In a previous article, we looked at the most common documents which make up a ‘contract’ to buy and sell residential land in Western Australia. The Joint Form of General Conditions for the Sale of Land (“the General Conditions”), which is incorporated into every land transaction in Western Australia, was one of the documents outlined, and is perhaps the most over-looked (but most important) document of the bunch. This is the document that parties will look to when something goes wrong.
I am often contacted by buyers who allege that a seller has breached the Contract, and that they want to delay settlement until the breach is remedied or not pay the entire purchase price. I am always the bearer of bad news in this situation, as the General Conditions do not give either party this immediate right, and in most cases, the breach being referred to is a breach of warranty.
What is a warranty?
A warranty is a representation or promise one party gives to another in the Contract, that something will be done or that something is true (at the Contract date or at the Settlement date). A warranty is considered to be a ‘minor’ term of a Contract, in that if it is not fulfilled, it will not mean that the entire Contract can’t be completed. For this reason, the only remedy for a breach of warranty is damages (i.e. the non-defaulting party is able to sue the defaulting party to recover any money they have lost directly due to the breach of warranty).
Common seller’s warranties that are included in Contracts (via the various annexures), are as follows:
- That all gas, plumbing and electrical fixtures and fittings are in good working order;
- That the property complies with the relevant RCD and Smoke Alarm requirements;
- That all swimming pool / spa mechanical and electrical plant and equipment is in good working order; and
- That the pool / spa fencing complies with the requirements of all authorities and that the buyer is not required to undertake any work to the same.
Clause 9.1 of the General Conditions also include a number of warranties that the seller is giving (unless expressly excluded by the Contract). These include (but are not limited to): –
- There are no outstanding demands, requisitions or requirements relating to the property from a relevant authority (such as the local council);
- No building or other structure encroaches on the property;
- The dividing fences of the Property are correctly placed on the boundaries of the property; and
- The Property will be in the same state and condition as it was immediately before the date the Contract was signed.
What happens if a seller breaches or does not satisfy a warranty?
Often, a buyer will say “the seller hasn’t fixed a power point”, “the pool pump doesn’t work”, and on that basis they want to pull the plug on the transaction or put settlement off until it is fixed.
Unfortunately, because these breaches are breaches of a warranty, and not a breach of an essential term of the Contract (such as failing to obtain finance by the finance date), the buyer is not entitled to terminate the Contract or delay settlement, and as stated above, their only recourse is to seek damages.
Clause 9.3 of the General Conditions specifically states in relation to the breach of a warranty, that unless the parties otherwise agree, “the Buyer has no right to terminate the Contract or defer or delay Settlement or withhold any part of the Purchase Price”.
This is the last thing a buyer wants to hear when they are about to move into their new home – that they will have to rectify issues themselves, and then sue the seller for compensation later.
How to avoid disputes in relation to warranties
So, what can a buyer do to best prepare for a possible breach of warranty? It all comes down to what is put in the Contract to start with. The General Conditions and the standard annexures are a great starting point – they provide the buyer with the protection of the warranties, but don’t give the buyer any pre-settlement recourse when a breach of a warranty occurs. However, there is nothing stopping the parties from including additional special conditions in the Contract which add-to or vary the terms of the General Conditions or included annexures.
For example, a prudent buyer might include a clause which gives the buyer the right to delay settlement until a breach of warranty is remedied or withhold part of the purchase price to pay for rectifying a breach of warranty.
This is always a balancing act when there are multiple offers on the table, and you are fighting to get your offer accepted. A seller is always going to choose not only the best monetary offer, but the offer that is least onerous for them.
I’ve said it before and I’ll say it 100 times – get advice before signing on the dotted line.