In our last blog post about real estate law, we wrote about deeds, breaking down some of the similarities and differences between warranty deeds and quitclaim deeds. After reading that post, you now know that deeds are an essential component of any real property sale whether of a commercial, residential, or agricultural nature. You might be wondering how these documents bear so much importance if they are only one or two pages long. After all, the purchase and sale contract signed in advance of the deed was probably at least five pages in length, perhaps up to thirty. In this blog article, we will explain the import of deeds and how they may supplant the contract for sale and purchase.
Real estate contracts merge into deeds. You read that right: the contract and the deed, two separate documents, essentially become one. This is the presumption unless the intent of the parties demonstrates otherwise. “The doctrine of merger provides that when a deed is delivered and accepted to fulfill a contract of conveyance, the contract is presumed to merge into the deed. However, whether that presumption applies depends on the intent of the parties.” Unified Gov’t of Wyandotte County/Kansas City v. Trans World Transp. Services, L.L.C., 43 Kan. App. 2d 487, 493, 227 P.3d 992, 997 (Kan. Ct. App. 2010) (citing Blair Construction, Inc. v. McBeth, 273 Kan. 679, 684-88, 44 P.3d 1244 (2002)). Should the parties demonstrably fail to agree otherwise, that lengthy real estate contract may become a nullity after the deed is executed. That is hard to believe. Let us look a little deeper.
Deeds in fact supplant real estate contracts unless the real estate contracts indicate otherwise. “It is a general rule of law applicable to all contracts, including deeds, that prior stipulations and agreements are merged into the final and formal contract or deed executed by the parties. When a deed is delivered and accepted as performance of a contract to convey, the contract is presumed to be merged into the deed.” Blair Const., Inc. v. McBeth, 273 Kan. 679, 686, 44 P.3d 1244, 1249 (Kan. 2002) (citing Unrau v. Kidron Bethel Retirement Services, Inc., 271 Kan. —-, Syl. ¶ 12, 27 P.3d 1 (2001)). “Merger is not absolute, however, and whether merger occurs ultimately depends upon the intention of the parties. Intent is a question of fact to be determined from examining the instruments and from the facts and circumstances surrounding their execution.” Id. at 1250 (citing Webb, 212 Kan. at 366, 510 P.2d 1195). The two documents—the contract and the deed—become one, with the deed being, essentially, the final and formal contract executed by the parties. Careful drafting of the real estate contract may prevent this from occurring, should the parties wish to do so.
Kansas law says that covenants in real estate contracts are not merged into deeds if they are intended as independent collateral agreements between the parties. “When a covenant in a contract of sale of real estate is intended as an independent collateral agreement between the parties there is no merger.” Webb v. Graham, 212 Kan. 364, 367, 510 P.2d 1195, 1198 (Kan. 1973) (citing Anno. Merger of Contract in Deed, 84 A.L.R. 1008 Supplemented 38 A.L.R.2d 1310; 26 C.J.S. Deeds, § 91 p. 842). That does not provide satisfactory clarity, in this author’s opinion, as to what is, or how to create, an independent collateral agreement. Looking at legal texts outside of opinions from Kansas courts provides clarity.
Real estate contracts cease to exist after a deed is delivered, and the promises contained in such contracts become ineffectual—that is, unless the contracts contain a survival clause. “Through the process of merger, when the deed is delivered the contract ‘merges’ into the deed and ceases to exist. This means that neither the buyer nor the seller can ever go back to the contract to enforce any covenant contained in it.” Wade E. Gaddy, Jr. & Robert E. Hall, Real Estate Fundamentals 112 (6th ed. 2003). “Every sales contract merges into the deed upon delivery unless the contract contains a survival clause. This clause provides, as the name implies, that the contract will survive the closing of the transaction and not merge into the deed. With the inclusion of the survival clause, either party can enforce any covenant in the contract even after the deed has been delivered.” Id. Parties wishing to ensure that one or more covenants contained in a real estate contract will not become ineffectual after the deed is delivered should implement a survival clause in their real estate contract. This survival clause will permit the parties to enforce covenant(s) in their real estate contract even after the deed is signed.
While our website and blog posts are intended for informational purposes only and are not intended as legal advice or as a legal opinion, we try to provide information that might facilitate a more informed discussion at a later point in time. To that end, we have some information that touches on what a generic survival clause might look like. “Fortunately, it is simple to avoid the merger of a contract term by including specific language in the contract. Including the language ‘this provision will not merge into the deed and will survive closing’ will protect a contract provision from merger.” D. Benjamin Barros & Anna P. Hemingway, Property Law 447 (2015). As you can see, survival clauses do not have to be lengthy or complex. They can be short and simple; however, as with most things in law, the devil is in the details. What provisions should or should not survive closing, and whether and how to indicate as much in writing, requires analysis and careful drafting.
Writing real estate contracts for home sales or purchases, farm sales or purchases, and building sales or purchases is something we do regularly at Kincaid Business & Entrepreneurial Law, LLC ®. We enjoy advising homeowners, entrepreneurs, and investors about their real estate transactions. The interplay between real estate deeds and real estate contracts is but one of many considerations we evaluate when counseling our clients regarding their real property needs. Please contact us at 913-735-7707 or schedule with us online if we can be of service to you, your business, or your family.
Matthew T. Kincaid