REVISITING THE WPA – AVOIDING OLD PROBLEMS

December 21st, 2012 at 7:27 pm

As you know, the Wood Destroying Pest Inspection and Allocation of Cost Addendum (CAR Form WPA) has been part of our world for a number of years. Despite that fact, and the fact that it is used in the vast majority of our transactions, we continue to see numerous issues arise from its use. As a result, we thought it a good idea to remind you of the common WPA issues and, more importantly, how to avoid them.
1.     The first issue we see revolves around what termite company the seller wants to use to do the section 1 work. As you know, it is not uncommon for the seller to choose a company to do the termite report that the buyer is unhappy with. In such a case, the question becomes whether the seller can choose whoever they want, or whether the buyer has some input. The answer to that question starts in the WPA itself. In paragraph 2A of the form, the parties agree who is going to pay for a “Wood Pest Report prepared by ___________.” Notice that the term Wood Pest Report is capitalized. That means it is a defined term and whenever it is used in the document, it refers to the Report prepared by the company in the blank. Of course, in 2C, where we typically say that the seller will pay for section 1 work, the WPA says the work they will do is that “described in the Wood Pest Report…” As a result, when the seller agrees to do section 1 work, they are obligated to do the work called for in the specified company’s Report. Now, in most cases, agents fill in the above blank with the term “seller’s choice.” While that is legally sufficient, understand that what it really means, since the seller is making the choice, is the cheapest report. So, the way you fill out the blank is very important. If you want the seller to use a particular company, you need to put its name in the blank.

On the other hand, as the buyer’s agent you should remember that, even if the seller can decide who will do the section 1 work per the WPA, you can still ask for someone else as part of your investigation contingency. The RPA specifically defines your investigation contingency to include pest control issues. So, while the seller is not obligated to use your inspector or do extra work, you can ask and threaten cancellation. As a result, if a company is specifically named in 2A of the WPA, the seller is obligated to do the work that company identifies. With regard to any other company, or any additional work, you can only negotiate their involvement as part of your contingencies.

2.     Next, on the seller’s side, our main issue is when the section 1 work is more expensive than they expected. After all, as we said above, when the seller agrees to do section 1 work, they are obligated to do whatever the specific Report says. So, how do we protect our seller? First, you can get the Report up front and insert the companies name as the controlling termite company in either the WPA or a counter offer. That way, you have the report, you know what section 1 will cost, and are only obligated to do that work. The other way to protect your seller is to counter the offer with the following language: “Seller to pay for section 1 pest control work up to a maximum of $x. All costs above that amount to be dealt with pursuant to paragraph 14.” In other words, the seller will pay for the identified amount, but any extra cost will be negotiated as part of the contingencies. By doing either of these things, the seller knows what they are obligated to pay and anything else is negotiable. You are not having them write a blank check.

So, while this is basic advice, it is very important. Please make sure all WPAs you draft deal with these issues so your client is properly represented and you don’t get hit by a claim when they become unhappy.

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