A Legal loophole – why ‘subject to inspection’ doesn’t keep you as safe as you think.
We’ve recently worked with clients who had included this ’standard’ clause in their contract, believing they were safe. Whilst those words are commonly regarded as your rescue from a disaster purchase, or a purchase that comes with issues and costly fixes, the vendor (seller) may not see it this way. They can in fact, legally hold you to the purchase regardless of what is found during inspection, not allowing you to not pursue the purchase as you had hoped.
What do you mean, you ask?
Ok, so you purchase the property with your life savings then, book us to inspect the property where we find either a horrifying range of structural defects, potential future defects or simply issues that require some TLC to get them up to scratch again. You then tell the agent you no longer wish to purchase the property (because you have the ‘subject to inspection’ clause in your contract remember!) where the agent then refers to the vendor. But here’s the loop-hole and legal issue…because you now have your inspection under your belt, you have essentially, legally satisfied the ’subject to inspection’ clause, regardless of what we FOUND during the inspection. Using this wording loop-hole, the vendor can and may refuse your withdrawal on the sale…..and there you have it, you are locked in!
This doesn’t actually happen though, right?
It does, and it’s happened to clients of Bowman Built twice this year. We inspected a property (A 1.3 Million dollar property mind you) for a couple, found around 40K of repairs needed to make things right and the seller locked them in as the inspection had taken place and was satisfied. Luckily for our clients, we performed the inspection within their contract cooling off period so, they were able to withdraw without a reason but, if we hadn’t made it in time, our clients would legally have had to proceed and purchase the property or a legal battle would have had to take place.
So, what do you do to make sure you are safe from this total disaster you ask? The ’subject to inspection’ clause needs to be expanded upon and amended by you or your solicitors. It needs to include words such as 'any defects, potential defects or repairs to your satisfaction’ or something of this nature – so you can exit the contact if you wish. Get legal advice on the wording but this what I’d run with as I think it’s appropriate coverage and there’s no ambiguity as to what it means…you get the gist.
I’m predicting, with a tighter financial market and lending laws, vendors may become less lenient toward releasing you from the sale, especially when sales are in a slow market. The ’subject to’ clause is pretty simple but, needs a slight amendment to be safe.