Conformity and model purchase agreements
Under Dutch law the seller is legally obliged to deliver what he sold, i.e. ‘in conformity’ with the agreement. In purchase agreements this rule is usually derogated from. Instead, the seller excludes liability on the one hand and provides a limited number of guarantees on the other.
Conformity
If a sale has been concluded the seller must ensure the property that is delivered complies with the agreement, in other words that it is in conformity with the agreement. This also applies to the sale of real estate.
Non-conformity
Non-conformity is at stake if the real estate lacks the properties the buyer was entitled to expect on the basis of the agreement. A leakage or the absence of permit for refurbishment are examples of non-conformity.
Limitation of liability
The seller can exclude his liability for non-conforming properties which are ‘knowable’ to the buyer, unless gross negligence or intention are at stake. The seller remains liable if he is aware of a non-conforming property and keeps silent about it.
Model purchase agreements
In purchase agreements concerning real estate the statutory conformity rule is almost always derogated from. Frequently used models, such as the model of the ‘NVM’[1] or that of the ‘KNB’ [2] derogate from this rule, by:
- on the one hand including a general exclusion of liability.
NVM-model: “… transferred … with all the corresponding … visible and hidden defects”
KNB-model: “delivered … in the actual state in which the property sold and/or the immovable properties are in at the time”
- on the other hand including limited guarantees from the seller.
The normal use clause
The NVM-model includes a ‘normal use clause’ which is often interpreted as a guarantee.
This clause can be considered as an obligation of conformity for the seller, but restricted to the properties of the sold property relating to ordinary use.
In short, the seller guarantees the normal use of the property sold, but no more than that. If a buyer is aware of a defect obstructing normal use or if a buyer should have been aware of this on the basis of his duty of investigation the risk is on the buyer’s account too.
Please feel free to contact me for more information on this topic.
This is part 1 of two blog posts on model purchase agreements.
Click here for part 2.
[1] NVM: Dutch Association of Real Estate Agents and Valuators