Duty of investigation

How far does the obligation to investigate go when purchasing a home?

We still have to deal with an overheated housing market in which buyers often feel compelled to decide hastily whether or not to buy. Even in Corona time, the buyers’ market is busy. Where it used to be customary to carry out research before buying a property, this is now often skipped. But doesn’t a buyer lose any rights if he doesn’t do (enough) research? In this blog we look at the duty of investigation of the buyer of a house.

Non-conformity

When buying a property one may expect that the property possesses the properties necessary for normal use. If this is not the case, there is non-conformity (Article 7:17 of the Dutch Civil Code). Normal use is understood to mean that it must be possible to live in the home in a sufficiently safe manner, with a reasonable degree of durability, without the enjoyment of living being substantially affected.[1] If this is not the case, then in principle there is non-conformity and the buyer is entitled to have the defects repaired or even dissolution of the purchase agreement can be demanded.

Purchaser’s duty of investigation

Before a buyer can invoke non-conformity, it is checked whether the buyer has fulfilled his obligation to investigate. In principle, a buyer cannot invoke non-conformity in the case of visible or apparent defects[2].

Visible defects

If, for example, a buyer was able to see with the naked eye that there was a leak in the attic, he cannot invoke non-conformity after the purchase. In that case, he has violated his duty of investigation since he has been able to observe the visible defect himself before the sale.

Apparent defects

In addition to visible defects, there may also be noticeable defects. These are defects that the buyer knew or should have known were present. If, for example, you buy a 150-year-old farmhouse, which was last renovated in 1950, more defects must be taken into account in advance than when buying a new house. Another example of noticeable defects are defects of which the seller has explicitly notified in advance or when the defects are included in the sales contract. At that time, the defects are known to the buyer. In that case, too, the buyer cannot invoke non-conformity. Obvious defects may also be subjective in nature. For example, a professional party is expected to have more knowledge and will therefore be more likely to become aware of a known defect.

Seller’s duty of notification

The buyer’s duty of investigation is offset by the seller’s duty to provide information. In most cases, this obligation to provide information outweighs the buyer’s obligation to investigate. This means that if the seller is aware of a significant defect, but fails to notify the buyer, the buyer can still invoke non-conformity despite the fact that the buyer has not carried out any or sufficient investigation. Incidentally, if the seller was not aware of a defect, the buyer can still invoke non-conformity if this makes the property unsuitable for normal use.

Advice

When purchasing a house, it is wise to have an survey carried out. The costs often outweigh the possible misery it saves. But even if the buyer is unable or unwilling to have an architectural survey carried out, he can still do what is necessary to safeguard his rights. In addition to viewing the property, it is wise for the buyer to ask the seller many questions about the property. In this way, the buyer not only meets his obligation to examine the property, but also increases the seller’s duty of disclosure. After all, the seller will have to answer all questions truthfully in order to fulfil his duty of disclosure. If possible, it is preferable to record these questions and answers (afterwards) by means of, for example, e-mail correspondence. Real estate agents also often use a standard questionnaire on which many subjects are discussed.

The consequence of these questions is that the buyer can no longer complain about defects that have already been reported by the seller. In that case, it is important for the buyer to take good note of the answers to the questionnaire and to ask if there are any ambiguities. In that case, the defects are deemed to have been taken into account in the purchase price. Therefore, if the investigation shows that there are defects, the buyer will have to negotiate about the price.

Do you have any questions about this blog or would you like advice on a purchase agreement? Please feel free to contact M2 lawyers.

Lawyer Ginio Beij (beij@m2advocaten.nl)

1] See e.g. Hof Amsterdam 3 September 2019, ECLI:NL:GHAMS:2019:3226

2] See e.g. HR 7 October 2016, ECLI:NL:HR:2016:2287

Sale of property: cooling-off period for the seller

When you are selling a house, a private buyer is given a three-day cooling-off period under the law. It is increasingly common for sellers to stipulate a cooling-off period. Is this allowed? In this blog we look at the rules surrounding the cooling-off period and discuss a recent judgment of the District Court of Overijssel regarding the cooling-off period for the seller. Finally, we look at the consequences of this ruling.

Three days cooling-off period for private buyers

With the housing market under constant tension, there is usually a lot of pressure on potential buyers to quickly decide whether to buy or not. This can of course lead to hasty decisions. Fortunately, private buyers are somewhat protected by law. For example, private buyers are given a three-day cooling-off period after they have agreed to buy a house (Article 7:2 paragraph 2 of the Dutch Civil Code). Even when the papers have been signed, the private buyer still has three days to dissolve the purchase agreement without giving reasons.

Reflection period for sellers?

This statutory cooling-off period only applies to private buyers. As long as the sales contract has not been signed, the (private) seller has the possibility to renounce the sale, but as soon as it has been signed he is in principle bound by the sale. However, a seller does have the possibility to include a clause in the sales contract that says that the seller also gets a cooling-off period. An obvious reason for the seller to include such a clause is that in the current housing market the seller regularly receives a higher bid later. As long as the buyer agrees to such a clause, it is allowed.

Case

Earlier this year, the District Court of Overijssel ruled on a case in which the seller had stipulated a three-day cooling-off period equal to the protection for buyers. In the end, the seller used this period to go into business with a third party and thus dissolved the purchase agreement with the first buyer. The buyer claimed that the seller had abused the clause. According to the buyer, this clause only served to protect the seller against a hasty decision, and not as an instrument to obtain a higher bid from a third party. However, the court ruled that the parties had agreed that the seller could renounce the sale just like the buyer without giving reasons. Although the court questions whether negotiating with a third party after the conclusion of a sales contract is decent, it does not see sufficient reason to hold the seller to the sales contract in this case. This would have been different if the seller had used the offer of a new potential buyer to make the first buyer pay a higher purchase price.

Conclusion

The outcome of the ruling is that selling parties can certainly try to negotiate a cooling-off period for themselves now that this will increase the chance of obtaining the highest possible price. For buyers, on the other hand, this possibility obviously entails the risk that the house can be sold to someone else at the last minute, so that the cooling-off period can mean a number of nerve-wracking days. A buyer is usually wise not to agree to such a clause. Nevertheless, the housing market in some regions in the Netherlands is still so tense that buyers may feel compelled to agree to such a clause. In that case, it may be wise to try to draw up additional dissolution conditions in order to limit the risks to some extent.

Do you have questions about the cooling-off period or are you looking for advice on drawing up a sales contract or additional conditions? If so, please feel free to contact M2 Advocaten.

Lawyer Marius Rijntjes (rijntjes@m2advocaten.nl)

 

Purchase of property: what if it stinks?

You finally bought your dream house, but soon the house turns out to be more of a nightmare. It turns out to stink of fish and frying smells in the new house. You want to undo the purchase as soon as possible. What does the judge think of this case?

Case

A seller puts his house for sale on Funda. The house is located above a fish shop, but the seller puts the following text in the advertisement “absolutely no trouble from the shop below”.  Smell nuisance from the underlying shop seems to be out of the question. An interested potential buyer decides to visit the house and indeed does not smell any fish smell or other unpleasant smells during the visit. Then some time later, a sales agreement is concluded between the seller and the buyer. However, when the buyer enters his new home he appears to notice a penetrating smell of fish and frying.

The buyer then asks the seller to take measures so that the buyer no longer experiences the serious odour nuisance. Initially the seller promises to cooperate, but if he fails to do so, the buyer’s patience quickly runs out. He calls in a company to look into what causes the odour nuisance. In the end, the investigation shows that the fans of the fish shop are responsible for moving the smell of fish to the buyer’s home. The buyer then decides that he wants to cancel the purchase and institutes summary proceedings (urgent procedure).

Judgement of the court

In principle, a buyer of a house can dissolve the purchase agreement if the house does not comply with the agreement.  If a house does not comply with the agreement, this is also called non-conformity. What a seller has communicated about the property should also be taken into account. In short, if the seller has made it clear at the time of the sale that the house stank, the buyer cannot later dissolve the purchase agreement on the grounds of that smell. It follows from the law (Article 7:17 of the Dutch Civil Code) that the home possesses the properties required for normal use. This concept of normal use is, for example, also included in the NVM deed of sale.

In this case, the court ruled that it was plausible that there was some stench nuisance, but also that the stench was somewhat to be expected because the house was located above a fish shop. This was despite the fact that the seller had stated in the advertisement that there would be absolutely no nuisance. According to the court, it had not been sufficiently demonstrated that the stench was actually so serious that it impeded normal use of the house. Nor was it sufficiently clear that there were no ways to eliminate the stench. In short, the judge ’s opinion was  that the stench did not justify the dissolution of the purchase agreement.

Conclusion

In itself, it is remarkable that the judge ignored the fact that the seller had advertised with “absolutely no nuisance from the shop below”. In my opinion, it can certainly be defended that the seller actually obliged himself with this statement to deliver a home without any (odor) nuisance from the fish shop underneath. This would be different if, for example, the buyer had been inconvenienced by the approach of customers. From an objective point of view, the seller does not necessarily have to experience such a nuisance and it is also up to the buyer to ascertain the situation to some extent. This case definitely shows that a judge will not allow a quick dissolution of a sales contract. As a buyer, it is always important to investigate extra carefully if the circumstances give (any) reason to do so and not to accept the seller’s words too quickly.

Have you bought a property that does not meet your expectations or are you, as a seller, dealing with a dissatisfied buyer? Please feel free to contact M2 Advocaten.

 

Lawyer Ginio Beij (beij@m2advocaten.nl)

old dilapidated house

Watch out for the age clause in sale purchase agreements

More and more house sellers are including a so-called ‘age clause’ in their purchase contract. By doing this, the seller avoids being liable for hidden defects of the home that have arisen due to the age of the home. However, it may also be the case that defects that have a cause other than age are for the account of the buyer thanks to the age clause. Buyers should therefore be extra vigilant if they enter into a purchase agreement with an age clause.

The age clause

In the case of older houses, it is not always easy to detect possible defects (without spending too much money). Therefore, instead of having a thorough investigation and, if necessary, repairs carried out, an age clause offers a solution for a seller if he decides to sell his house. An age clause limits the seller’s liability in the event of (hidden) defects occurring after the sale. For the sake of clarity, this only concerns defects that were not known to the seller at the time of the sale. If a seller does not include an age clause in the sales contract, he is obliged by law to deliver a house that is suitable for normal use. In short, if serious defects occur after the sale in the form ofa rotten foundation or serious leaks, for example, the seller may be faced with a substantial claim for damages.

 

 

Risks for the buyer sometimes greater than expected

In view of the above, the advantages of an age clause for the seller are clear, but are the risks for the buyer always clear? In practice, this often turns out not to be the case. Yes, buyers are usually aware of the fact that an older house comes with more defects and therefore run a greater risk if they have signed a sales contract with an age clause. However, what many buyers are not aware of is that defects that are not a direct consequence of age can also be at their expense on the basis of the age clause.

A practical example

As an example, we look at the following age clause from a case before the Court of Appeal of Den Bosch (see also Court of North Holland):

“The buyer declares to be familiar with the fact that the object sold is more than 70 years old, which means that the requirements that may be set for the building quality are considerably lower than for new houses. Unless the seller has guaranteed the quality, he is not responsible for the foundations, floors, pipes, electricity, water and gas and sewerage (…). Architectural quality defects shall be deemed not to hamper the residential use described in (…) the deed of purchase’.

In the judge’s opinion, it did not appear explicitly from the above text that it only relates to defects that are a consequence of the age of the house. In other words, even if, for example, the foundation is considerably less old than the dwelling itself, a defect thereof still falls within the scope of this ‘age clause’ and the buyer himself bears the costs. The fact that it is called an ‘age clause’ (which the buyer thought would only cover the old parts of the house) does not make this any different. The court also considered it important that the parties did not negotiate any further about the clause, so that in this case the text of the age clause was looked at purely as mentioned above.

Prevention is (more concrete) negotiation

In short, what can a buyer do to avoid paying for more recent defects?  In any case, it is important as a buyer to make it explicitly clear during the negotiations for which defects he is prepared to bear the risk. It is best, therefore, to state this as specifically as possible in the sales contract in order to avoid any doubt. In addition, but this is more general advice, it is certainly wise in the case of an older home to have a structural inspection carried out to prevent you from being faced with unpleasant surprises. If these surprises do occur, make sure that the liability is clearly stated in the purchase contract.

If you need help in drawing up an age clause or if you would like to have one assessed, please do not hesitate to contact M2 Advocaten.

Lawyer Ginio Beij (beij@m2advocaten.nl)

 

sign for sale and for rent

Does Rent goes before Purchase even when part of the leased plot is transferred?

If splitting the lease leads to a sensible result, transferring part of a leased plot will result in splitting the original lease into two leases. This was recently the case in a Supreme Court case. It concerned the following case.

Of a leased plot with a surface area of 792 m2, a part with a surface area of 241 m2 will be transferred to a new owner. On this particular part there is a building built by the tenant.

The new owner terminates the lease and claims payment of the remaining rental instalments. The tenant takes the position that no lease has been concluded with the new owner and that he owes nothing to the new owner. This raises the question whether the rights and obligations from the lease have (partly) been transferred to the new owner.

It seems to follow from parliamentary history that Section 7:226 of the Civil Code (sale does not break rent) only applies in the event of transfer of the entire property and not in the event of transfer of part of the leased property.  However, the purport of Section 7:226 of the Civil Code is the protection of the tenant, which is that the tenant does not lose his enjoyment of the lease upon transfer of the leased property.

In view of this purport, the Supreme Court has ruled that the transfer of part of a leased property may result in the rent ratio being split into two (or more) leases. It will have to be assessed on a case-by-case basis whether such a division will lead to a meaningful result.

In the present case, the Supreme Court considers that the division leads to a meaningful result, in particular because the building constructed by the lessee is located on the part of the parcel of land that has been transferred. As a result, the transfer of ownership splits the lease into two leases.

Furthermore, the Supreme Court considered that if the lease is split into two leases, it will not be clear to the tenant which part of the rent he has to pay to his original landlord and which part to his new landlord.

The Supreme Court ruled as follows. As long as the tenant has not taken cognisance of the transfer, he will be able to pay the entire rent in full to his original lessor. After taking note of the transfer, this no longer applies. However, the tenant will then be entitled to suspend payment of the rent until the landlords have informed him how the rent is to be split.

Want to know more? Feel free to contact us.

Marius Rijntjes (rijntjes@m2advocaten.nl)

Realtor statement. Client bound? Infringement of duty of care?

These questions were recently raised in a case before the Court of Appeal of Arnhem-Leeuwarden. The case was as follows.

The seller engages a real estate agent when selling his home. Next to the house is a building with a garden. In the garden is the remainder of a former house located (hereinafter: “the ruin”). According to the buyer, the broker would have ensured prior to the sale that there would not be any development on the site of the ruin. After the sale, it appeared that the owner of the neighboring plot has obtained a building permit for a new house to be built on the site of the ruin afterall. The buyer then holds the seller and the estate agent liable for the damages suffered by him.

With regard to the seller, the buyer takes the position that he has gone astray when entering into the purchase agreement. In other words: if the buyer had had a correct presentation of the building plans of the owner of the neighbouring plot of land, he would not have concluded the sale under the same conditions (i.e. he would have paid a lower purchase price). With respect to the estate agent, the buyer has taken the position that the estate agent acted unlawfully by announcing that the ruin site would not be built on, while it has turned out to be wrong.

The Court of Appeal first of all looked at the question whether the seller is bound by the statements of the broker. In this respect, the Court of Appeal pointed out that, in principle, an estate agent acts as the principal and not as a representative or authorised representative of the client. In order to bind the client, additional facts and circumstances are necessary, such as, for example, announcements by the broker about the content of the brokerage agreement and/or the conduct of the client. According to the Court, these additional facts and circumstances have not been stated or proven. This means that the communication of the broker about the ruin cannot be attributed to the seller. Therefore, the reliance on error is unfounded. The seller is therefore not liable.

Subsequently, the Court of Appeal assesses the question whether the broker has acted with sufficient care. In this respect, the Court of Appeal put first and foremost that, assuming that the real estate agent has made the relevant communication about the ruin, this communication does not concern a relevant property of the real estate itself, but an aspect in its vicinity. In that case, according to the Court of Appeal, a potential buyer may be expected to be a little more attentive than in the case of a communication from the real estate agent about the immovable property itself.

The Court does not share the view of the buyer that the estate agent’s statement should be regarded as a guarantee for the future. The Court of Appeal considers that it is a fact of common knowledge that zoning plans can change and that owners of adjoining plots can make changes to their plots. The Court of Appeal also took into account that the buyer did not rely on the mere communication from the real estate agent, but also investigated the question of whether there were any building plans in relation to the ruin prior to the sale and inquired with the municipality to that end.

With regard to the correctness of the notification of the real estate agent, the Court of Appeal considered that at the time of the notification there was a zoning plan on the basis of which only an annexe could be realized on the ruin site. Only later (read: after the sale) was exemption from the zoning plan granted for the construction of a dwelling on the ruin site. This means that the real estate agent’s notification was in accordance with the zoning plan. Moreover, prior to the purchase, the real estate agent inquired with the municipality, on which the municipality indicated that there were no building plans with regard to the garden of the neighboring plot. In short: the announcement of the real estate agent was correct. Therefore, the estate agent is not liable either.

It follows from the ruling that a real estate agent is not quickly seen as his client’s proxy. In addition, it follows from the ruling that an estate agent not only has a duty of care towards his client, but also towards third parties, and that the question of whether this duty of care has been violated is assessed on the basis of all the circumstances of the case.

Would you like to know more? Feel free to contact us.

Marius Rijntjes (rijntjes@m2advocaten.nl)

Inheritance. Municipality offer sufficiently clear?

An offer is sufficiently determinable when the determination of the commitments undertaken by the parties can be made according to predetermined criteria. These criteria may contain a subjective element because the further determination may be entrusted to a third party or to one of the parties. This was recently the case in a Supreme Court case. It concerned the following case.

“A” is the owner and leaseholder of an apartment in Amsterdam. At some point, the municipality of “A” makes an offer for the canon of the new leasehold. “A” has the choice between a fixed canon for 10 years or a ransom. The offer letter also states the following:

“An ‘ingrowth scheme’ applies to you. This means that you will receive a discount on the canon in the first two years of the new period. The ingrowth arrangement applies to each payment method. The discounts to which you are entitled are not included in the above-mentioned surrender sum and canon amounts. You will find these discounts on the invoices you receive in due course”.

Furthermore, the explanatory note to the offer letter states the following:

“Municipal calculation new land value and new canon.

The new land value is calculated by multiplying the number of m² of usable area by the price per m². Because the leasehold right is more than ten years old, you receive a 40% discount on the price per m². The new canon is calculated by multiplying the land value by the current canon percentage”.

“A” initially chooses a fixed canon for 10 years, but later changes this into a ransom. The municipality agrees.

Subsequently, a dispute arises between “A” and the municipality about how the ingrowth regulation affects “A’s” choice to pay a ransom. “A” was under the assumption that, in addition to the ingrowth discount, the 40% discount on the land value would also be deducted from the lump-sum payment.

In the subsequent procedure, “A” took the view primarily that no agreement had been reached with the municipality because the offer letter from the municipality did not make it clear how the discount under the ingrowth scheme should be calculated on the redemption price. The Court of Appeal of Amsterdam agrees with “A”. According to the Court of Appeal, the amount of the lump-sum payment offered is one of the essentials of the agreement to be concluded and, since the offer letter does not make it clear how it is to be calculated, the offer cannot be sufficiently determined as far as the lump-sum payment is concerned.

The Supreme Court takes a different view and finds that the Court of Appeal sets too strict requirements with respect to the determinability of the discount on the lump-sum payment. According to the Supreme Court, the fact that the offer letter and the explanation thereof do not state how the discount on the lump-sum discount pursuant to the ingrowth scheme must be calculated does not exclude the possibility that the offer letter and the explanation may also contain sufficient points of reference for the other party, for example by linking the discount on the lump-sum discount to the size of the discount on the annual canon amounts due when determining the discount on the lump-sum discount, according to the Supreme Court.

Moreover, the municipality rightly pointed out that in the offer letter it stated that the discount to which the ingrowth scheme entitles is not included in the ransom, but will only be included in the invoice which the municipality will send in due course. According to the Supreme Court, this means that the municipality must calculate the discount in accordance with the requirements of reasonableness and fairness and in accordance with the municipal decree on the ingrowth scheme.

All in all, a somewhat unsatisfactory ruling, especially now that the average citizen is not an expert on leasehold law, the subject matter is complex and the amounts involved are often substantial. Since this is the case, the government can be expected to avoid misunderstandings whatsoever about the amount of the new canon.

Would you like to know more? Feel free to contact us.

Marius Rijntjes (rijntjes@m2advocaten.nl)

Error in splitting deed. Are the next owners protected?

Owners are protected as third parties in good faith after they bought a property. They can invoke this protection against the person who should have known about the error but did not ensure that the registers corresponded to reality (i.e. registration of a deed with the correct content). This was recently the case in a Supreme Court case. It concerned the following case.

The division of an apartment complex, consisting of houses and shops, had been declared subject to the model regulations of 1973. As an exception to this, the deed of division stipulated that the costs for the communal areas of the residences were to be borne solely by the owners of the residences.

Following an amendment to the deed of subdivision in 1994, this exception was (inadvertently) no longer included. In subsequent years, however, the costs of communal areas were borne by the owners of the dwellings. In 2009, the new VVE administrator discovered that this did not correspond to the amended deed of subdivision of 1994.

Subsequently, a dispute arose between the owner of the shops and the owners of the dwellings – most of whom became owners after the amendment of the demerger deed – as to whether the owners could rely on the accuracy of the 1994 demerger deed and whether the owner of the shops would still have to contribute to the costs for the communal areas of the dwelling.

The law provides that third parties enjoy protection in good faith against incorrectly recorded facts. This protection can be invoked against the person who could reasonably have ensured that the registers corresponded to reality. According to the Supreme Court, this means that the protection can also be invoked against the person (does not know but) who should have known the inaccuracy of the fact recorded by himself, but failed to ensure that the registers corresponded to reality.

In this case, the deed of division had been amended on the initiative of the shop-owner, whereby the shop-owner was provided with notarial and legal advice. Under these circumstances, the shop-owner could reasonably have ensured at the time that a deed with the correct content was registered, according to the Supreme Court. That did not happen.

Moreover, the later owners had no reason to doubt the legal validity of the 1994 deed. They could rely on the correctness of that deed. According to the Supreme Court, the fact that the ‘old’ cost system was used for many years after 1994 does not make this any different.

The conclusion is therefore that homeowners are protected against the error in the demerger deed. Whether or not the shop-owner actually has to contribute to the costs for the communal areas of the residential area remains to be seen. The shop-owner had appealed to the Court of Appeals in that respect – which the Court of Appeal had ignored – and this will still have to be investigated.

For apartment owners it is good to know that they, as third parties, are protected in good faith against inaccuracies in the demerger deed and that they may rely on the correctness of the deed.

Would you like to know more? Feel free to contact us.

Marius Rijntjes (rijntjes@m2advocaten.nl)