Avoid Confusion Over Rental Items

By Lorne Shuman:

When purchasing a property, it is normal to find rental items included in the Agreement of Purchase and Sale.  Examples of these items include a hot water tank, heater, water softener, furnace, air conditioner or alarm system.  On occasion, difficulties and disagreements can arise between the parties when the Agreement fails to clearly indicate if the item in question is in fact a true rental as opposed to an item that is actually owned by the seller or contains an option to purchase.  As well, problems can surface when the item is improperly classified as a rental when it is in fact owned by the seller.

In order to avoid confusion and potential disputes that could jeopardize the closing, a careful listing agent will check with his or her client to confirm that the item in question is a true rental.  This can be verified by looking at an invoice which should confirm the status of the equipment as a rental item.  If this is not clear, written confirmation should be obtained from the supplier.

A clause about assuming rental items is usually found in the pre-printed form of the Agreement of Purchase and Sale. If the item in question is in fact a rental, but not disclosed as such in the Agreement, a buyer could take the position that the item is owned and should be included in the purchase price of the property.  In this case, the seller may be required to purchase the item and provide it to the buyer free and clear.  One can imagine how surprised and angry a seller will be upon learning that it would have to buy-out the item at its expense and provide it to the buyer.  Asking some questions and careful drafting can avoid embarrassment and potential costs.

Conversely, if the item was disclosed in the Agreement as a rental, but in fact was on a “rent to own” contract, again the buyer could force the seller to provide a rental item on closing.  In this case, the seller may have to purchase the contact at its expense.  This could be quite expensive for the seller.

These types of problems are best avoided by having the seller obtain written confirmation from the supplier for the status of the item prior to listing.

Courtesy: Shuman Law