Best of the Hotline: Waived Inspection Contingency

Facts: Buyer and seller executed an agreement of sale using PAR’s Standard Agreement for the Sale of Real Estate (Form ASR). The agreement was subject to several contingencies, including a home/property inspection.Among the inspections waived was the lead-based paint hazards inspection.

With the help of her agent, the buyer selected an inspector. In a pre-inspection conversation with this inspector, the buyer learned that for a nominal additional amount, the inspector would conduct an assessment for the presence of lead-based paint hazards.

On the day of the inspection, buyer and her agent were present, as was the listing agent. When the inspector arrived the listing agent learned of the plan to test for the presence of lead hazards and he insisted that the testing not occur. First, he reasoned, the lead contingency was waived and while the presence of a lead hazard would not permit termination of the agreement, the buyer might use some other inspection contingency as a pretext to terminate; and second, if a lead hazard was found and the agreement terminated, the seller would be stuck with a disclosure issue moving forward. The buyer and her agent, however, were adamant that the lead testing go forward. They claimed that the very broad language of the home/property inspection contingency permitted it.

Question: May a buyer who elects the home/property inspection contingency, but waives the lead-based paint hazards inspection contingency, test for the presence of lead hazards?

Answer: The home/property inspection contingency seemingly provides the buyer with the opportunity to conduct limitless assessments of the property’s structural components and environmental hazards. Were it not for a separately described and electable lead-based paint hazards contingency, the answer most certainly would be that the buyer could conduct a lead-based paint hazards inspection merely upon electing the home/property inspection contingency.

So why does the availability of a separately described lead-based paint hazard inspection contingency change the answer? There is a large body of law that deals with the interpretation and effect to be assigned a contract. The law that has developed is designed to give effect to the intent of the parties at the time the contract was entered.

The steps employed in uncovering the intent of the parties rely heavily on common sense.  Generally, a contract is interpreted to give effect to all of its provisions; inconsistencies between boiler-plate pre-written provisions and hand-entered provisions are generally resolved in favor of the latter; provisions should be read as to not conflict with each other when reasonably possible; the specific takes precedent over the general, and so on.

When we try to sort out whether a lead inspection is permitted in our scenario, we turn to two of these controlling principles: 1) the two provisions in questions should be read so as not to conflict with each other if possible; and 2) the specific provisions will take precedence over the general.

Both principles suggest that the home inspection provisions do not include a lead hazards inspection. If we read the two inspection contingencies with the thought that they were not intended to conflict, then we would accept that the home inspection contingency deals with components and environmental hazards other than the lead hazards which are dealt with in a completely separate provision. We give meaning to both provisions in a manner which does not provide for overlap.

Considering the specific over the general, we also conclude that a lead-hazard inspection was waived. The home inspection contingency is rather general even where it calls for the assessment of environmental conditions. On the other hand, the lead-based hazards inspection is quite specific in permitting the inspection for lead hazards and lead hazards alone. Certainly the buyer’s waiver reflects her intent when the agreement was entered: she was going to forgo a lead inspection.

The best approach when electing and waiving inspection contingencies are to assume that there is no overlap between the inspections and to elect all that should apply. Presume that the waiver of an inspection contingency will not permit the inspection of that subject under any other contingency.

We realize there is no appellate decision from the Pennsylvania courts on this subject, though our opinion anticipates how such a case will be decided. We also understand that the waiver of the contingency does not preclude the seller from permitting the buyer to engage in the inspection of that subject. Seller’s have the right to allow access and inspections of their property. Keep in mind, however, that sans, a written contingency, the findings of any out-of-contract inspection will bring no recourse to the buyer. And of course, the downside to the seller who grants an out-of-contract inspection is that an adverse finding may cause the buyer to exit the purchase via some other contingency and then the seller is left with a disclosure issue for the future.