A sale without legal warranty: What does it involve?
Last updated on December 1, 2023
When we see a home for sale “without legal warranty,” we automatically think it must be riddled with issues. But that’s not necessarily the case. This term is often used when a property is sold by the owner’s estate, has been foreclosed, is very old or the owner simply does not want to be held liable for any defects.
Summary:
- What is a sale without legal warranty?
- Why sell without legal warranty?
- What are the implications of selling without legal warranty?
- The sales contract without legal warranty
What is a sale without legal warranty?
A legal warranty gives the buyer legal recourse against the seller, whether they are purchasing a single-family home, a condominium, a chalet, a multiplex or other. It namely covers defects that were hidden at the time of the sale (that no one was aware of, even the seller) and that did not come to light during the pre-purchase inspection. That is the first part of the legal warranty, called the warranty of quality. It can include, as an example:
- Water entering the basement
- Roof deterioration
- A crumbling foundation
- Electrical system not up to code
- Mould in the walls
- Carpenter ants
The second part of the legal warranty, called the warranty of ownership, assures the buyer that the property is free of all charges (mortgage, right of way (servitudes), etc.) expect for those declared by the seller.
The seller can exclude the legal warranty in its entirety (the warranty of quality and the warranty of ownership), as long they clearly state, in the Offer to Purchase and in the deed of sale, that the sale is made “without any legal warranty, at the buyer’s risk and peril.”
If the warranty is excluded, the buyer cannot take legal action against the former owners for a problem involving a hidden defect. The buyer’s only recourse is to prove that the seller intentionally concealed the truth about an important aspect of the property. This omission must be so major that the buyer would not have purchased the property, or not for that price, if they were aware of the issue.
Why sell without legal warranty?
There are several reasons why homeowners may decide to sell without legal warranty, the most common being to protect themselves from potential recourse, including a formal notice, and to have complete peace of mind that a past property will not come back to “haunt” them.
During an estate sale or the sale of a foreclosed property, the selling party did not live in the building and can therefore not attest with any certainty to the property’s condition. It is for this reason that they often add a clause to the sales contract to exclude the warranty of quality. An elderly person wanting to protect their estate could also use this clause to prevent a future claim against their heirs.
What are the implications of selling without legal warranty?
Selling without legal warranty is possible but has to be done the right way. You should also expect potential downsides, including tougher negotiations and the possibility of having to accept a lower price. It’s the price to pay to be released from your liability as the seller.
1. Mention in the Offer to Purchase
For a house to be sold without legal warranty, it must be clearly stated in the Declaration of the Seller and in the Offer to Purchase. It will then be included in the deed of sale. For this reason, a notary is the best person to write this clause, to ensure that it is compliant and perfectly meets the needs of the buyer and seller.
The notaries on DuProprio’s team recommend that our clients write the following statement (according to Section 1733 of the Civil Code of Québec) in Clause 8 of the Offer to Purchase form: The sale is without legal warranty, at the buyer’s risk and peril.
Download an Offer to Purchase form
Note that this mention does not exempt the owner from declaring the defects they are aware of. It means that the buyer will not be able to come back against the seller if a hidden defect, that is to say, a defect not perceptible at the time of purchase that affects the property’s normal use and generally decreases its value, is discovered after the sale.
2. Impact on the selling price
A few years ago, when this practice was not as common as it is now, mentioning that a property was for sale without legal warranty often put potential buyers on their guard and drove the price down. The JLR firm estimated that in 2016, a building sold without legal warranty would have its price reduced by 8 to 11% 1. That is a big difference.
The proportion of sales of single-family homes sold without legal warranty rose from 17% in 2014 to 26% in 2020, finally reaching 32% in the first five months of 2021,according to the same report by JLR1. This phenomenon has not slowed the average rise in selling prices, which suggests that the financial impact of selling without legal warranty is not as significant as in the past.
The sales contract without legal warranty
Sellers use different clauses and terms to inform buyers that their property will not include a legal warranty and that any recourse against them will not be successful.
The “At the buyer’s risk and peril” clause
More restrictive, this term excludes the warranty against hidden defects. This means buyers cannot take legal action under the warranty of quality. So, they’re buying the home as is, flaws and all!
But this term does not remove the sellers’ responsibility to comply with the requirements of the law and not deceive buyers. Therefore, buyers can take legal action if they can prove that their agreement was influenced by a seller acting in bad faith. In other words, buyers have to prove that they agreed to the deal because they were influenced by the seller’s lies, schemes or failure to disclose an essential element of the contract.
“Perfect for DIY enthusiasts “
Another term we often see in listings is “Perfect for DIY enthusiasts,” which sends a clear message to potential buyers: work needs to be done on the property for it to achieve its potential. However, this term has no legal value, so buyers can still benefit from the legal warranty against hidden defects, and sellers have a responsibility to declare known defects in the property.
Using this term may attract buyers looking for a bargain. And it can help put sellers in contact with buyers who are really interested in the property and prepared to buy it in its current condition.
Here the pre-purchase inspection is doubly important for buyers, as it provides an assessment of the property’s current condition. Buyers can calculate the expected renovation costs and then determine whether the price is fair. If the inspection reveals certain defects, they have a few options.
If the necessary precautions are taken and all aspects are carefully considered, buying or selling a property without legal guarantee can be a good option.
DuProprio’s clients have access to the support of a team of notaries available six days a week to answer their questions about legal documents or offers to purchase. There is no limit to the number of times you can call!
Discover the visibility and support we offer in the sale of your property by watching our webinars or by scheduling a call with one of our advisors.
