Furnace Rental Contracts Must be Disclosed

More and more, we are seeing situations in which a homebuyer finds out after closing that the furnace is a rental, not owned by the seller and not included in the purchase price. We’ve written about this before and it warrants restating. As a material fact, it should be disclosed.

If not disclosed, how can we know?

If the contract is registered on title, it’s caught by the buyer’s lawyer but that’s not always the case. If there is a home inspection, though not part of the inspector’s job, if he notices a rental sticker on the furnace the inspector will typically point that out. Still, both listing and selling salesperson can look for it on the furnace or other appliance.

What if there is no sticker?

This can happen. Maybe the rental company didn’t place one on it. Maybe the seller removed it. Then again maybe it fell off. Who knows? A simple approach is to ask the seller if there are any rental items, such as the hot water tank, air conditioner, alarm system, furnace or any other mechanical fixture. The Ontario Real Estate Association provides REALTORS® with a Form 820 called the Residential Information Checklist. It’s has a series of questions that the listing salesperson could have the seller review and respond to as a form of discovery and subsequent disclosure.

Question 18 in the Checklist asks the following:

 Are there any conditional sales contracts, leases, rental agreements or service contracts? e.g.: furnace, alarm system, hot water tank, propane tank, etc. Specify..........................................................................

Are they assignable or will they be discharged? …………………. As a result of such investigations, the listing should alert buyers of leases and rent-to-own fixtures. 

In the Agreement of Purchase and Sale Clause 5 addresses fixtures excluded and Clause 6 speaks to rental items not included. Unless otherwise stated in Schedule “A” of the agreement, under the rental items clause, the buyer agrees to assume the rental contracts if assumable and agrees to sign any assumption documents. The clause reads as follows:

“6. RENTAL ITEMS (Including Lease, Lease to Own): The following equipment is rented and not included in the Purchase Price. The Buyer agrees to assume the rental contract(s), if assumable: ………………………… ………………………………………………………..

The Buyer agrees to co-operate and execute such documentation as may be required to facilitate such assumption.”

Other Considerations:

  • Buyers are most often okay with assuming the rental hot water tank. Buyer agents will often state, “hot water tank if a rental” in Clause 6 if the listing is not clear.
  • Furnace rental contracts can state that in the event of a sale, the seller shall inform the buyer but this is not always done.
  • Buyer would need to review any furnace rental agreements and associated costs before agreeing to assume.
  •  In our experience, beyond the hot water tank, buyers do not want to assume rentals such as the furnace, and want them paid out by the seller prior to closing, but they have to be aware of it.

To bring the issue to the forefront, we suggest addressing it again in Schedule “A” of the Offer, stating, “Unless otherwise provided, the Seller represents and warrants that the furnace and other mechanical fixtures are owned, included in the purchase price and not rented.”

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