Thursday, July 15, 2010

Residential Property Condition Disclosure Reports

 A recent case in the Connecticut Appellate Court highlights the importance of proper disclosure when completing a Residential Property Condition Disclosure Report.  In that case the owner of a house had covered up a substantial crack in the foundation and floor slab when he refinished the basement.  When the owner later sold the house, he stated “unknown” in response to a question about foundation problems.  Before purchasing the house the buyers completed a home inspection, but there was no way anyone could have discovered the crack.  After a heavy rain flooded the basement the buyers subsequently discovered the crack and sued the seller. 

 The contract contained the following language, which is standard in many residential real estate contracts:  “The BUYER agrees that he has inspected the Premises, is satisfied with the physical condition thereof and agrees to accept at closing the Premises in the present condition on an ‘as is’ basis . . . . Neither SELLER nor SELLER’s agents have made any representations or warranties as to said Premises on which Buyer has relied other than as expressly set forth in this Agreement.”  The seller argued that this language was controlling and absolved the seller from any liability for any misrepresentation about the condition of the property.

 The court rejected that argument, stating that such language did not protect the seller when the misrepresentation was negligent and not innocent.  In this case, the court stated, the seller had full knowledge of the crack in the foundation and did not disclose it to the buyers.  In addition, the court placed substantial emphasis on the buyers’ inability to discover the crack through their home inspections.  The court stated that “[t]he defendant’s mis-statement served to conceal his actual knowledge of a defect in the condition of the property that he sold to the plaintiff.”

 This case, decided by the Appellate Court, is a clear statement of the importance of being very careful when completing these disclosure reports.  They should not be rushed.  If a seller fails to disclose the existence of any defect of which he or she has actual knowledge, the seller could be held responsible for any damages incurred by the buyer.