Stock photo licensed from iStockphoto.com

Merging Without Traffic

Posted November 26th, 2019 under say what?, smart buying, smart selling.

“Merge”—a word that on first glance seems quite innocent. But what does it mean in a real estate transaction?

One of the common clauses in an Agreement of Purchase and Sale reads as follows:

The Seller warrants that the chattels and fixtures included in this Agreement of Purchase and Sale will be in working order on completion. The parties agree that this warranty shall survive and not merge on completion of this transaction, but applies only to the state of the property at completion of this transaction.

What does it mean that “this warranty shall survive and not merge”?

This is a reference to a legal concept known as the doctrine of merger. The doctrine of merger says that, once you take ownership of a property, the contract to sell the property “merges” with the deed itself, and any promises in the contract cease to exist.

This is like two roads merging to become one. The individual roads no longer exist, only the new road does. The old road names and old speed limits don’t matter any more, they’re gone.

Now you can see why it would be important for the warranty to not merge at the moment of sale. If the warranty merged with the deed, then by the time you came from the law office (where you receive the deed) and arrived at the property, the warranty would already have disappeared into thin air. If you found something damaged, there would be no warranty remaining to protect you!

You want the warranty to “survive and not merge”, so that it remains a separate agreement between the seller and yourself. That’s what gives you the right to follow up if the property is damaged when you arrive.

At the same time, notice that the warranty “applies only to the state of the property at completion of this transaction”. This is very important: you only get one chance to follow up, and that chance is when you arrive for your first visit at the property as the owner.

You can’t follow up a week later, or even the next day, because that’s not “at the completion of this transaction”. So although the warranty survives, you only have a very short window of time to access it.

Sellers and Buyers both need to understand this clause clearly. As a Seller, you aren’t off the hook just because you hand over the deed, so make sure you leave the property in good shape. As a Buyer, you get only one chance to inspect the property as the new owner, so set aside time to do this thoroughly and be prepared to follow up immediately if you find any damage.

Want to know more about the Agreement of Purchase and Sale? Just ask me, I'll be happy to help.

--Peter

Get monthly real estate advice in your inbox, free! privacy policy