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“AS IS” IN A REAL
ESTATE CONTRACT: WHAT DOES IT REALLY MEAN?
INTRODUCTION:
Anyone who has
bought or sold real property in California is well aware of the massive
disclosure documents that the law imposes on the parties as to the
nature of the property and the locale surrounding the property. In a
flurry of efforts to protect the consuming public, the California
legislature has passed dozens of laws increasing the disclosure
requirements by which a seller must make known to a buyer defects,
conditions, dangers, hazards, etc. and get the buyer to sign off the
disclosures before the deal closes-or face significant liability.
But there are times
when both the buyer and seller are anxious to close a deal in which such
warranties and disclosures of condition are not necessarily made know.
At times, a seller has no interest in inspecting or warranting the
condition of the property and is willing to sell at a significant
discount to achieve a quick sale in which the buyer assumes the risk of
conditions.
Such contracts are
often termed “as is” contracts by which the buyer accepts the property
in its current condition, “as is” without warranty by the seller as to
any particular conditions.
Sounds simple and
easy? It is not, for the courts and the legislature have put some
requirements and conditions on what is the effect of an “as is” clause,
which is the scope of this outline.
The reader should
first read the article on
Real Estate Transactions before
proceeding further.
BASIC LAW ON “AS
IS”:
An "as is" clause in
a purchase and sale agreement does not necessarily insulate the seller
from the common law duty to disclose defects or the requirements of
Civ. Code §§1102 et seq.
"As is" language
serves to give notice of patent defects and means that the buyer accepts
the property in the condition in which it is reasonably observable by
him or her.
If augmented by
language indicating that the buyer is relying on his or her own
inspection of the property, it may also relieve the seller of the duty
to inspect for defects or to disclose matters that the seller should
know but does not.
However, the
benefits of Civ. Code §§1102 et seq. are not waived merely by the
buyer’s acceptance of "as is" language in the purchase agreement, and
the seller remains liable for any failure, whether negligent or
intentional, to reveal known concealed defects not apparent from an
inspection of the property.
Similarly, "as is"
language in a real property sale agreement does not shield a seller from
liability for fraud. Civ. Code §1668 (providing that contracts
that directly or indirectly exempt anyone from responsibility for fraud
are against policy of law).
STEPS TO ACHIEVE
TRUE “AS IS” STATUS:
The seller who
wishes to eliminate all possible liability using an As Is contract will
still have to reveal known defects IN WRITING AND IN DETAIL or else the
buyer can later change his or her mind and claim lack of disclosure
despite the As Is wording. Further, wording as to the inspection of the
property by the buyer being accomplished will limit the liability of the
seller for not finding various possible defects.
Lastly, various
local and state statutes requiring disclosure of various conditions
(property being on a flood plain, earthquake zone, etc.) may have to be
made and many statutes do not allow waiver of that written notice.
Clearly the wise
seller will take steps to draft a carefully constructed contract, with
legal advice, and not rely on merely using the words “AS IS” to provide
full protection. Effectively, California law requires disclosure of any
defects known and to give the buyer access to the property to inspect
before one can assume AS IS gives any real protection.
CONCLUSION:
“Nothing’s as simple
as it seems…” wrote Gilbert and Sullivan and in this complex real estate
world of California, that applies to what used to be the simple act of
scrawling “as is” in a contract. As with so much, good legal advice and
careful drafting is a good idea to avoid potential liability or demands
for rescission and no matter what the buyer says, be sure to require an
inspection and to advise in writing of known defects. |
