Unraveling the “Survive Closing Non Merger” Clause in Real Estate Agreements

Survive non merger clause in real estate agreement

In the world of real estate, the process doesn’t end with a handshake – it’s filled with complex jargon and clauses. One such term that often pops up is the “Survive Closing Non Merger” clause. Not exactly a phrase that rolls off the tongue, right? Fear not, we’re here to break it down for you, making it easy to understand.

What Does the “Survive Closing Non Merger” Clause Mean?

When you seal a real estate deal, the buyer hands over the cash and the seller hands over the deed. At this point, all the promises and conditions typically end (or “merge”), unless stated otherwise in the purchase agreement. However, some promises are designed to continue even after the deal closes. These promises “survive” and don’t “merge” at closing, hence the term. This is achieved through express provisions in the Agreement of Purchase and Sale.

Here’s a Typical Example:

The seller guarantees that all fixtures, systems, and equipment (including heating, ventilation, air conditioning, plumbing, and electrical) are currently and will be in good working order at closing. This guarantee won’t end but survive closing, and applies only to the property’s state at closing.

So, What Does This Mean for a Buyer?

Imagine you’ve just bought a home, and the next day you discover that the furnace is broken. You remember your real estate agent mentioning that the seller guaranteed everything would be working on and after the closing date. So, what does this all mean?

The Bottom Line Is:

If your agreement includes a working order warranty that specifically states it will survive closing, the seller is guaranteeing that the furnace will be functioning at closing, but doesn’t guarantee its continued operation afterward. If the furnace isn’t working at closing, whether you notice it before or after, then the seller is responsible for its repair. But if it breaks down after closing, the seller is not responsible. If the warranty does not expressly survive closing, you must resolve any issues with the seller on or before closing, but not afterward. If you have any doubts or concerns, it’s worth getting a professional consultation.

Let’s Clarify This with Two Different Scenarios:

  1. The seller promises that the furnace will continue to work after closing. This is an enormous commitment and not typically given. After all, the seller won’t be there to ensure the buyer properly operates and maintains the furnace. Guarantees of physical operation are usually provided by appliance and equipment manufacturers or insurance companies.
  2. The seller is “guaranteeing” that his promise (that the furnace will be working on closing) will continue. This means if you can prove after closing that the furnace wasn’t working at the time of closing, then the seller is responsible for the repair.

The Key Takeaway:

The seller isn’t promising that everything will continue to work after closing, but rather that the condition of things at closing will hold true based on their promise.

The Importance of Inspections:

As a buyer, you should inspect the property before closing to ensure the seller’s promises hold true. If anything isn’t functioning as promised, it can be addressed before closing. After closing, proving that something was already broken can be a tricky ordeal. Hence, conducting an inspection before closing is crucial.

What About Seasonal Amenities Like Pools?

While sellers aren’t usually willing to guarantee functionality after closing, exceptions might be made for things like swimming pools that can’t be checked during winter. In such cases, the purchase agreement should contain the seller’s promise that the pool will be in working order on a specific future date.

Protect Yourself:

In a real estate deal, it’s essential to protect yourself before signing the agreement, as after might be too late. Understanding clauses like the “Survive Closing Non Merger” can save you from potential issues down the line. As always, when in doubt, seek professional guidance.

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How Does This Affect Sellers?

For sellers, there’s a huge distinction between these scenarios:

  1. Promising that an item, like the furnace, will continue to work after closing.
  2. “Guaranteeing” that the promise of the item working at closing will continue.

In the first scenario, the seller is taking on a responsibility to assure the physical operation of equipment after the property is sold. This is quite unusual, as the seller has no control over how the buyer uses or maintains the equipment.

The second scenario is more common. Here, the seller is guaranteeing that if the buyer can prove that the equipment wasn’t working at the time of closing, the seller will bear the responsibility for the repair.

In essence, the seller is not promising that the item will continue to work after closing, but they are vouching for its condition at the time of closing.

When to Seek Professional Guidance?

Confused about the promises, guarantees, and the terms of your purchase agreement? It’s a good idea to discuss your concerns in detail with a professional with a thorough review of your purchase and sale agreement. They can provide insights into what to expect and how to protect your interests.

What About Amenities That Can’t Be Checked Immediately?

What if your property has amenities, like a swimming pool, that can’t be checked during certain seasons? Sellers will often agree to guarantee operability in situations where the buyer can’t confirm it for themselves at the time of closing. For instance, if you close a deal in January and the swimming pool is closed for the winter, the seller can promise that the pool will be in working order by a specific date, say June 15. This gives you an opportunity to open and inspect the pool.

To prevent disputes over pool opening and potential damage, it’s advisable to include a provision in the Agreement of Purchase and Sale that the seller’s pool maintenance company will open the pool. Alternatively, the seller can warrant that the pool is working and agree, at their expense, to open the pool and ensure its working order on or before a specified date.

What’s a Holdback?

You might also consider including a provision for a holdback – a sum of money held by the seller’s or buyer’s lawyer as security for the seller’s performance of their warranty and promise. This can be used to repair the pool if the seller fails to deliver on their promise.

Understanding these real estate terms is crucial in protecting yourself during a property transaction. Always be proactive and address any concerns before you sign the offer, rather than afterward when it might be too late.

Misconceptions and Misunderstandings

One key misunderstanding that many people have is the concept of a “surviving promise.” For example, a seller might promise that a furnace will be working on the closing date. If the furnace is found to be broken after the closing date, who bears the responsibility?

The answer lies in the ‘survive closing non-merger’ clause. If the promise from the seller to keep the furnace working “survives” the closing date, this means that if the furnace wasn’t working on the closing date (even if you discovered it afterwards), then the seller is responsible for the repair. However, if it was working on closing and then breaks down afterwards, the seller isn’t responsible. So, the promise isn’t about the state of the furnace after closing, but rather about its condition at the time of closing.

Pre-Closing Inspections: Why Are They Crucial?

Pre-closing inspections are an essential step to ensure that all agreed-upon conditions are met before you finalize the property transaction. Let’s say you find something broken or not working after closing – proving that it was already in that condition on the closing date can be a tough task. Hence, it’s always better to perform inspections before closing.

This can be likened to closing a barn door after the horses have already bolted. You can confirm the horses are gone, but it’s hard to prove whether they escaped before or after the door was closed.

Wrapping It Up: Take Precautions Before Signing

In conclusion, understanding the ‘survive closing non-merger’ clause is important for both buyers and sellers. Buyers should do their due diligence and inspect the property just before closing. Sellers, on the other hand, must ensure that their promises align with the reality at the time of closing.

Getting a grasp on these terms and conditions can be a bit overwhelming, but it’s crucial for a smooth and fair property transaction. Always remember, protect yourself before signing any legal documents and don’t hesitate to seek professional advice when needed. You might think you’re just buying or selling a property, but in legal terms, it’s much more complex than that.

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