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$0 Repair Limits vs. As-Is

March 5, 2020 Contracts Real Estate Blog

In Section 12 of the FAR/BAR contract, a seller warrants the operational condition and structural integrity of their property and has the responsibility to maintain or deal with such matters going forward from the contract’s effective date through closing. Subject to the Section 9(a) repair limits, the seller is responsible for structural or equipment repairs, and to close-out (or obtain and closeout) building permits. However, there are agents who are of the impression that putting $0 in the Section 9(a) repair limits makes the deal “as is.”

Zeroing out the repair limits does not remove a seller’s warranties and representations about the Section 12 inspection items (general property, wood-destroying organisms, or building permits) or, perhaps, more importantly, absolve a seller of responsibility to maintain or deal with such matters from the contract’s effective date forward. All the $0 limit does is ensure there will be a discussion about what is going to be repaired or closed out.

Contrast this with a true as-is contract, where the seller’s only responsibility is to make sure the condition of the property is the same at closing as on the effective date of the contract – i.e., they can’t let that hole in the roof get any worse than it already is. The seller makes no warranties whatsoever about the operational fitness of the property or its history. What the buyer sees is what the buyer gets.

There are two addenda on point:

  1. The FAR/BAR Right to Inspect and Right to Cancel addendum serves the same purpose as some of the home-grown inspection addenda you see proffered by some closing firms – it gives the buyer a free look period, but if they elect not to cancel, then the repair limits ($0 or otherwise) remain, as do the seller’s warranties and representations.
  2. The FAR/BAR As-Is addendum, on the other hand, removes the Section 9 repair limits and the Section 12 warranties and representations, creating an actual as-is, “what you see is what you get” contract. From a drafting perspective, if as-is is your intent, the FAR/BAR AS-IS contract is the better vehicle for your offer, since it incorporates the concept of the As-Is addendum in a cleaned up, single-purpose form.

The upshot is this: you are doing your seller a disservice if you use the term “as-is” in connection with a FAR/BAR offer with $0 repair limits and/or a Right to Inspect/Right to Cancel (or homegrown) addendum attached. Contract forms are an agent’s stock and trade – be absolutely clear in your understanding of what each form (and addendum, regardless of the source) says and does, and what obligations your client has as a result of the complete contract presented.