Individuals in the process of selling their property in Michigan often encounter certain disclosure requirements related to the property. The seller must notify the buyer of certain statutory defects or face penalties. Known property conditions that may be viewed as favorable, or unfavorable must be disclosed to the buyer. For example, if Seller-A wants to sell their property to Buyer-X, Seller-A must disclosed all issues with the property before closing on the property. And if Seller-A does not disclose such information, and has knowledge of damages, and/or deficiencies with the property, Seller-A may be liable to Buyer-X. Participating agents, however, might not be held liable for the lack of disclosure under the Seller Disclosure Act (active concealment might be necessary).
Under MCL 565.954(1)(a), if a statement of property conditions is not given to the transferee, they have the right to cancel the sale. Under MCL 565.954(3), if after signing the purchase agreement, the buyer receives information about the condition of the property within a specified time of signing the agreement, and no longer wishes to purchase, they are able to stop the purchase. However, under MCL 565.954(4) a purchaser’s right to terminate the purchase agreement expires upon the transfer of the subject property by deed or installment sales contract.
For commercial real estate, “as is” clauses protect the seller in regards to defects that should have been discovered during inspection, but were not. The seller cannot always rely on a buyer’s inspection, and “as is” declarations help guard the seller from defects that may be present on the property. If the seller misrepresented, or withheld defects regarding the property before the purchase agreement was signed, the seller might be liable. Revisiting the previous example, if Seller-A knows there are damages that are a danger in regards to the property, but do not disclose these defects, Seller-A is likely liable for any and all damages as a result. However, if the Buyer-X closes on the property with full knowledge of the defects and the damages that may occur as a result, the Seller-A may be released from liability. Thus, in our example, if Buyer-X is aware that there are defects to the property, and despite the defects closes on the sale, Buyer-X may have no remedy.
There are several required disclosures under the standard Seller Disclosure Act statutory form. Thereunder, the seller must disclose if it is located within one mile of farmland as well as other ‘need to know’ disclosures, a few of which are listed below:
- Basement/crawl space: seller must disclose whether or not there has been any evidence of water in the space.
- Insulation: seller must disclose what type of insulation is used on the property, specifically if it is Urea Formaldehyde Foam Insulation (UFFI)
- Well: seller must disclose any wells, if any, the age, depth/diameter, and repairs, as well as whether the water has been tested, and dates that testing was completed.
- Environmental Problems: seller must disclose if they are aware of any substances, materials, or products that may be an environmental hazard, including, but not limited to, asbestos, radon gas, formaldehyde, lead-based paint, fuel or chemical storage, and must explain if one of these are present on the property.
- Mineral rights: seller must disclose whether or not they own the mineral rights to the property.
