Working Order Clauses and Warranties

by absetts. Posted in First Home Buyers, For Buyers, For Sellers, Legal


Many contracts contain clauses regarding the gas, electrical and plumbing fixtures on a property. Many buyers believe that such clauses afford protection if one or more of these items are not working correctly, but this is not necessarily the case.

The critical factor to knowing what the seller’s responsibilities are rest within the clause shown on the Offer and Acceptance Contract and knowing the differences between a conditions, warranties and representations.

In simple terms, a condition is something that must be performed by a party, whereas a representation or warranty generally does not create an obligation to perform a specific task, it merely creates a right to compensation for the party that has suffered the breach of warranty or the misrepresentation.

Many Contracts contain clauses that state that the seller “warrants” that these appliances will be in working order (or variations to this such as good working order or fair working order).

Given the definition above, such a warranty does not create an obligation on the seller to repair any items that are not working. It merely creates a right for a buyer to seek compensation from a seller for the repairs following settlement.

The legal fees incurred by a buyer to recover the cost of any such repairs from a seller are likely to outweigh the costs of the repairs themselves. Many buyers therefore do not pursue a seller for reimbursement of these costs and simply just attend to the repairs themselves. It could therefore be argued that these warranty clauses are not worth the paper that they are written on.

There are several ways to mitigate any last minute drama surrounding such clauses:

  1. Ensure that you check all of these items before you make your Offer and Acceptance Contract. If there are any items that are not in working order (eg the oven or hot water system), make it a condition of the Contract that the seller is to repair or replace the item prior to settlement.
  2. If you discover that some items need to be repaired or replaced, factor the costs of the repair or replacement into the amount that you are willing to pay for the property. Offer slightly less for the property and repair or replace these items following settlement.
  3. Read the clause in the Contract carefully. If it is a “warranty” or “representation” rather than a condition, be aware that the seller is under no obligation to repair or replace these items prior to settlement.
  4. Be realistic. If an oven or stove do not ignite using the automatic ignition, is this going to have a major impact? An appliance that is over 5 years old is unlikely to be in pristine condition, nor is the seller likely to be able to obtain parts to repair the appliance. This is when items 1 and 2 above are useful.

Settlement agents are not permitted to retain funds other than for the purposes of a settlement. Retention of funds for repairs are not for the purposes of settlement and therefore settlement agents are increasing refusing to hold funds so that repairs can be carried out after settlement.

Absolutely Settlements recommends that you check a property thoroughly before making your Offer and Acceptance Contract and that you follow the guidelines set out in this article so that settlement is effected on time and with a minimum of fuss.