Legal Lines: August 2019

This month’s legal lines question deals with substantial property damage.

Question:I have a buyer that was under contract when a pipe burst in the kitchen and flooded the kitchen, the garage, under the kitchen, and the living room. Water has caved in the ceiling to the garage and seeped in the walls. My buyer does not want to purchase the home anymore, so we terminated the contract. The GAR Purchase and Sales agreement states that the buyer is allowed to terminate the contact without penalty if there is damage to the home. The seller is saying that it is not substantial damage and he does not agree that the buyer should get her earnest money back. Please give me your opinion on this situation.

Answer: It is hard to make a judgment call on this without seeing the damage and understanding how much it will cost and how long it will take to make repairs. The language in the GAR Purchase and Sale Agreement allows the buyer to terminate if the property is destroyed or substantially damaged.  As a practical matter, the key question is likely going to be whether the property can be restored to the condition it was in on the binding agreement date by the date of closing. If that can occur, the buyer will likely have a hard time winning a case that the property was substantially damaged.  If the property cannot be fully restored by the date of closing, then the buyer does not have to purchase the Property because it is not in substantially the same condition as it was on the binding agreement date (as promised by the seller under the contract).

In our Legal Lines column, we feature a question from GAR’s Legal Helpline each month. Answers to these questions are provided by GAR General Counsel, Seth Weissman. Questions and answers are edited for brevity and clarity. Click here to learn more about our Legal Helpline or to submit a question.