Who is responsible for re-inspection costs if repairs aren’t properly made?
QUESTION: I’ve had some issues recently with a large-scale investor seller that I would like your input on. One issue is that on several occasions, we have discovered after having re-inspections done that the repairs the seller agreed to make haven’t been completed. I’ve had to insist that the repairs be made before the buyer will close, and although the repairs finally got done, my buyers had to pay for a second re-inspection in order to protect themselves. Another issue is that this investor uses its own form to negotiate repairs, and it provides, among other things, that the buyer agrees not to reinspect the property. I have insisted that the Due Diligence Request and Agreement form be used because I don’t think it’s right for the seller to ask the buyer to give up the right to re-inspect the property.
Is the buyer responsible for the cost of a second reinspection if the first re-inspection reveals that the agreed-upon repairs haven’t been done? Also, is it permissible for a seller to use a form that contains a waiver of the buyer’s right to do re-inspections?
ANSWER: To answer your first question, assuming the Offer to Purchase and Contract (Form 2-T) was used to put the properties under contract, the buyer is responsible for the cost of all inspections, which would include the cost of one or more re-inspections to confirm that agreed-upon repairs have been made in a good and workmanlike manner. If, based on prior experience with a particular seller, you have reason to believe that the seller may fail to make agreed-upon repairs unless pushed to do so, you might consider inserting language in the Due Diligence Request and Agreement that would obligate the seller to pay for the costs of any re-inspections that become necessary if a first re-inspection reveals that the repairs haven’t been properly completed. Any such language should be drafted or approved by an attorney.
Regarding your second question, although paragraph 8(m) of Form 2-T clearly gives the buyer the right to verify prior to Settlement that agreed-upon repairs have been made in a good and workmanlike manner, a seller could certainly try to negotiate a waiver of that right. Having said that, we think it would be a very bad idea for a buyer to waive the right to verify that repairs have been properly made, because once the transaction closes, the buyer very likely loses the right to insist that the seller make any agreed-upon repairs or to sue the seller for failing to make such repairs.
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