“Entire Agreement” ClauseBy sedoo
Standard residential Agreement of Purchase and Sale (Agreement) forms used in Ontario contain the following clause known as the “Entire Agreement” clause:
“This Agreement including any 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.”
What this means is that only the representations and warranties of a Seller that are included in an Agreement will be binding on a Seller, and conversely any representations and warranties that are not in the Agreement, whether verbal or in sales materials, will not be binding on a Seller.
However, even when a Seller does not provide any representations and warranties in an Agreement the Seller still has an obligation to disclose any Latent Defects that the Seller is aware of to a potential Buyer, especially if the property is dangerous or likely to be unfit for habitation. Latent Defects are defects with the property that could not be reasonably discoverable from a thorough inspection of the property, as opposed to “Patent Defects” which are defects that could have been discoverable from a reasonable inspection of the property.
Examples of Latent Defects include hidden or obstructed water damage, hidden or obstructed structural defect – i.e. crack in the foundation, subtle, hidden or obstructed damage to utility systems, hidden or obstructed fire damage, toxic mould which cannot be seen by the naked eye, foundation leaks – which insurance typically does not cover, and the Seller finishing the basement and in the process covered a large crack in the basement wall that affects the structure.
A Seller has a duty to disclose Latent Defects and failure to disclose may be construed as misrepresenting the state of the property giving rise to the Buyer having a claim against the Seller. Liability will generally only arise where a Latent Defect renders the property uninhabitable or inherently dangerous, and where the Seller had knowledge of the defect and deliberately failed to disclose it.
Otherwise the representations and warranties, if any, in the Agreement govern including particularly the “Entire Agreement” clause. With Patent Defects, it is always “caveat emptor” and nothing can be claimed from the Seller.
For further information on representations and warranties, the “Entire Agreement” clause and on Latent Defects you may contact our office to discuss with us.
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David H. Korman is a Partner at Kormans LLP. His practice areas include residential and commercial real estate transactions, commercial leasing and private and institutional lending. You can reach David at firstname.lastname@example.org.
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