Blog by Andrew Peck

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"Why are deficiency addenums with holdbacks important?"

"Why are deficiency addenums with holdbacks important?"

"I have a deal which will complete in a few days. Originally, the Buyer requested to double check if all the deficiencies are fixed. However, the listing agent has not returned my phone calls or replied to my e-mails. We have an addendum for deficiency list signed by the Seller before subject removal, but I didn't write down to have a holdback. Under this situation, please tell me how to handle it."

It’s likely too late to do anything if the agent or the seller isn’t cooperating. This is a common problem – when you do the inspection you find a few issues that need correcting. The listing agent advises that the seller is willing to make corrections or repair the deficiencies.  You write up an addendum stating this and then remove subjects. However does the buyer have the right to go back and inspect that the work has in fact been done? Not necessarily.

I would recommend handling the situation as follows:

  1. Have a discussion first with the listing agent regarding the deficiencies. See what the seller’s reaction would be to doing the repairs. Explain that you are not proposing an opening of the contract but wish to explore if the seller is willing to affect repairs.
  2. If they are willing, then draft a separate addendum that deals with the deficiencies per the sample below. 
  3. Present the addendum to the buyer for signature. Then take it to the seller’s agent and explain this is a follow up on the conversation that you have already had and it is not an opening of the contract. 
  4. Draft your subject removal on a separate addendum from the deficiency list agreement.

The following wording should work:

This addendum does not constitute a re-opening of the contract by the buyer and its presentation to the seller is not to be construed as grounds for the seller to terminate the contract. This addendum is presented following a discussion between the parties in which they have agreed as follows:

During the professional inspection the following deficiencies and repairs were found: (make a list in bullet points). 

The seller has agreed to repair these items prior to the completion date at their own expense. The repairs shall be carried out by professional tradespeople and shall be in a good and workmanlike manner and matching the surrounding construction. The buyer shall have the right to re-inspect the remediation work prior to the completion date.  In the event that the seller has not completed the repairs prior to the completion date and after the buyer’s further inspection, the parties hereby authorize the lawyer or notary public acting for the buyer to withhold a sum not greater than $______ (the holdback). The holdback shall be held by the conveyancing solicitor or notary for a period of not more than _______days (the holdback period).  If the holdback period expires and the work has still not been completed, the seller forfeits absolutely the holdback amount to the buyer on full account of repairs. The buyer shall not claim any further repairs not already covered by the holdback.

In the absence of this wording, the seller has the right to refuse further inspections prior to the completion date. If once the buyer takes possession, they found the work was not done, they would commence legal action against the seller for breach of contract – failing to fulfill one of the terms of the contract.

As for the other agent not returning phone calls or replying to emails, this is a matter for the Real Estate Board to deal with – contact Kim Spencer at the Board and explain the situation.  His role is to informally deal with issues that are causing realtors and their clients a problem.

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