Inadvertent Waiver of Implied Deed Covenants in Purchase Agreements

August 21, 2025 | Author:  David J. Murphy

Commercial real estate purchase agreements routinely contain release provisions that may inadvertently eliminate valuable implied warranties and covenants contained in deeds. This issue, identified by Thomas Coyne, Hope K. Plasha, and Misty M. Sanford in their article “Purchase Agreement Pitfalls to Avoid – Traps for the Unwary,” presents significant risk exposure for purchasers and warrants careful attention during contract negotiation.

The Underlying Issue

Deeds frequently contain implied warranties or covenants that arise by operation of law based on specific statutory language or common law principles. These protections are separate from, and in addition to, the express representations and warranties negotiated in the purchase agreement.

The nature and extent of these implied protections vary by jurisdiction. In California and Texas, the use of the word “grant” in a deed creates statutory implied warranties that the grantor has not previously conveyed the property and that the property is free from encumbrances created by the grantor. In Massachusetts, standard quitclaim deeds include statutory covenants pursuant to Massachusetts General Laws Chapter 183, Section 17, providing protection against encumbrances created during the grantor’s period of ownership. Conversely, jurisdictions such as New York and Ohio require that all deed covenants be expressly stated, with no warranties implied by law.

Inadvertent Waiver

Standard purchase agreement provisions typically require the purchaser to accept the property in its existing condition, subject to specifically negotiated exceptions. A diligent buyer’s counsel often takes great care when negotiating purchase agreements to modify the “As-Is” and seller release provisions so that such provisions do not release the representations and warranties of seller in the purchase agreement and in the other documents delivered at closing.

Sellers routinely insist upon the inclusion of the qualifier “expressly” to ensure their liability remains limited to specifically negotiated terms. This creates a trap because deed warranties and covenants are implied rather than express, they fall outside the scope of the carved-out protections. Consequently, broadly drafted release language may eliminate these valuable deed protections, even though neither party may have recognized this result.

Limitations of Title Insurance as Alternative Protection

Sellers commonly offer a counterargument that title insurance provides adequate protection. However, many purchasers and their counsel prefer not to rely exclusively on the bet that the title company will cover damages that arise due to a title issue. Title insurance policies contain numerous standard exceptions that could make it difficult and time-consuming to collect against the title company. Additionally, if the title company ends up having to pay on a claim resulting from a breach of the implied warranties, it will likely subrogate against the seller. The title company would be unable to pursue subrogation if the buyer expressly waived the implied warranties. The title company may even refuse coverage under the common policy exception for expressly assumed risks.

These concerns are heightened when the seller is a single purpose entity with no assets once the sale transaction closes.

Commercial and Legal Implications

Waiving implied deed covenants disrupts the established equilibrium of commercial real estate transactions. If the parties intended to waive the covenants or implied warranties and rely exclusively on title insurance, why not use only quitclaim deeds or release deeds in commercial real estate transactions?

Many title companies are uncomfortable insuring title in the absence of title covenants, express and implied, and such an approach deprives the buyer of its principal benefit in the deal, namely good title. Waiving the implied warranties of the deed should be viewed as a step too far that would disrupt the delicate balance of risk that has evolved in commercial purchase transactions and upon which the title industry relies.

Recommended Approach

A buyer’s counsel might address this issue by requesting that the release of “all” implied warranties not apply to the implied warranties of the deed, and offer the following sample language:

“Except as provided in the express representations and warranties of Seller set forth in Section [x] (Seller’s Representations and Warranties), Article [x] (Brokerage Commission) and the obligations of Seller in the Closing Documents (including without limitation, any implied warranties of the Deed)…”

This ensures that standard release provisions do not inadvertently eliminate the protections afforded by applicable law through deed covenants.

Conclusion

As Coyne, Plasha, and Sanford emphasize, many of the issues they identify “are not commonly addressed in standard form purchase contracts,” sometimes because they concern implied covenants “that are often taken for granted.” However, they stress that “all of the issues we raise have important implications” and “are heavily negotiated by sophisticated practitioners who appreciate the risks.”

The preservation of implied deed covenants represents not merely a technical drafting point but rather maintains the fundamental benefit of the transaction to ensure purchasers receive clear and covenanted title to the acquired property.