Question:
The water softener, water purifier and hot water tank are all rentals at $123/month.
Offer: The Agreement of Purchase and Sale has these items listed as rentals. They are not listed under either chattels or fixtures.
Schedule A – “all chattels and fixtures to be free from liens and encumbrances” clause, which was as follows:
“The Seller represents and warrants that the chattels and fixtures as included in this Agreement of Purchase and Sale will be free from all liens and encumbrances on completion. The parties agree that this warranty shall survive and not merge on the completion of this transaction, but apply only to the state of the property at completion of this transaction.”
According to this, are the Sellers required to fulfill the terms of the rental contracts since schedule overrides preprinted provisions in the APS?
If the Sellers pay out the contracts, are they free to remove them, as they’ve paid for them and they haven’t been listed as chattels on Agreement of Purchase and Sale (although I know they’re usually considered fixtures, some people do exclude them when selling)?
Answer:
There are only two categories:
1) chattels, and
2) fixtures.
The items mentioned appear to be fixtures. The little problem is that the Owner has not paid for them yet. Hence, the “rental assumption” clause which appears in the Standard Form OREA Agreement.
The former owner of these items no longer owns them. For example, when the nail goes through the shingle, the shingle immediately becomes a fixture. The roofer hasn’t paid for the shingle and the homeowner hasn’t paid for the shingle. However, Home Depot lost ownership the moment the nail went through the shingle. Home Depot cannot arrive and take its former shingle. It has the opportunity to file a Construction Lien instead. If it missed that opportunity, then it has nothing.
The Homeowner could enter into any kind of payment arrangements with Home Depot, credit, rental, whatever, but it doesn’t change the law. That shingle is a fixture and it is part of the roof. When the house is sold, the fixtures go with the house UNLESS there is a specific provision saying that the Seller can take them.
There are three relevant clauses in the standard Form:
Chattels
“4. CHATTELS INCLUDED:
………………………………………………………………………………………………………………………………………………………..
Unless otherwise stated in this Agreement or any Schedule hereto, Seller agrees to convey all fixtures and chattels included in the Purchase Price free from all liens, encumbrances or claims affecting the said fixtures and chattels.”
Naturally this means specifically mention any item which is truly a chattel which you would like to be part of the deal.
It’s interesting because under the heading of “Chattels”, is a reference to both “fixtures and chattels”, namely all fixtures and those chattels which are mentioned.
Fixtures
“5. FIXTURES EXCLUDED:
………………………………………………………………………………………………………………………………………………………..”
Nothing more is said. All fixtures come with the house unless they are mentioned here.
Rental Items
“6. RENTAL ITEMS (Including Lease, Lease to Own): The following equipment is rented and not included in the Purchase Price. The Buyer agrees to assume the rental contract(s), if assumable: ………………………………………………………………………………………………………………………………………………………………………………………. ……………………………………..
The Buyer agrees to co-operate and execute such documentation as may be required to facilitate such assumption.”
This is not a separate category. These items may be either fixtures or chattels, but the deal between the Seller and the Buyer is that the Buyer will take over the lease and continue with the payments. These specific items need to be mentioned here.
OREA Warranty Clauses
OREA has the following clause:
“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 warranty shall survive and not merge on the completion of this transaction, but apply only to the state of the property at completion of this transaction.”
This is great from the Buyer’s perspective, it moves the transaction from “as is” to a warranty on everything.
Most Sellers should strike out the “good working order” provision as it relates to fixtures. Often, they don’t.
In your case, the clause was amended so as not to include the “good working order” provision.
Question 1: According to this, are the Sellers required to fulfill the terms of the rental contracts since schedule overrides preprint in APS?
The Agreement contains the following paragraph:
“26. AGREEMENT IN WRITING: If there is conflict or discrepancy between any provision added to this Agreement (including any Schedule attached hereto) and any provision in the standard pre-set portion hereof, the added provision shall supersede the standard pre-set provision to the extent of such conflict or discrepancy.”
There is nothing that says that anything in the Schedule overrides what is contained in the Agreement.
In this case, the items specified as rental items were in fact added to the Agreement. So, they would take precedence.
The rental clause says that the Buyer will assume the rental contracts. However, that is based upon the fact that those contracts would indeed be assumable.
In fact, if they cannot be assumed, then, the Seller will have to pay out the contracts.
Question 2: If the Sellers pay out the contracts, are they free to remove them, as they’ve paid for them and they haven’t been listed as chattels on Agreement of Purchase and Sale?
No, the items were fixtures, not chattels. They go “with the house” just like shingles. They weren’t mentioned as chattels since they were not chattels.
COMMENT
As agents, ensure that any fixtures which the Sellers want to take with them are mentioned in Paragraph 5.
If there are any specific chattels which the Buyer wants to have, then they should be mentioned in Paragraph 6.
If items are uncertain, then be sure to mention them so as to avoid any disputes. This would specifically include “hot tubs’, since some are fixtures and some are chattels.
Brian Madigan LL.B., Broker