Selling residential property “as is” may not shield you from liability

This article was written by Natalie Cheung, a summer associate at Kohrman Jackson & Krantz P.L.L.--

When a buyer purchases residential real estate in an “as is” transaction, it is extremely difficult for that buyer to turn around and sue a seller or seller’s agent for defects arising after purchase. However, what many people don’t realize is that sellers are not completely in the clear. Sellers cannot just sit back and rely on the “as is” clause to relieve them of all disclosure obligations. In fact, Ohio law requires residential property sellers to fill out a home disclosure form (Ohio Revised Code § 5302.30). This form is not a warranty of any kind by the seller or its agent to the buyer; it is simply a representation of the physical condition of the property. Sellers are required to disclose information regarding the condition of the property’s water supply, sewer system, roof, foundation, walls, floors, and any other known material defects. The form does not distinguish between obvious flaws or defects, but instead requires sellers to divulge all material problems within their knowledge. If defects exist after purchase that were not disclosed on the form, caveat emptor (“let the buyer beware”) applies and the seller is not responsible so long as the defect was not within the seller’s knowledge at the time of sale and a buyer could easily have discovered the problem upon reasonable inspection.


The “as is” clause is tempting to rely on as a safeguard from liability since it bars a buyer’s claim of fraudulent nondisclosure (i.e., a failure to disclose) against the seller; but it does not protect a seller from buyer claims that the seller intentionally misrepresented information to the buyer or actively concealed from the buyer material information about a known defect. In other words, although the inclusion of an ‘as-is’ clause in a residential purchase agreement relieves a seller from the duty to reveal anything beyond what is required in the home disclosure form, a seller cannot make knowingly false statements to a buyer or intentionally hide known defects in order to mislead a buyer. Ohio courts have consistently held that “the buyer’s duty to inspect the premises to discover defects terminates when representations are made with respect to a material fact in response to a buyer’s direct inquiry.” [See Brewer v. Brothers (1992), 82 Ohio App. 3d 148, 152.]

Although the conventional wisdom is “buyers beware,” sellers should also be very careful of their actions. When a buyer ask questions, any misrepresentation in response to the buyer’s questions could very well expose the seller to liability for fraud if defects later arise on the property that would have been disclosed had the seller answered the buyer’s questions truthfully and completely.

CLE Update: Litigating Disputes Over Easements and Restrictive Covenants

National Business Institute is sponsoring a seminar in Cleveland, Ohio on September 15, 2001 titled "Litigating Disputes Over Easements and Restrictive Covenants." The seminar will be held at the Holiday Inn Independence on 6001 Rockside Road, in Independence, Ohio (216-524-8050).  Registration is from 8:30 - 9:00 am, with the seminar beginning at 9:00 am and ending at 4:30 pm.

For more information, go to http://www.nbi-sems.com/ or call 1-800-930-6182.

Failure to follow EPA lead disclosure rules can cost you

Back in 1996 the EPA felt that we needed help understanding that eating lead paint or breathing in its dust is not a good idea, so it put into effect the Real Estate Notification Rule, aka the Lead Disclosure Rule. The Lead Disclosure Rule applies to sellers and lessors and/or their agents of residential property that pre-dates 1978.

 

If you want to lease out a house or apartment or sell your home, and it was built before 1978 you must do the following, with certain exceptions:

•  Provide the prospective tenant or purchasers with a copy of the EPA pamphlet “Protect Your Family From Lead In Your Home.”―God forbid if Junior gets a sudden urge to lick the wall.
•  Provide the prospective tenant or purchaser with a Lead Warning Statement.
• Provide the purchaser with 10 days to inspect the residence for lead-based paint.
• Indicate to the prospective tenant or purchaser whether you have actual documented knowledge of the presence of lead paint in the residence to be rented or sold.
• Provide certifications and acknowlegements for the lead-based paint requirements in the sale agreement or lease, either as an attachment to it or included in the body of the sale agreement or lease.

 

The exemptions to application of the Lead Disclosure Rule include a residential unit that is a zero bedroom dwelling, if it is housing for the elderly (and no children under 6 years old reside there), or if the residential unit has been certified as “lead-based paint free” by a ceritfied lead-based paint inspector or risk assessor.

 

It’s been 15 years and I think people are well aware now of the risks surrounding lead-based paint. However, if you think these rules have fallen by the wayside, think again. A landlord in Massachusetts recently settled a claim brought by the EPA against it for failing to provide a copy of the EPA’s pamphlet to some of its tenants and not including a lease warning statement in the lease. The amount of the settlement? $6,000.