A standard residential Agreement of Purchase of Purchase and Sale (“Agreement”) will contain numerous pre-printed clauses which are often not understood or even considered by the realtors or the parties when the Agreement is being drafted. One such clause which appears in every Agreement is the Entire Agreement Clause. This column will examine and explain this important yet often overlooked clause.
The clause reads as follows: “This Agreement including and Schedule attached hereto shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein”.
This clause means that only representations and warranties of the Seller which are included in the Agreement are binding on the Seller. In other words, if the Seller makes a representation or warranty to the Buyer that is not in the Agreement (for instance, a verbal representation or warranty), such representation or warranty is not binding on the Seller and the Buyer cannot rely on it. An example of this would be in a pre-construction purchase where the Buyer learns that the property will not have ten foot ceilings or will not have a view of the lake despite the fact that the builder verbally promised this. Similarly in the context of a resale property, if the Buyer was told verbally by the Seller that an item in the property would be repaired prior to closing and the Seller refused to comply with its promise, the Buyer would have no remedy against the Seller for the alleged breach of the warranty or representation. The old axiom “get it in writing or it means nothing” applies to all of these situations.
The interplay of the Entire Agreement Clause and the obligation of the Seller to disclose defects is an interesting corollary to this topic. Latent defects are those items which could not be seen by the naked eye such as structural defects, leaks, fire damage, or mould behind walls. These defects are typically not able to reasonably be discovered from an inspection of the property. Conversely, patent defects are defects which could have been discovered by a reasonable inspection of the property.
In cases where a Seller does not provide any representations or warranties in an Agreement, it still has a legal obligation to disclose latent defects to a Buyer where it is aware of the defects and if the defects are likely to be dangerous or may render the property unsafe or unfit for habitation. If a Seller is aware of and fails to disclose such latent defects, this may, in rare circumstances allow the Buyer to rescind the Agreement or give the Buyer the right to make a claim against the Seller for damages after closing.
The Entire Agreement Clause often benefits the Seller when faced with a claim by a Buyer. However, where the Seller has failed to disclose a latent defect, the failure to disclose may give rise to a Buyer having a claim against the Seller. With respect to patent defects, the concept of “caveat emptor” applies meaning “Buyer beware” and a Buyer has no recourse against the Seller.