Rented vs leased fixtures and how it can affect your home purchase

When preparing a listing agreement or an Agreement of Purchase and Sale a real estate agent must ensure that rental items (for instance, a hot water tank and heater, water softener, furnace or air-conditioner) are in fact true rentals and not the subject matter of a lease or other agreement which includes an obligation, as opposed to an option to purchase the piece of equipment.  The agent should ask his client or the other agent for evidence that it’s a true rental agreement. A useful starting point is the seller’s Enbridge bill which may disclose rental amounts being paid to Direct Energy or other lessors/sellers of equipment.  Unless the Enbridge bill clearly discloses the payment to be a true rental, one must dig deeper. Some gas bills have a section disclosing payments made to other parties – this isn’t sufficient to establish a rental. To be sure that it’s a true rental, the seller should present a complete copy of the contract so that it may be reviewed, or the seller could obtain written confirmation from the supplier regarding the rental.

If a piece of equipment (for example, a furnace) is a rental, but not disclosed as a rental item to be assumed by the buyer in section 6 of OREA’s standard form of Agreement of Purchase and Sale, the buyer should take the position that the equipment is a fixture, included in the purchase price, and require the seller to “buy out” the contract and deliver the piece of equipment free and clear on closing.

If the piece of equipment is not a true rental (i.e. the subject matter of a lease or other  agreement which includes an obligation to purchase) but is however disclosed as a rental  item in section 6 of OREA’s standard form of Agreement of Purchase and Sale, the buyer could require the seller to deliver a rental item on closing. To do so the seller may have to (i) “buy out” the contract and then (somehow) arrange for a true rental item to be delivered or (ii) make other arrangements with the seller/lessor – usually a difficult and expensive predicament.

The cost to buy out some contracts can be as little as a few hundred dollars or as costly as several thousands. These problems can be easily avoided with a little digging beforehand.

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