Question: WHO PAYS?
Seller and Buyer enter into the standard Residential Real Estate Sale Agreement (OREF 001). Seller has already winterized the home, but then voluntarily de-winterizes the home so that the Buyer can have an inspection done. Sale fails to close and Buyer seeks a return of the earnest money. Seller refuses to execute a termination agreement unless Buyer pays for the costs of re-winterizing the home. Buyer does not agree to pay those costs. Does Buyer have to pay? No, in my opinion, and this scenario raises a number of issues which may arise, and more frequently now as we enter into the winter season.
Start with a review of the Section 15.2 of the Agreement, dealing with inspections. A buyer has a right to have an inspection done of the home, and following the inspection, the buyer is responsible for the restoration of the home to the condition it was in prior to the inspection. In this scenario, because the seller had already voluntarily de-winterized the home, the Buyer had no obligation to re-winterize the home, as that was not the condition the home was in prior to the inspection.
Would the answer be different if the Buyer had asked the Seller to de-winterize the home in order to permit the inspection to occur? I believe so, and that the Buyer would then have the obligation to rewinterize the home. It would be the same answer if the Buyer had gone ahead and had its home inspector de-winterize the home.
Some may argue that the Seller has an obligation to de-winterize the home in order to enable a full inspection to be done. I do not believe that there is anything in Section 15.2 or any other section in the Agreement to support this.
LESSON TO BE LEARNED? Address the issue of winterization at the beginning of the process. Find out if the home has been winterized or will be shortly. If de-winterization will need to be done to permit a complete inspection, address the procedure and who pays for what in an addendum to the Agreement. This should help avoid the type of dispute described above.
The above may seem straightforward.. Now let me add a few twists to the hypothetical.
A. The Buyer hires a contractor to de-winterize and re-winterize the home. The contractor is negligent in re–winterizing the home, and significant damage occurs to the home due to broken water pipes. Who pays?
Absent express agreement to the contrary, I believe that because the buyer hired the contractor, the buyer would be liable for the costs of repair (with of course a claim for reimbursement from the contractor).
How could you help the Buyer avoid this? Don’t have the Buyer hire the contractor. If the Buyer agrees to pay the costs of de-winterization and re-winterization, have the Seller hire a contractor of the Seller’s choice to do the work, and simply agree to reimburse the Seller for the associated costs.
B. Seller has already winterized the home. Buyer requests that the home be de-winterized in order to do the inspection, and agrees to pay the costs for both de- and re-winterization. The home is properly de-winterized. However, between the dates of de-winterization and planned re-winterization, a sudden and unexpected freeze occurs, water pipes break, and the home suffers substantial water damage. Now who pays?
Absent express agreement, the answer to this question is not so simple. The answer may require an analysis of various factors, such as assumption of risk, whether there was an unreasonable delay between de- and re-winterization, and so on. Arguments could be made for liability of both the Seller and the Buyer.
FURTHER LESSONS TO BE LEARNED? In the addendum dealing with winterization, also address responsibility for damages which might occur during the period of time the home is de-winterized. Discuss the process in advance with a reputable contractor. Perhaps coordinate the date of the home inspection so that the process of de- and re-winterization can occur on the same day. If representing the Seller, have the Seller check with their insurance company to determine if any potential damages would be covered by insurance.
Whether you’re representing the seller or buyer, do your client a favor. Take the time to deal with these issues in advance, and avoid unnecessary and disruptive disputes.