Best Ways to Word Home Inspection Clauses
Published on 29 August 2022, 07:22:56 AM
Home inspection clauses in offers to purchase can make the difference between walking away or having a seller pay for necessary repairs to a home you buy.
Caveat emptor (buyer beware) — if your purchase goes sideways, waiving the common home inspection clause Ontario real estate lawyers recommend could cost you thousands.
Quick Reads
What are typical contingencies?
Is home inspection mandatory in Ontario?
How do you word a home inspection contingency?
Wording that could trip you up
What are home inspectors not allowed to do?
Are the sellers of a house liable for repairs after the closing (Canada)?
Why You Really Need a Home Inspection Clause
We know you probably “kick the tires” before you make an offer to purchase a home:
- 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.
The offer is just the start of your home buying journey. Including an inspection clause in your agreement of purchase and sale can make the difference between a solid investment and a costly mistake.
Your right to inspect a home before final possession.
What is an Inspection Clause?
The wording may look similar to this OREA (Ontario Real Estate Association) example of a home inspection clause:
“This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the ______day of ____________, 20____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.”
Typical Contingencies in Home Inspection Clauses — What’s at Stake
Home inspections aren’t mandatory in Ontario or Canada, but they can save the day when you find serious issues with property you plan to purchase. As long as you have a home inspection clause, you could even walk away from the sale.
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.
How to Word Home Inspection Contingencies
Generally speaking, property buyers are expected to act honestly, reasonably, and in good faith in fulfilling home inspection clauses in Ontario. Good faith is very specific when it comes to buying a home, as Marshall v Bernard Place Corp (2002) demonstrates. The Ontario Court of Appeal decision could help you keep your deposit.
How home inspection deficiencies affect you.
Here’s what happened. The home inspection clause in the agreement of purchase and sale 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.”
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 clause report. 4 ways to ensure your home inspection is a success.
Find a professional home inspector in Ontario.
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.
Cooling-off period for new condos.
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, read Who Pays Repairs.
If You’re a Buyer…
As a buyer, it’s imperative to review any changes a seller makes in home inspection clauses 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 home inspection clauses altogether, 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 clauses in your agreement 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:
- 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
Before Possession
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.
Post Move-in
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 Real Estate 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.
Affordable Legal Services, Anywhere in Ontario
Access lawyers for less in the Greater Toronto Area, Ottawa, or anywhere in Ontario when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it.
Use a virtual real estate lawyer.
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