Understanding the "Good Working Order" Clause in a Residential Agreement of Purchase and Sale

By Ridhima Pathak

When purchasing a new home, it is natural to expect that the property, and everything in it, is in functional condition. However, the reality often depends on the language used in a resale Agreement of Purchase and Sale. A clause often misconstrued by purchasers is the “good working order” clause.

This clause generally implies that a home’s systems and fixtures (like appliances, plumbing, and HVAC) are operational at the time of sale. It stands in contrast to “as-is” clauses, which offer no guarantees, what you see is what you get, regardless of the condition.

But what does “good working order” really mean? For instance, if you move in and find the dishwasher is not working due to a hidden defect, you might wonder whether the seller breached the contract, and if you're entitled to repairs, replacement, or compensation.

In the absence of any representations or warranties, a buyer is subject to the legal concept of “caveat emptor” – let the buyer beware. We therefore see a “Good working order” clause added to Agreements of Purchase and Sale to try and protect buyers. The challenge is that "good working order" is often vaguely defined. It tends to be subjective, and there’s limited legal precedent offering a clear standard. What one person considers “working” might not meet another's expectations, making disputes harder to resolve.

Until there are more cases to help set the definition or standard of “good working order”, it is better to be more specific in your agreements. If an item is not in good working order, a clause for a holdback for example should be built in during the offer stage. A holdback cannot appear on the day of closing.  

Now, remember that even with proper definitions, the representations and warranties only last until the day of closing. Buyers should take care to clarify this clause during negotiations and, when possible, have appliances and systems professionally inspected prior to closing. Alternatively, at the date that the offer is made, we recommend that buyers take actual photo and video evidence of what they are buying. This is because, if they run into issues at the property during their final walkthrough or after closing, the buyers are able to rely on the photo and video evidence taken at the date of the offer to confirm that this is shape or condition of the property they submitted an offer on. Then, a buyer may have the option to seek an abatement on the purchase price, to have the item repaired at the cost of the seller, and/or pursue the matter in small claims court.

Overall, while the “good working order” clause offers a layer of protection, it’s no substitute for proper due diligence conducted by a buyer prior to purchasing the property. We recommend that all purchasers conduct a pre-closing visit to ensure that all chattels/appliances are in the same order/condition at the date of the offer.

For any of your residential real estate questions, please contact Ridhima Pathak (ridhima@sorbaralaw.com).