What is the meaning of the following statement:
“This representation and warranty shall survive and not merge on completion of this transaction”.
The doctrine of merger is a legal principle associated with making things “simpler”.
The doctrine goes back hundreds of years. If two properties sitting side by side are bought by one owner, there is now “one” title owned by that person for the entire property, rather than two.
If the owner of a property rented it out to a tenant and then bought the tenant’s business including the lease, the lease would disappear, leaving ownership of the property simply in the hands of the owner, without the lease.
When a conveyance is made, all the promises made in the contract disappear. The new owner has the property now. That was an executory contract, meaning that some steps needed to be taken toward completion.
The doctrine of merger is intended to make things simpler by eliminating all those past promises and restricting matters to anything included specifically in the Deed.
So, if the Seller says “I promise to fix the front steps”, that promise will “merge” with the Deed. Either it was done or not done, but the Buyer got the property, so he must have been satisfied with the result, or he didn’t care.
Where it is expected that the fixing of the steps is to take place after closing, you need to get around the doctrine of merger, otherwise that promise would be gone.
Therefore, you need to say “it will not merge”. It is also commonplace to say “it will survive the closing”, but those extra words are probably not necessary.
Where it is very, very clear that a collateral agreement exists, intended by both parties to take place afterwards, the “not merge, and shall survive” words are not required.
Assume the closing is 30 November 2022, but everyone expects that the steps can’t be fixed until Spring, and the contract says “the steps will be fixed by 30 May 2023”, then it is clear that it was intended by both parties to enter into a collateral agreement which was by implication intended to survive the closing and the doctrine of merger was not to apply.
However, why not just say this expressly? It avoids disputes.
Best practices would suggest that the words: “shall not merge but shall survive closing” would be added to make the promise clear to all.
Brian Madigan LL.B., Broker