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Home Inspection Clause

In this case Margaret and David Marshall purchased a renovated house in midtown Toronto for over 1.5 million dollars. Their agent inserted a two week home inspection condition. The Marshalls ordered and received the report which described the premises as “a well built house” needing no major repairs. There were some minor deficiencies such as an uninsulated area in the crawl space below one of the front rooms and other minor items which might result in repair costs of about $1,500.00. The Marshalls lived in New York and they intended to use the house to rent out. Because of the logistical difficulty of supervising the work from New York and concerns that the repairs might disturb their tenant, the Marshalls decided that the property fell short of their “most exacting standards”. So 6 days later they notified their agent that they would not waive the condition. The vender refused to return the deposit claiming that the report’s conclusion that there were no substantial defects meant that the Marshalls did not act reasonably, honestly, and in good faith.

The question was whether they acted reasonably in rejecting a condition that was “not satisfactory to him in his sole and absolute discretion”. The judge found that the use of the words “a report satisfactory to him in his sole and absolute discretion” would clearly express an intention to create an option that would have to be exercised honestly. The judge went on to further say that he would not call the condition clause an option because there remains a requirement for reasonableness, honesty and good faith. He concluded “the test for reasonableness is the combined subjective and objective standard heavily weighted to the subjective side by the strong wording of the condition clause”. It is not up to the vendor to say the Marshalls ought to have been satisfied. Accordingly the home inspection got the Marshalls off the hook.

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