“Warranties” in the context of contracts means a particular type of contractual term. Because courts can have different ways of enforcing contracts or awarding damages, there has been a historical evolution of three “levels” of contractual term, each with its own remedies.

There are two basic remedies for a breach of contract. The first is damages; the second is a right to terminate the contract. Whether or not a right to terminate arises depends entirely on the severity of the breach and the classification of the term that is breached.

A warranty is considered to be the at the bottom of the ladder in contractual terms. This doesn’t mean that warranties are unimportant, simply that breach of a warranty only gives rise to damages, monetary compensation, rather than a right to terminate the contract or sue for specific performance (a court order that a party perform its contractual obligations).

Warranties can be specified in contracts or contractual terms can be inferred by a court to be warranties.

What does this have to do with buying property?

Most contracts for the sale of land will have clauses where the buyer or seller will variously “warrant” to certain terms. For example, the ACT Law Society standard terms provide in Clause 7 various things the seller will warrant. By making these terms warranties, a party’s only remedy for a breach of those terms will be damages, and not a right to terminate the contract.

Various legislation often inserts implied warranties into contracts for the sale of land, meaning that if those terms are not written in the contract, they will be considered warranties under the contract regardless. One example is the implied warranty in the Civil Law (Property) Act 2006 (ACT):

264 Implied warranties

(1) The warranties (the implied warranties) in this section are taken to be part of a contract for the sale of a unit.

(2) The seller of a unit warrants that, at the date of the contract—

(a) to the seller’s knowledge, there are no unfunded latent or patent defects in the common property or owners corporation assets, other than the following:

(i) defects arising through fair wear and tear;

(ii) defects disclosed in the contract; and

When buying or selling property, make sure you are aware of any warranties involved and that you understand the consequences of breaching those warranties or having them breached by the other party to the contract.

The most important thing is to remember that breaching a warranty does not generally give rise to a right to terminate the contract or have a court order specific performance.