Anti- Merger Clause

W4-5P: NO MERGE AREA 24X30 - Iowa Prison Industries

When the deal is over, it’s finished. The contract has come to an end. It’s been completed and fulfilled.

The “doctrine of merger” which is a legal concept applies, and prevents going back and checking on the old contract to see what’s still outstanding or what could have been done better. When it’s over, it’s over. There’s nothing more!

The issue comes up quite frequently when dealing with chattels and fixtures and their condition on closing and immediately after closing.

Representations, warranties and terms of a contract will end when the contract is fulfilled or completed. So, after the fact, once the deal has closed, you can’t go back to the contract to enforce any rights.

There are three exceptions:

1) matters which clearly on their interpretation were intended to survive,

2) those matters which state continuance afterwards,

3) those matters which are transferred to and become part of a second contract on closing.

#1 is difficult to prove. #3 is for the lawyers on closing.

#2 is for real estate agents negotiating and include the following suggested words:

“this representation shall not merge, but shall survive the closing”.

In all three cases, that just gives a contractual enforceable term which is still “live” after the deal has gone through. Each case is to be considered on its own facts. So, who knows how long that term is to continue!

The modification in the wording which often relates to the physical condition of something, will say:

“but shall apply only to the condition of the item on completion”.

Here’s the standard wording which we often come across:

“The Seller represents and warrants that the chattels and fixtures as included in this Agreement of Purchase and Sale will be in good working order and free from all liens and encumbrances on completion. The Parties agree that this representation and warranty shall survive and not merge on completion of this transaction, but apply only to the state of the property at completion of this transaction.”

That means simply if it breaks afterwards, that’s the Buyer’s problem. Consequently, it would often be best to extend that somewhat, ie. 30 days, but, that’s not the usual arrangement.

Let’s have a more detailed look at that paragraph (italics are my comments):

The Seller represents and warrants

This statement is both a representation which must be true, otherwise, there are remedies and a warranty, which is a contractual term and enforceable.

that the chattels and fixtures

This is the subject matter of the statement. It applies to all the chattels and all the fixtures. That’s everything! What else is there?

as included in this Agreement of Purchase and Sale

Even if not named specifically in the Agreement, it’s all included.

will be in good working order

Here we have moved from the regular agreement to sell “as is” to an arrangement where “good working order” is the deal.

and free from all liens and encumbrances

There will be no liens or encumbrances. If there are, then, they will be removed.

on completion.

This is the actual timing. It states “on completion” which is the time period immediately coincident with the closing of the transaction.

The Parties agree that this representation and warranty

Simply specifies the contractual term.

shall survive and not merge on completion of this transaction,

This statement sets aside the doctrine of merger by making it clear that this contractual term is something which is to be enforceable later, after the deal has been closed. There were three options for this, and this clause is an example of #2.

but apply only to the state of the property

This is a restriction or limitation . What is the state of the property?

at completion of this transaction.

The relevant time is “completion” which is coincident with the closing of the transaction.

Comment

Obviously, there are a few issues. The Buyer sees the property on June 10th, submits an Offer on June 12th, accepts the Seller’s counter-offer on June 14th. The deal progresses and is closed on June 30th. The Buyer moves into the house on July 2nd and discovers that the dishwasher doesn’t work.

What date or dates are relevant in determining the obligations between the parties:

  • Date of viewing
  • Date of Offer
  • Date of the Counter-offer
  • Date of Agreement
  • Date of Closing
  • Date of Moving

Interesting question!

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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