The issue of Rental Items has now become quite important in an Agreement of Purchase and Sale.
This is the Rental Clause in the standard form OREA Agreement of Purchase and Sale:
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.
When it comes to chattels, this might not really come as much of a surprise. However, when we are talking about the:
- Hot water tank
- Furnace
- Air purifier
- Central air-conditioning system, and
- Central alarm system,
you might be rather surprised to find that they are not part of the deal. They are fixtures, so if there was absolute silence, then the Seller would have to pay off the person with the encumbrance and provide these items “free and clear”.
In respect to fixtures, any liens MUST be registered against the title or they don’t apply. A registration against the items under the Personal Property Security Act would be lost if the items were attached and became part of the real estate. Then, the first mortgagee would have priority and these items cannot be removed.
Notification
First, you will find a notification. This is simply a statement that certain items are rental items. However, it doesn’t characterize them as either chattels or fixtures.
Fixtures, as you know, are included unless:
- Excluded from the agreement, or
- Assumed by virtue of a rental agreement.
They are still, nevertheless, fixtures, and they don’t lose their characterization. The only issue is whether the Buyer is going to take over the Seller’s personal liability for the rental contract. The items actually go with the house anyways, because they are fixtures.
So, let’s assume that Bob the Buyer acquires the house and gives a first mortgage to ABC Bank. Bob owns the rental items. The Bank has first priority over the fixtures, which in this case include the rental items. The Seller used to have to make the rental payments. Now, Bob makes those payments. The Bank, never, ever, has to make those payments even if it sells pursuant to Power of Sale proceedings. The reason is that they remain fixtures. Bob’s liability arises by contract, not real estate law.
List of Rental Items
There needs to be a list. These items should be carefully specified; make and model would be helpful
Assume the Rental Contract
There is an agreement on the part of the Buyer to assume the rental contracts. This is based upon the assumption that they can be assumed. Sometimes, the rental contract Supplier/Vendor does not wish to permit assumption. He just wants his money back.
Co-operation
The clause goes on to say: “The Buyer agrees to co-operate and execute such documentation as may be required to facilitate such assumption.”
There’s not much room for anything else! What if the contract is unreasonable or contains penalties, or accelerated payments?
You will appreciate that it is completely unreasonable to ask a Buyer to blindly assume a contract without ever having seen it.
While this may be true, in the grand scheme of things, these rental contracts are usually not that large. So, they just get skipped and glossed over during negotiations.
Use a Schedule
The proper and correct manner to deal with this issue is for the Listing Agent to obtain the rental contracts well in advance of a transaction. Post them as a Schedule on the MLS listing. If a Buyer’s Agent wishes to submit an Offer, send copies of the rental contracts in their entirety. Ensure that the rental contracts are attached as a Schedule to the Agreement. At the very least, ensure that the Buyer acknowledges having seen and reviewed the rental contracts BEFORE the Offer is submitted.
Bonus Payments
A $3,000.00 furnace could escalate in cost very quickly. Assume that it was installed in June and never used. The choice was buy it for $3,000.00 or rent it. The rental option was selected. The property is sold in August and closes in September. At this point, the furnace is brand new and has never been used. What’s the pay out, following rental payments made in June, July, August and September? Would you be surprised if it were over $6,000.00? Don’t be, it can easily happen.
Right of Removal
What are the rights of the rental company? Can they show up one day and demand to remove their furnace?
Let’s get this straight.
It’s not their furnace!
When it sat on the delivery truck, it was their furnace. After it was installed and they left the building, it was a fixture and had become part of the real estate. Any interests they may have had continue in the form of a Construction Lien. They had 45 days to register that. If they didn’t, then they have no rights. The mortgagee has first priority, and the homeowner has second.
Personal Right of Payment as against Owner
The rental company may still pursue the homeowner, either for the monthly payments as they become due or the accelerated balance. It’s the personal obligation of the owner to pay, not the Buyer unless the Buyer were to agree to take over the rental contract.
Rental contracts can be tricky and quite expensive for real agents, if they make mistakes.
Brian Madigan LL.B., Broker
Comments 17
I signed agreement to purchase the property on July 7,2022.Previous owner exchange hot water tank on July 19,2022.The deal closed on August 21,2022.
In that case who is responsible for hot water tank payment? Can I returned hot water tank to enercare.
Please reply.
Author
Did you agree to assume the hot water tank in the Agreement of Purchase and Sale.
If so, did you see the actual Enercare contract?
Did you agree to the exchange of the old tank for a new tank?
Were you represented by a real estate agent in this transaction?
If so, were they involved in these discussions/negotiations?
Hi Brian!
If a purchaser agrees to assume the hot water tank in the Agreement of Purchase and Sale, however no contract was provided or shared from the Seller, what is the situation there? The real estate agents didn’t present the contract to the seller, the real estate lawyers didn’t get the contract to the purchaser, however the purchaser didn’t request such things (first time home buyer, they assumed it would just “be transferred”).
The hot water rental company is now chasing the purchaser 12 months later with a contract, saying they assumed it on date of house purchase, however they are also presenting a backdated bill for 12 months (with a rather high monthly rental fee, for an aging hot water heater that is 15 years old).
Would the purchaser be on the hook to assume a contract a year later and pay the 12 months of rental fees at a rate that was not agreed upon or discussed before the house closing date?
Thanks for your time/opinion!
Author
The Buyer agreed in the contract to assume the rental contract.
Everyone, including the two agents, the two lawyers and the Seller and the Buyer missed this, it was just overlooked.
This was a matter which was collateral to the main purpose of the contract. As a result, the doctrine of merger does not apply and the Buyer would still be required to assume the rental contract after closing.
This obligation would extend for two years following the closing.
The rental company would be entitled to compensation for the rental payments for the twelve month period. Without the contract assumption, the rental company can only collect from the Seller (unless there was a lien on the property). However, the Seller is entitled under the Agreement of Purchase and Sale for reimbursement of their rental payments following closing.
Good day. Long story
1- purchases a home in April of 20221 at the time i was told included a hot water heater agreement of $35.00 per month. Yes i agreed to the mls terms
2- call hot water heater company end of April 2021, to research the buy out option, told it was $1300.00 bucks according to the agreement
3- call the hot water heater companies regarding the buyout on June 06, 2023 told the buy out was $875.00 . At this time i asked to have a copy of the original agreement signed and dated sent to me for my review.
4- received an email later that day to inform me that they are unable to locate the agreement and i had met the requirements to the original agreement and i was on a month to month agreement and not a set term. I was never notified prior to the month to month.
I guess the question is how do I know there was an actual agreement, what were the terms, whom sign the agreement, when did the terms expire. Why am I still paying, what was the install date, for all i know this equipment may not even belong to them. No serial number provided.
Do I continue to pay. If i don’t will they send my outstanding bills to collections.
Comments and guidances please
Author
Obviously, you are still “renting”. Likely it would be better to buy it out. So, get that figure from them.
Going forward, the Consumer Protection Act will be amended to deal with this type of a situation but we are still a number of months away.
Hi
I just closed on a house only to find out the water tank is rented instead of owned as specified.
What’s the way forward here? Just assume the rental?
Thank you
Author
What did it say in the APS?
If the rental items section was left blank or said “none”, then the Seller has to buy out the contract.
I BOUGHT A HOUSE IN MAR.2020 AND I PAY FOR THE HOT WATER TANK RENTAL ONLY WITH RELIANCE.LAST APRIL2023 I GOT AN ASSUMPTION PACKAGE FOR MY RFINANCE.NOW THEY SEND ME ME A 3600 DOLLORS BILL TO CHARGE FOR MY AIR CONDITION RENTAL FROM MAR.2020. WHY I HAVE TO PAY FROM MAR.2020.
Author
Check your original Agreement of Purchase and Sale when you bought.
If you agreed to take over the air bconditioner rental, then, you will have to pay.
If not, then contact your real estate agent or your lawyer since you would not be responsible.
Hi I checked my ApS which shows only hot water tankless heater rental not the Ac.why should I pay for Ac.please answer me.
Author
It looks like the agent missed this. If there was no assumption of the A/C contract, then the Seller will have to pay it out.
I bought my house Mar.2,2020 and my APS SHOWS ONLY HOT WATER TAN RENTAL AND I GOT AN ASSUMPTION PACKAGENTHROUGH MY LAWYER APR.2023 FOR BANKING PURPOSES. RELIANCE TOLD ME I SIGNED THIS DATE FOR AIR-CONDITIONED RENTAL.BUT I DONT KNOW ABOUT IT.I BOUGHT THE HOUSE WITH AIR-CONDITIONED AND NOW MAKE AN ASSUMPTION TONRENTNIT OUT.DOES IT MAKE SENSE.RELIANCE ASK ME TO PAY OTHERWISE GOES TO COLLECTIONS. SO WHAT CAN I DO.WHOSE FAULT IS IT.
Author
It looks like your lawyer missed the fact that the air conditioner was a rental item and it needed to be paid out.
Apparently, by error it was assumed rather than discharged.
Contact your lawyer about this., I assume that you were covered by title insurance in regard to this matter.
My lawyer made an assumption for my Ac when I requested for assumption package on mar.20,2023.I don’t even know that is assumption for Ac.Isigned the document. But ACCORDING TO MY ORIGINAL APS ONLY HOT WATER TANK RENTAL.NOW RELIANCE CHARGED ME3600 DOLLORS PLUS MONTHLY RENTALNOFB75.00 DOLLARS. THIS CHARGE FROM MAR.2020.HOW CANNINRESOLVE IT.
Excellent
I purchased a house that had a rental water heater, the purchase agreement only said HWT-Gas, no contract was provided. When I asked the seller for the contract they stated that the company (AireOne) are crocks and we should try to get out of the contract and return the water heater. When I contacted the company they wouldn’t provide the contract and would only provide me with a new rental contract agreement with no original details or dates due to confidentially. I refused to sign as I’m not signing a new contract and I’m only committed to assuming the assisting contract if its assumable. The terms and conditions state that the owner must request and receive in writing a request to reassign the contract which wasn’t provided. I’m willing to work with the seller but I’m not blindly assuming a contract that they won’t provide to me and the company is trying to charge me more then what they were paying.