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Superior Court Interprets Standard Language Contained In Inspection Contingency Of Agreement Of Sale

The Superior Court of Pennsylvania recently interpreted the standard inspection contingency language as contained in the Standard Agreement for the Sale of Real Estate endorsed by the Pennsylvania Association of Realtors (“Agreement”). Such an Agreement was executed by the parties in Welteroth v. Harvey, 912 A.2d 863 (Pa. Super. 2006). The buyers agreed to purchase a six acre residential property on a wooded rural lot. They later alleged that the sellers of the property breached the Agreement by harvesting thirty (30) large trees for timber. The buyers sought specific performance and damages for devaluation of the property, damage to the grounds, and the expense of removing stumps that were left behind.

The sellers of the parcel filed preliminary objections to the Complaint, asserting that the buyers failed to state a cause of action. In support of this assertion, the sellers relied upon the inspection contingency language contained in the Agreement. This standard language gave the buyers fifteen (15) days to inspect the property and raise objections to the conditions thereon. In the event that objectionable conditions were discovered and properly placed in issue, the seller had the options to repair, offer a credit, or do nothing. If the seller chose to do nothing the onus was upon the buyer, within five (5) days, to accept the property as is or terminate the Agreement. The sellers in Welteroth asserted that the timbering operation was underway and obvious when the buyers inspected the property. Accordingly, the sellers argued that the Agreement provided exclusive remedies (i.e. reject or accept as is), which were not exercised by the buyers. The trial court, refused to order specific performance, and declined to consider claims for breach of contract and conversion of timber.

The Superior Court of Pennsylvania reversed the trial court’s order and remanded for further proceedings. The Superior Court stated that the remedies provision of the Agreement would only be triggered if the sellers refused to repair or offer a credit after the fifteen (15) day inspection contingency was exercised. The Superior Court also pointed out that other language contained in the Agreement imposed on the seller a duty to maintain the property in its present condition and opined that this duty did not terminate after the window for inspection closed. The inspection contingency provided buyers the ability to unilaterally terminate the Agreement within a specified window of time (or quickly modify the Agreement with consent of the sellers). Thereafter, the buyers lost the ability to terminate as a matter of course but could seek traditional remedies of damages and specific performance. The Superior Court cautioned that the manner in which the trial court exclusively construed the inspection contingency language contained in the Agreement could yield absurd and inequitable results.

In addition to finding that the trial court misinterpreted the Agreement, the Superior Court found that it was error for the trial court to determine that the buyers knew of the timbering operation before the inspection window closed. Whether and when the buyers learned of the timbering was a crucial factual determination bearing on the applicability of the remedies provision contained in the Agreement and the range and extent of remedies available to the buyers.

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