The Change in Property Warranty Limitations
Generally speaking, these limitations on warranties are getting more friendly towards the seller. For example, there is usually a ceiling on their total cap for liability: according to the warranties there is normally a maximum liability, as well as the possibility of other agreement conditions, including any that are connected to taxation and various other indemnities. Around 10 years ago, it was the normal procedure to make the ceiling the same as the purchase price. Today in Britain, it is nearer to half the cost of the purchase price, with the majority between 75% and 25%. This legal trend is making the UK more like the US, as the latter has far lower financial caps.
In the case of time limits, it is mandatory for all claims to be submitted during the period of time that has been agreed. In the case of non-tax claims, conventionally, this has historically been between 12 and 36 months. The legal trend now is to set it to between 12 and 24 months.
Another increasingly buyer friendly product is the basket. This represents a pecuniary threshold that has to be surpassed prior to any buyer making a claim. Generally speaking, the basket’s level is fixed at 1% to 2%. Furthermore, in the UK it is widely agreed that as soon as the threshold of the basket is attained, the purchaser may make a claim for the excess and all his or her incurred losses.
The “de minimis limit” is another factor to consider. The majority of purchase agreements made throughout Britain now carry this type of limit. Furthermore, any warranty claims that are under this limitation are totally ignored. In most cases, this type of limit is put at approximately 0.1% of the sale price.
Locked box mechanisms are also on the rise, as a mechanism to allow price adjustment is becoming more common for property deals. And although the most utilised mechanism is still completion accounts, these ones are certainly getting more popular.