There are several provisions in real property sale agreements that can affect a party’s legal rights. One such provision is an “as-is” provision, which is often included in contracts for the sale of real property. It is important for parties to keep on the lookout for such provisions so that they are aware of their legal rights in any possible litigation.
What Does an “As-is” Provision Mean for Buyers?
Generally, when a property is sold “as-is,” the seller is not liable for defects in the property unless the seller is fraudulently concealing or misrepresenting the property’s condition. (Shapiro v. Hu, 188 Cal.App.3d 324, 334.) When purchasing the property “as-is”, the buyer accepts the condition of the property to the extent that he or she can visibly observe. The buyer cannot later sue the seller for a defect that the buyer observed.
The buyer, however, is still entitled to know about the condition of the property, and the seller is not allowed to conceal or misrepresent defects in the property. The as-is provision simply protects the seller when the buyer observes defects but buys the property anyways and accepts the defects.
What Does an “As-is” Provision Mean for Sellers?
With an “as-is” provision, sellers are protected from liability for defects in the property that the buyer visibly observes. Sellers still, however, have a duty under California law to disclose any known defects in the property.
In general, sellers must disclose any facts that affect the value or desirability of the property that only the seller knows about, and the buyer may be unable to observe. (Alfaro v. Community Housing Improvement System & Planning Assn., Inc., 171 Cal.App.4th 1356, 1383.) These disclosures required by law usually cannot be waived. (CA CIVIL § 1102) Examples of such disclosures are structural defects and mold. Additionally, the seller is not liable for failing to disclose defects that they were not aware of.
If the seller fraudulently misrepresents or hides defects, the seller is still open to liability. (Id.) An “as-is” provision only covers defects observable to the buyer. The provision will not protect a sneaky seller from committing fraud.
Once the buyer purchases the property “as-is,” they buy the property in its present observable condition. This means the seller can refuse to make repairs, as the buyer accepts the property in its present condition, warts and all.
Examining An “As-is” Provision in Case Law
An example of an “as-is” provision that explains the consequences of such a provision further is the case Loughrin v. Superior Court (1993) 15 Cal.App.4th 1188. In this case, the Buyer and the Seller had an “as-is” provision in their sales agreement. (Id., at 1191.)
While filling out a disclosure form, the seller indicated that he or she was not aware of any significant defects or malfunctions in the house. (Id., at 1195.) The buyer later sued Seller, alleging that there were defects in the floors of which Seller is aware. (Id., at 1192.) The buyer stated many claims in the complaint, and among them was a negligent failure of the Seller to make the appropriate disclosures. (Id., at 1191.)
The trial court granted summary adjudication in favor of the Seller on the negligent failure of the disclosure claim. (Id.) The buyer appealed, and the Court of Appeal reversed the trial court’s judgment (Id., at 1196.) The Court of Appeal held that the use of an “as-is” clause would not protect against claims of misrepresentation. (Id., at 1195.) Expanding on its reasoning, the Court of Appeal wrote:
“. . . [C]ontrary to the apparent assumptions of many people dealing in real estate (including some brokers), a sale “as is” is not the equivalent of a waiver of potential claims of misrepresentation. As noted above, the “as is” sale simply means the buyer accepts the property in the condition visible or observable by him . . . Even such [an] augmented “as is” clause, however, does not address the issues of: (1) intentional misrepresentation, (2) fraudulent concealment, or even (3) negligent concealment not related to failure to inspect.” (Id., at 1195.)
Loughrin illustrates that “as-is” clauses do not protect sellers from liability for concealing or misleading buyers about defects in the property. This is a misconception that many people may have about “as-is” clauses that are important to clear up.
“Shawn” is a wealthy billionaire bachelor looking for a mansion to settle down in and retire early. He tours several mansions along the west coast until he finally tours a mansion that “Julie” is selling.
Julie’s mansion is located right where Shawn wants to live. While Julie is giving Shawn a tour, however, she tells him that there are issues with the pipes in the basement and there is mold in the walls, both of which Shawn visibly observed. Julie also shows him the roof, and Shawn can see that parts of the roof are crumbling. Undeterred, Shawn immediately makes an offer to Julie. Julie creates a sales contract that includes an “as-is” provision, and both parties sign off on the sale.
Shawn begins to move into his new mansion. Unfortunately, as he is moving his gold-plated Lamborghini Aventador into his garage, the roof collapses. At the same time, the pipes in the basement burst open, leaving Shawn with no running water. Shawn sues Julie for the defects in the property, claiming that Julie should repair the mansion. Julie files a motion to dismiss and refuses to make repairs, arguing that she is released from liability due to the “as-is” provision in the sale contract.
In this situation, Julie is right. Julie disclosed all defects known to her when giving the tour to Shawn. In addition, Shawn was able to visibly observe each defect that Julie disclosed. When signing the contract containing the “as-is” provision, Shawn accepted the property in its current, observable condition. This protects Julie from any liability.
How Can the Attorneys at Underwood Law Assist You?
Real estate sales are one of the most important business or personal decisions any of us can make. As real estate comprises a substantial amount of any given person’s net worth, the transfer of real estate must be taken seriously. This means ensuring that you handle the process correctly.
As each case is unique, litigants would be well-served to seek experienced counsel familiar with the ins and outs of real estate transactions and the law surrounding them. At the Underwood Law Firm, our knowledgeable attorneys are here to help. If you are seeking to transfer your property, or are worried about handling a real estate transaction correctly, or if you just have questions, please do not hesitate to contact our office.
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