are well worded and clear.

As mentioned above, whether a term of a contract is a warranty or condition determines how much importance is placed on it. A warranty generally refers to some sort of promise or guarantee, whereas a condition refers to an actual requirement of the contract that has to be satisfied in order for the deal to be completed. The main point to keep in mind here is to always ask the question, what is the effect of breaching the term? Conditions are the terms that are vital to the contract, and therefore if one party fails to perform it, the other party is generally able to terminate the contract and then start a court claim against the breaching party. Warranties, on the other hand, if breached, do not usually have the effect of killing the deal, but the party that has been wronged does still have the right to sue for any damage as a result of the warranty being breached.

But what happens if a representation made by the seller of a property to convince you to buy the property turns out to be false? At this junction, you must determine whether this misrepresentation was made with the intention to deceive you or was it an innocent or negligent misrepresentation. If you are claiming that the other party fraudulently misrepresented something with actual knowledge that it was untrue and with the intent to deceive you, then you will have to prove this and there are negative consequences if you are unsuccessful in proving this. However, if you are successful you may be able to terminate the contract and sue for your own damages. Conversely, if the representation was innocent then you have to make the further determination of whether it was with or without negligence.

Do you have any contracts that need reviewing? Do you feel like a contract you entered into has been breached by the other party? Feel free to contact us for a consultation to discuss further.


About the Author

Nabeel Naqvi

Nabeel obtained his Bachelor of Arts at York University in Philosophy. He then obtained his Juris Doctor from Bond University, in Queensland Australia. Nabeel specializes in secured lending and real estate transactions. He also focuses on drafting essential commercial agreements, as well as acting for entrepreneurs and businesses in the establishment, organization, and financing of their operations. Prior to starting his own firm in 2017, he specialized in business development meeting sophisticated e-business needs for clients ranging from Fortune 500 companies to emerging dot.coms.

By |August 11th, 2018|Real Estate|0 Comments

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