Q: The market has changed in our area and Buyers are starting to demand pest control clearance prior to the Close of Escrow. Problems have been arising regarding the method of securing that clearance, including whether tenting is to occur, and which pest control company’s report controls the scope of work to be performed. The C.A.R. Residential Purchase Agreement does not deal with pest control costs and C.A.R. has discontinued its old Wood Destroying Pest Inspection and Allocation of Cost Addendum (Form WPA). Can you provide us with an Addendum to have Buyers and Sellers agree on how to handle the costs of getting the report, who pays for making the repairs, and guidance on dealing with fumigation?
A. Recently there has been a marked increase in pest control disputes during transactions. Part of the reason for this increase is because many Agents do not know or have forgotten how to handle the various issues that are involved in securing a pest control clearance.
Eliminating pest control from the C.A.R. Residential Purchase Agreement was seen as a good solution to the difficulties raised by the topic with Lenders and thus the WPA was created. Unfortunately, disputes regarding whether or not fumigation was required, and who would be responsible for damages caused by that process, were not adequately dealt with in the WPA and, because of low usage, that form was eventually removed from the C.A.R. library of forms.
Despite the approach taken by C.A.R over the last decade., the PRDS® Purchase Contract (used in San Mateo and Santa Clara Counties) continues to have a lengthy provision enabling the Parties to agree on how to handle the various pest control issues.
If the Parties are using a Purchase Agreement that does not address Pest Control issues, the Addendum which follows this Tip is designed to handle all of the following:
- It enables the Parties to agree that the Buyer has already received an existing pest report and, if not, then it enables the Parties to agree on who will pay for a new report and what structures will be covered by that new report.
- Since there are at times multiple Pest Control reports, it enables the Parties to agree which Pest Control Report shall be the “Operative” — or the controlling — report for determining what work is required and what methodology will be used to secure a clearance.
- It establishes that the Seller will pay for Section 1 and the Buyer will pay for Section 2 work, (which is the most frequent arrangement) unless otherwise agreed in writing. If the Parties agree that a new report will be obtained after the Addendum is signed, then the Parties can agree to set a dollar limit on the maximum amount that the Seller will be obligated to pay for the repairs.
- It enables the Parties to agree on who is to pay for any required Supplemental Report of inaccessible areas.
- It enables the Parties to set a limit on the maximum amount the Seller will be obligated to pay for additional Section 1 work detailed in a Supplemental Report of inaccessible areas.
- It sets forth the Seller’s obligations with respect to complying with the Written Guidelines provided by the fumigation contractor and that the Seller is obligated to pay for any damage caused by the fumigation process to the roof.
- It warns the Parties that fumigation can cause damage to landscaping.
- It provides that the Seller shall be responsible for restoring all utilities and services that needed to be turned off to facilitate the fumigation.
- It establishes a time frame for the Buyer to notify the Seller of any post-close of escrow damage to the roof caused by the fumigation.
PRACTICE TIPS:
- Urge Sellers to consider obtaining a pest control report (as well as other types of inspections) before any Offers are presented so that the Parties can more knowledgably negotiate who will be responsible for the costs of repairs.
- If Buyers or their Lender want a written pest control clearance to close escrow, several issues need to be agreed upon by the Parties, preferably at the outset of the transaction. The best way to do that is to use the attached Structural Pest Control Addendum.
- If the Buyer is securing an institutional loan, the Lender will need to see the entire Purchase Agreement including, but not limited to, any Addenda such as the Structural Pest Control Addendum.
This Weekly Practice Tip an attorney-client privileged document and is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2018 12/21/18
FORM FOLLOWS:
STRUCTURAL PEST CONTROL ADDENDUM
The following terms and conditions are hereby incorporated in and made a part of the Purchase Agreement dated ___________ on the property located at ____________________________
(the “Property”) in which ________________________________________ is referred to as the Buyer and _____________________________________ is referred to as the Seller. Buyer and Seller are collectively referred to as the “Parties”.
The Parties agree that the following terms and conditions regarding a Structural Pest Control (“SPC”) inspection and certification are incorporated into and shall be a part of the above-referenced Purchase Agreement:
- Buyer shall accept as the “Operative Report” such current SPC inspection report that Buyer acknowledges having previously received from Seller OR, (if checked), □ Buyer □ Seller shall, within five (or □ ___) Days from Acceptance, pay for and hire a licensed SPC operator to issue a current inspection report of the primary dwelling and, (if checked), □ decks (attached or otherwise), □ detached garages/carports, and the following other structures on the Property:__________________. That inspection report shall thereupon be accepted as the “Operative Report.” Unless otherwise agreed in writing, the “Operative Report” shall control as to all findings, recommendations, and types of treatment/remediation and shall supersede any other SPC reports obtained by any of the Parties at any time.
- Seller shall pay for all “Section 1” work described in the Operative Report and shall, prior to Close of Escrow, Deliver a certification from the SPC operator that generated the Operative Report (or from another licensed SPC operator, if agreed in writing) that the Property is free from active infestation or infection as described in Section 1 in the Operative Report. In the event that the Operative Report is obtained after Acceptance, then Seller’s obligations to pay for Section 1 work shall not exceed $________________.
- The cost of any Section 2 items shall be the responsibility of Buyer unless otherwise agreed in writing. Seller shall not be responsible for Section 1 items that are the responsibility of any HOA pursuant to covenants, conditions restrictions (“CC&Rs”) or any HOA rules and regulations.
- If inspection of inaccessible areas is recommended in the Operative Report and if, within five (or □__) Days of receipt of the Operative Report, Buyer Delivers to Seller a written request for such inspection, Buyer shall have the right to retain a SPC operator to: (1) inspect the identified inaccessible areas; and (2) issue a supplemental report (“Supplemental Report”) of findings. Buyer’s failure to act with the time frame specified in this paragraph shall constitute a waiver of this inspection right. Upon timely receipt of Buyer’s written notice, Seller shall cooperate with the SPC operator to make the identified inaccessible areas accessible.
- If additional Section 1 work is noted in the Supplemental Report, Seller shall pay for the cost of issuing the Supplemental Report and all entry and closure costs. Seller shall pay for any additional Section 1 work detailed in the Supplemental Report but Seller’s obligations to pay for the additional Section 1 work shall not exceed $___________. However, if the Supplemental Report notes no additional Section 1 findings than were detailed in the Operative Report, the cost of the Supplemental Report and all entry and closure costs shall be paid by Buyer. Buyer’s obligation to pay these costs shall survive the termination of the Purchase Agreement.
- If fumigation is required by the Operative Report and if the Parties agree that Seller shall be responsible for that fumigation (whether undertaken before or after Close of Escrow), Seller shall comply with the fumigation contractor’s written guidelines (“Written Guidelines”), including those relating to landscape preservation. The Parties understand and acknowledge that damage to landscaping may be caused by the fumigation process even if Seller has complied with the Written Guidelines, and therefore Buyer agrees to accept the Property subject to such damage.
- The Parties further acknowledge that, even if the fumigation process is conducted with care and within professional standards, damage to tile or other roof coverings frequently occurs. Seller shall be responsible for the cost to repair and, if necessary, replace roof coverings damaged in the fumigation process. Upon completion of the fumigation process, Seller shall ensure that all utilities and services (e.g., electric, gas and water) on the Property are fully restored and rendered operational. If the Parties agree that fumigation is to be scheduled after Close of Escrow, the fumigation process shall be completed as soon as practicable. Buyer shall have 15 Days from completion of the fumigation process to Deliver a written claim to Seller for any roof damage caused by the fumigation process. Buyer’s failure to Deliver a written claim to Seller within the Time Frame specified in this paragraph shall constitute a waiver of Buyer’s right to make such a claim.
- In the event there is any conflict between the terms of this Addendum and the Purchase Agreement, this Addendum shall control unless otherwise agreed in writing.
The foregoing terms and conditions are hereby agreed to, and the undersigned acknowledge receipt of a copy of this Addendum.
Buyer____________________________ Date ______________________________
Buyer____________________________ Date ______________________________
Seller____________________________ Date ______________________________
Seller____________________________ Date ______________________________