Legal Question in Real Estate Law in Ohio

Re: Buyer's Rights of Disclosure

CONSTRUCTION LAWLETTER

Vol. 2003-10 October, 2003

�AS IS� CLAUSE IN REAL ESTATE CONTRACT RELIEVES SELLER OF DUTY TO DISCLOSE DEFECTS

Real estate transactions in Ohio, as in many other states, may be adversely affected by the inclusion of any �as is� clause in real estate contracts. �As is� clauses shift the risk of the seller�s non-disclosure of any defects in the real estate to the purchaser! Stated another way, where parties to a real estate contract mutually agree to an �as is� clause in their agreement for sale and purchase, the seller is relieved of any duty to disclose that the property is in a defective condition.

In order to avoid the shifting of the risk from seller to buyer, the buyer has to show either that there was a positive misrepresentation by the seller or an active concealment of the defect and, in either case, that the defect was not discoverable by reasonable inspection of the property, or that an opportunity for such inspection was not provided.

If the defective condition was one that could not be discovered upon a reasonable inspection, but the purchaser cannot establish a positive misrepresentation by the seller, or an active concealment of the defect by the seller, then the risk of the nondisclosure is still shifted to the purchaser.

In the absence of either fraudulent misrepresentation or fraudulent concealment of a defective condition, the risk of nondisclosure is placed upon the purchaser where there is an �as is� provision in the real estate contract, whether or not the defect is discoverable by a reasonable inspection.

The Supreme Court of Ohio, considering latent defects (hidden from view), decided: �With respect to latent defects, Ohio follows the doctrine of caveat emptor if the defect is one that is discoverable by a reasonable inspection, there is an unimpeded opportunity to inspect the premises, and there is no fraud by the seller.� Layman v. Binns (1998), 35 Ohio St.3d 176, 519 N.E.2d 642.

However, �Sellers may not actively misrepresent the condition of a property or actively conceal defects. *** Put another way, fraud �trumps� an �as is� clause, and the purchaser may proceed with a lawsuit.� Donnelly v. Taylor (2002), 122 Ohio Misc.2d 24, 2002-Ohio-7461, 31, para.34.

�The elements of a cause of action for fraudulent misrepresentation or concealment are (1) a material false misrepresentation or a concealment, (2) knowingly made or concealed, (3) with intent of misleading another into relying on it, (4) reliance, with a right to rely, on the misrepresentation or concealment, and (5) injury resulting from the reliance. Gaines v. Preterm-Cleveland, Inc. (1987), 33 Ohio St3d 54, 55, 514 N.E.2d 709.� Donnelly, id., at p.29, para.23.

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