Real Property: Common Law and As-Is Clauses

Caveat Emptor, let the buyer beware.
Historically, sellers of real property have sought to limit their liability for defects in such real property, to prospective buyers by relying on the common law doctrine of “caveat emptor”, or let the buyer beware. Essentially, without an express agreement to the contrary, the seller’s liability, for property conditions, ended when the deed changes hands. This of course has been modified by American Jurisprudence, after all, a house (which is generally what most real property transactions center around today) is a vastly different creation today than it was just a few decades ago.

Fraudulent Concealment and Misrepresentation (Michigan).
Outside a fraudulent statement on the Michigan Seller’s Disclosure Statement, a seller commits intentional misrepresentation when:
• made a representation of a material fact;
• such representation was false when it was made;
• the representation was knowingly false or made recklessly, without knowledge of its truth;
• such representation was made to induce the buyer’s reliance;
• the buyer acted in reliance; and,
• the buyer was injured as a result of such representations.

This has been taken further where, fraud may be committed by silence. Where a seller has an affirmative duty to speak but fails to disclose material facts, causing the plaintiff to have a false impression. This has also been extended to sellers who acquire information which makes a prior statement misleading. However, a defendant is protected from claims of innocent misrepresentation where the contract contains an effective “as is” clause.

A buyer commonly sue, sellers, real estate brokers and sales associates, and property inspectors for such above misrepresentation.

A seller commits fraudulent concealment when:
• it concealed or suppressed a known material fact;
• that this material fact was not within reasonably diligent attention, observation, and judgment of the plaintiff;
• that the defendant suppressed or concealed this fact with the intention that the plaintiff be misled as to the true condition of the property;
• that the plaintiff was reasonably so misled; and,
• that the plaintiff suffered injury as a result.

Generally, public policy dictates that society is better served where both sides have a fair opportunity to assess the transaction. A seller who knows the ‘drywall’ in the basement is just painted newspaper has a duty to the buyer to disclose such fact. Or for another example, where a seller knows the roof leaks in spring, and it is now early summer, such fact should be disclosed to the buyer. If however, the buyer refuses to hear such information, or refuses to read such disclosures, or generally knowingly and voluntarily waives its rights, the law will not protect such buyer.

Will an as-is clause shift liability?
In 1839, in Smith v Richards, a seller of a gold mine induced a buyer to buy by ‘salting’ the mine (fraudulently adding gold (or other minerals) to a mine to make it appear better than it is). The seller wrote “I, however, sell it for what it is, gold or snowballs; and leave it to you to decide, whether you will take it at my price, or not.” The Court found the seller liable for fraud. Generally, an “as-is” clause depends on the situation, it will permit a seller to sell the property in whatever condition it may be in, but not also to require the buyer to go on an Easter-egg hunt to discover fraud of the seller.

With the exception of perhaps Alabama, a seller may not hide behind an as-is clause to shield itself from misrepresentation. In Dygert v. Leonard, sellers repaired and painted over cracked foundation of the house. Whilst in the purchasers possession, the foundation began to show cracks. The purchasers sued the sellers for fraud. Ruling in the purchasers favor, the court denied the sellers’ motion for summary judgment (called summary disposition in Michigan), for reason that an ‘as is’ clause does not “shield defendants from judicial inquiry into specific allegations of fraud in the inducement of the contract.”

As put by the Texas Supreme Court, “A buyer is not bound by an agreement to purchase something ‘as is’ that he is induced to make because of a fraudulent representation or concealment of information by the seller. . . A seller cannot have it both ways: he cannot assure the buyer of the condition of a thing to obtain the buyer’s agreement to purchase ‘as is’, and then disavow the assurance which procured the ‘as is’ agreement.”

A seller may find it prudent to seek the advice of counsel prior to listing their home with statements such as “According to previous owners new roof shingles were installed in [date]” and “Home being sold AS-IS with Seller not contributing toward repairs.” Because although many red-flags are raised between the lines of those two conflicting statements, does the seller know something that they should have disclosed to the buyer? Could the purchaser discover a flaw in the roof and successfully argue that the seller provided assurances? Is the seller assuring the buyer of the condition of something and then disavowing the assurance?