Inspection Objections and Terminations – Boulder Real Estate Agent
Of all the potential reasons for objection or termination of a real estate contract in Colorado, the inspection deadlines are some of the most common. The inspection deadlines are the Inspection Objection Deadline, Inspection Termination Deadline and Inspection Resolution Deadline found in Section 10.3 of the Contract to Buy and Sell Real Estate (Residential).
Section 10.3 allows the buyer to inspect the property (in residential settings this primarily means the house itself) and inclusions (e.g., refrigerator, washer and dryer, etc.). The inspections must be paid for by the buyer, can be done by the buyer itself and/or third parties (e.g., inspection companies, electricians, etc.), and must be conducted in good faith. The right to inspect, and to object or terminate based on the buyer’s inspection, is very broad. Among other things, the buyer may inspect the physical condition of the property and the inclusions, systems and components of the property (e.g., heating and plumbing), existing roads or proposed transportation projects, and any even activities, odors or noises that occur outside of the property but have an effect on the property. These determinations are made at the buyer’s sole subjective discretion (this is a broad standard) but they still must be made in good faith, meaning (generally) that the determination to object or terminate must be based on an actual reason that is contemplated within the contract, rather than a pretextual one.
What happens when a buyer conducts an inspection and finds an unsatisfactory condition that fits within Section 10.3? Aside from continuing with the purchase as normal, there are two options: (1) submit an Inspection Objection on or before the Inspection Objection Deadline (Item No. 26 of Section 3.1, Dates and Deadlines), or (2) submit a termination notice on or before the Inspection Termination Deadline (Item No. 27 of Section 3.1, Dates and Deadlines).
Inspection Objection Deadline in § 10.3.1
Broadly speaking, an Inspection Objection is meant for situations in which the buyer wants the seller to correct the unsatisfactory condition (i.e., repair or replace something) or make a monetary concession for an amount that would be sufficient to allow the buyer itself to repair or replace the unsatisfactory condition after closing. The section of the contract that discusses Inspection Objections is Section 10.3.1.
Inspection Termination Deadline in § 10.3.2
On the other hand, a termination notice is meant for situations in which the buyer no longer wants to purchase the property. The Inspection Termination Deadline, now in Section 10.3.2., is new as of the Colorado Real Estate Commission’s 2019 promulgation of forms.
Section 10.3.2 generally states that if an unsatisfactory condition within the contemplation of Section 10.3 is found by the buyer acting in good faith, the buyer may: “On or before the Inspection Termination Deadline, notify Seller in writing, pursuant to § 25.1, that this Contract is terminated due to any unsatisfactory condition. Inspection Termination Deadline will be on the earlier of Inspection Resolution Deadline or the date specified in § 3.1 for Inspection Termination Deadline.”
If the Inspection Termination Deadline is left blank or if the Inspection Termination Deadline is dated subsequent to the dated specified in the Inspection Resolution Deadline, the Inspection Termination Deadline will be on the Inspection Resolution Deadline
Prior to the Inspection Termination Deadline being included there was only the Inspection Objection Deadline and, unless the parties specifically agreed otherwise in the additional provisions section of the contract, a buyer could terminate or object by the Inspection Objection Deadline. Now, those dates are separate, allowing more flexibility for the parties. Among other options, the parties may set the Inspection Termination Deadline earlier than the Inspection Resolution Deadline or concurrent with the Inspection Objection Deadline.
Inspection Resolution Deadline in § 10.3.3
The Inspection Resolution provision, found in Section 10.3.3 of the standard form Contract to Buy and Sell Real Estate (Residential), is still as it was before the addition of the Inspection Termination Deadline. It still states, generally, that an Inspection Objection that was submitted prior to the Inspection Objection Deadline but has not been resolved by the Inspection Resolution Deadline will terminate the contract, unless the Inspection Objection is withdrawn by the buyer prior to the Inspection Resolution Deadline.
In context, the addition of the Inspection Termination Deadline by the Colorado Real Estate Commission seems to be aimed at providing parties the flexibility to get the potential for termination based on inspection “out of the way,” allowing for some breathing room for the seller. The Inspection Termination Deadline is potentially dangerous, however, because if Item No. 27 in the Section 3.1, Dates and Deadlines, is left blank or completed with the abbreviation “N/A” or the word “Deleted”, according to Section 3.2, Applicability of Terms, the deadline is not applicable and the corresponding provision containing the deadline is deleted.
If you are the buyer’s agent do not leave the Inspection Termination Deadline blank, unless the buyer wants to forego the right to terminate based on inspection. If you leave the Inspection Termination Deadline blank then the corresponding provision (Section 10.3.2) is deleted. By deleting that provision, the right of the buyer to terminate based on inspection may be relinquished.
Matters regarding contractual language are complex and subject to interpretation. This information is meant for general educational purposes only, does not constitute legal advice, and does not form an attorney-client relationship. If you have any questions about your rights and obligations as a Colorado real estate broker, a buyer or a seller, consult legal counsel.
If you are looking for a Boulder real estate agent with a results oriented approach tailored to your specific needs, contact Royal Arch Real Estate. We are knowledgeable and experienced brokers who always have your best interests at the forefront of our minds, whether you are buying or selling a home, vacant land or a new construction.