Well and Water Warranties

warranty

It is extremely important when buying a rural property that the appropriate warranties are granted from the Seller to the Buyer.  The following clause best sums it up:

I/We _______________________, the Sellers in the transaction, hereby warrant to the Buyers with respect to the domestic water supply and domestic water supply system, that:

  • The water supply is capable of supplying an adequate flow (a minimum five (5) gallons per minute);
  • The water provided is potable on a year-round basis;
  • The Seller is not aware of any contamination or impurities in the water;
  • The Buyer will have a reasonable opportunity to enter on the property for purposes of obtaining water samples;
  • The normal water tests will show either a “0-0” reading or an acceptable reading as defined by the Ministry;
  • There are no unsafe contaminants to a level deemed unacceptable under the “Drinking Water Objectives”;
  • The water is completely clear, clean and free of any displeasing colour or smell;
  • The pump, holding, pressure and distribution systems all perform adequately, have been properly maintained and repaired and will be in good operating condition on closing;
  • The well is situated entirely within the limits of the subject property;
  • The well services only the subject premises and is not a communal well; and
  • The well is a dug or drilled well, not from a water source such as a river, spring lake, stream or other surface water.

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Grow Ops … and The Usage of “To the Best of My Knowledge and Belief”

indoor-grow

The above term is often used in the Agreement of Purchase and Sale; but what is the effect of it on representations and warranties?

In the Court of Appeal case of “Beatty v. Wei” found that despite a Seller’s representation during the time they had owned a property, that the property had not been used as a grow op, the effective date of the truth of the representation made to “the best of the Seller’s knowledge and belief” was at the time that the representation was made. Without the language in the clause that the representation continued until closing, the representation did not continue, and, in this case, it was discovered that the property had in fact been used as a grow op at some time prior, but that fact was unknown by the Seller and the Seller was not liable.  The emphasis to be placed on representation is the knowledge of the Seller when the representation was given and not on whether the property had been used as a grow op.

The representation given was limited to the Seller’s knowledge at the time given and was not absolute.

If the Buyer wants the representation to apply up to the date of closing, the Agreement of Purchase and Sale should be written to include this timeframe. Since the clause did not reflect “up to the date of closing”, the representation only applied to the date of execution of the Agreement of Purchase and Sale.

We all rely on “to the best of my knowledge and belief” in our agreements, so it is important to realize that without language that makes the knowledge apply to the date of closing, the effectiveness of the representation is limited to the date it is given.  Even if the Buyer finds out prior to closing that there was a grow op, the Buyer does not have the right to terminate the Agreement of Purchase and Sale.

Knowledge is Power, which results in more business!

If you have any questions or concerns, please feel free to contact us at your convenience.  If you have any suggestions for future topics please let us know.

Contact toll free: 1-877-744-2281     Online: www.paquettetravers.com

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The Obligation of Disclosure in Agreements of Purchase and Sale (APS) …and The Case Of Marijuana!

Why-Everybody-Should-Be-Allowed-To-Grow-Marijuana-At-Home

Beatty et al. v. Wei et al. is a Superior Court of Justice decision dated June 5, 2017. This case is significant because it speaks to representations and warranties made by a Seller in an Agreement of Purchase and Sale, specifically with respect to the relationship between representations and warranties made to the best of the Seller’s knowledge and belief and the ability to rescind an otherwise valid APS. The basic facts of this case are as follows: An APS was entered into between Buyer and Seller. In the Agreement, the Seller represented and warranted that to the best of their knowledge and belief, the property had not been used for the growth or manufacture of illegal substances. At the time this representation and warranty was provided, this was in fact true. Before closing, the Buyers discovered through their own investigation that the property had in fact been used to produce marijuana in 2004. This was confirmed by a letter by Toronto Police. The Buyers refused to close the transaction and demanded the return of their deposit. The Sellers refused to agree to the termination of the APS and brought an application for declarations that the APS was a firm and binding contract, the Buyer had breached the APS and that the deposit had been forfeited. The Buyer applied for declarations that they were not required to complete the transaction and for the return of their deposit.

The Court ultimately found in favor of the Buyer. The Buyer was able to rescind the APS and the deposit was returned. Why? The Judge reasoned that this representation and warranty given by the Sellers was relied upon by the Buyers and induced them to enter into the APS. If it were the case that the Sellers had discovered there once was production of marijuana at the property, the Seller would be obligated to notify the Buyer before closing because they would no longer be able to make that representation and warranty. This would be a material change to the contract and would be grounds for rescission. The Judge reasons that the Buyer’s rights are not affected merely because they were the ones who made the discovery, and thus the same principle must apply. This was a material change to the terms of the APS and the Seller could no longer sell the property on the same material terms and conditions agreed upon in the APS.

Real Estate Agents should be mindful of this decision because of the potential implications it could have when this representation and warranty is made in an APS. If your Seller represents and warrants that to the best of their knowledge and belief a particular circumstance about a property is either true or untrue, a Buyer may have a valid claim for termination of the APS if in reality the state of the property conflicts with what your Seller has represented and warranted. If acting for a Seller, be aware of the potential risks to the APS if a representation and warranty is made that is discovered to be a mistaken belief in reality. If acting for a Buyer, if your Client has been induced to enter into an APS based on a mistaken belief that is represented and warranted by a Seller, your Buyer may have a right to terminate the APS and to have the deposit returned.

Knowledge is Power, which results in more business!

If you have any questions or concerns, please feel free to contact us at your convenience.  If you have any suggestions for future topics please let us know.

 

Prepared by Bryan Mayes, Solicitor with Paquette Travers

Contact toll free: 1-877-744-2281                                                          Online: www.paquettetravers.com

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