We have already addressed the issue of the definition of the property, the purchase price or the terms of the purchase agreement.
Today we are looking at the issue of contractual guarantees. These play a vital role in the purchase of a property as they can protect the buyer from hidden defects or legal disputes. Buying a property is often the biggest investment of your life, so you need to pay attention to every detail of the contract.
What are seller warranties? These are explicit assurances by the seller about the condition of the apartment or house, both legally and factually (technically). For example, the seller assures the buyer that the house is equipped with modern insulation or that there are no debts on the house.
The seller’s interest
The seller naturally wants to sell the property without any extra guarantees and, on the contrary, often tries to exclude or at least limit his liability. The seller naturally wants to achieve a situation where the transfer of the property does not involve any risk for him.
Thus, from the seller’s position, it is often advisable to sell the property “as is” and thus eliminate the risks from most defects. In practice, however, this is more complicated and the phrase “as is” may not have any effect at all in the case of a clearly defined property. It is more likely to apply to things that are not clearly defined (e.g. furnishings in an old house).
The issue of drafting contractual warranties is probably the most challenging task for a lawyer in drafting a purchase agreement and can involve lengthy negotiations between the prospective buyer and the seller. From the seller’s point of view, minimising risk is key, while for the buyer the purchase of the property involves a requirement for legal certainty.
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Buyer’s interest
The buyer has an interest in ensuring that the apartment or house is free from both factual defects (e.g. rotten floors) and legal defects (the apartment has been sold twice, there is an easement or lease agreement with a problem tenant or there is a mortgage on it). Any property purchase should be supported by a carefully drafted contract that addresses these aspects up front.
The buyer should therefore insist on express warranties. Seller warranties can and often do cover a wide area of concern:
- ownership of the property,
- other people’s rights in rem or other encumbrances on the property,
- hidden defects,
- taxes and other public charges, etc.
In practice, we have come across a case where the seller has concealed a problem tenant in the flat and, as the contract was unfortunately worded, the new owner has had to deal with the situation at his own expense (and nerves). So, here too, it is advisable to consult a solicitor beforehand. The costs are then minimal in relation to what awaits the buyer with a poorly drafted contract.
Care should also be taken with the actual pages of the purchase contract. If the apartment is owned by a married couple, both should sign the contract. The parties should also declare that there are no foreclosure or insolvency proceedings against them. This could also complicate the transfer. It should also be added that of course the above also applies to the transfer of a cooperative flat (membership share).
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Summary
When buying a property, it is crucial to have a properly drafted purchase agreement that takes into account all the risks – both legal and technical. An important part of this is the seller’s contractual warranties, i.e. explicit assurances about the condition of the property, its ownership, legal encumbrances, taxes or hidden defects. While sellers often try to limit their liability (for example, by saying “as is”), buyers should insist on warranties because they protect their investment. The contract should also include details of the parties, especially in the case of spouses and in cases of possible foreclosure or insolvency. For a smooth transfer, it is advisable to contact a lawyer – the cost of his services is minimal compared to the possible consequences of a poorly drafted contract.
