What Is A “Survive Closing Non Merger” Clause?

Survive non merger clause in real estate agreementIn real property law, all promises merge (i.e. end) on closing when the purchase price is paid by the buyer and the deed is delivered by the seller unless the agreement of purchase and sale otherwise provides, expressly or impliedly, or unless a new agreement is made by the parties. In order to ensure that certain promises continue (or survive, and don’t end (or merge) on closing), express provisions to that effect are inserted in the Agreement of Purchase and Sale.

The usual provision reads something like this:

The seller represents and warrants that the chattels, fixtures, systems and equipment (including heating, ventilating, air conditioning, plumbing and electrical) are now and on closing will be in good working order, which representation and warranty shall not merge but survive closing, but shall apply only to the state of the property existing at the closing of this transaction.

An example question from a buyer

I just bought my new home yesterday and the furnace is broken. My real estate agent told  me that the seller guaranteed that everything would be working on the closing date and afterward.  Is he right? What does ‘which representation and warranty shall survive closing’ mean?

Here’s the Bottom Line:

If your agreement contains a good working order warranty which expressly provides that it will survive closing, then the seller is promising that the furnace will be working on closing, but not that it will continue to work for a minute after closing.  If the furnace isn’t working on closing, whether you discover it before or after closing, then the seller is responsible to repair it. If it is working on closing but breaks afterward, the seller isn’t responsible. If the good working warranty does not expressly survive closing, then you must address the issue with the seller on or before closing, but not afterward.

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For the seller there is a huge difference between:

  1. promising that the furnace will continue to work after closing;
  2. “guaranteeing” that his promise (that the furnace will be working on closing) will continue. This is an easily misunderstood concept.

In (1), the seller would be guaranteeing the physical operation of the equipment after closing. No seller would be inclined to guarantee that the furnace will continue to work after he has sold his property when he will no longer be there to ensure that the buyer properly operates and maintains the furnace. Guarantees of physical operation are provided by appliance and equipment  manufacturers (and for a fee, some insurance companies). If you need information on any of these insurers, please get in touch with me. These insurance policies are available to both buyers and sellers.

In (2), the seller is guaranteeing that his promise that the furnace works on closing will continue i.e. he is saying that if the buyer can prove, after the closing, that seller’s promise was untrue on closing i.e. that the furnace wasn’t working on closing, then the seller is responsible for the repair.

A close examination of this provision discloses that the seller is promising that the furnace will be in good working order on closing and that the representation and warranty (i.e. the promise) survives closing. The seller is not promising that the furnace will work after closing but only that his promise of working order will survive.

Purchasers should inspect the property just before the closing to ensure that the seller’s promises are true; if anything isn’t working, it can be addressed before the closing, and even if it can’t be addressed, there will be clear proof that the seller’s promise was untrue at the time of closing. Once the closing has occurred and the buyer then discovers that something isn’t working, he faces an uphill battle. He has to prove that the furnace wasn’t working on closing. Unfortunately not all sellers are forthright and won’t concede that they haven’t lived up to their promise; in other words, they’ll say something like “the furnace was working fine when we moved out this morning. I can’t imagine what happened or what the buyer did to it in such a short time to break it.” I can’t overstate the importance of inspections before closing. Inspections after closing are similar to closing the barn door after the horses have bolted. You can prove that the horses are gone but you can’t prove when they escaped; was it before or after the closing?

Although sellers aren’t inclined to guarantee operability after closing, they will in circumstances where the buyer can’t confirm operability for himself at the time of closing, for instance, where the closing occurs in January and the outdoor swimming pool  or hot tub has been closed up for the winter. In such a situation the agreement of purchase and sale should contain the seller’s promise that the swimming pool will be in working order on a specific date, for example, June 15. This gives the buyer an opportunity to open the pool and inspect it. In order to preclude the seller from arguing that the buyer or his pool maintenance company improperly opened the pool or damaged it in the course of opening it, I usually include a provision in the Agreement of Purchase and Sale that the seller’s pool maintenance company will open the pool. Another, but very similar way to address a pool is to have the seller warrant that the pool is working and covenant, at his expense, to open the pool and put it in good working order on or before a specified date. If you don’t trust the seller to do so, you could include a provision in your Agreement that the seller’s or buyer’s lawyer agrees to hold back a certain sum of money as security for the seller’s performance of his warranty and promise, which holdback can be used  to fix the pool if the seller fails to perform. Without the express provision for a holdback, the buyer cannot demand one and the seller surely won’t give one.

Protect yourself before you sign the offer, not afterward when it’s probably too late.

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