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Superior Court Decision Affects Seller Disclosure Law: Does “As-Is” Really Mean “As-Is?”

A recent Superior Court decision concerning the Real Estate Seller Disclosure Law (“RESDL”) has sparked a concern in the real estate industry that when a property is sold “as-is,” it may no longer really mean “as-is.”  In Phelps v. Caperoon, a buyer and seller, unrepresented by real estate professionals, entered into an agreement of sale for a property with various outbuildings and a single-family residence.  The buyer leased the property from the seller for six (6) months before the settlement.  Prior to signing the lease, the buyer asked the seller whether there was anything about the property that the buyer should know, to which the seller responded there was not and the agreement of sale contained an “as-is” clause.  On advice of counsel, the seller did not complete a seller’s disclosure to the buyer as required by RESDL.

After leasing for six (6) months and closing on the property, the buyer discovered issues with the septic and electrical system, the roof, and structural issues.  Buyer sued seller and seller raised the following defenses: 1) because the property was sold “as-is” there was no disclosure requirement under RESDL; 2) even if the “as-is” did not prohibit relief, the property was commercial in nature and as a result, RESDL does not require a seller’s disclosure; and 3) even if the seller’s disclosure was required, a good-faith exception should apply because the seller relied on advice of counsel in not providing the seller’s disclosure.

The Superior Court disagreed, finding that RESDL requires (with limited exceptions, none of which applied) “[a]ny seller who intends to transfer any interest in real property shall disclose to the buyer any material defects with the property known to the seller.” As such, the seller was required to provide the disclosure to the buyer even though the sale was “as-is.”  Additionally, because the property had one to four residential units located thereon, RESDL applied and required the seller to provide the disclosure.  Lastly, the Court found that no good-faith exception applied despite the advice of his attorney.  The seller was found liable for the actual damages, measured by the costs of repairing the material defects, capped by the market value of the property.

Does this mean the end of “as-is?”  Not exactly.  If nothing else, this case emphasizes the importance of completing a seller’s disclosure. Sellers can still sell property in an “as-is” condition, provided they accurately and completely fill out a seller’s disclosure form.  Had the seller in this case provided the form to the buyer disclosing the items of concern, the seller may not have been found liable for the actual damages by the Court.  The key takeaway: a seller selling a property containing one to four residential units MUST provide the seller’s disclosure unless one of the exceptions applies.  Failing to do so could mean the seller is liable for repair damages up to the full amount of the sales price, a mistake many cannot afford to make.

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