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'AS IS' Clauses in Real Estate Sales Contracts do not Relieve

“AS IS” Clauses in Real Estate Sales Contracts do not Relieve Sellers of the Common Law and Statutory Duties to Disclose Problems With the Property They do Know About, and do not Mean a Seller Cannot be Sued for False or Fraudulent Statements

Under the Common Law, a seller of real estate has a duty to disclose to a Purchaser facts known about the property which might affect the “value or desirability” of the property to the seller or to a reasonable Buyer.

Under California Civil Code § 1102 et seq, a Seller of Residential Real Estate has a statutory duty to answer specific questionaires regarding the condition of the property, and to provide those disclosures to the Buyer early in the sale process.

Despite these Common Law and statutory disclosure obligations, some Sellers include “AS IS” provisions in their sales contract, particularly for older or - fixer-upper” properties, and then falsely assume that because the Buyer presumably knows the property is run down or not in good condition, that they don’t have any obligations to tell the Buyer about specific problems with the property that the Sellers or their real estate agents may know about or suspect to exist.

But that is a FALSE and very dangerous assumption by Sellers and Brokers, which can result in the Sellers and their agents being sued for Fraud, Non-Disclosure (See related article), for Rescission (See related article) to Cancel the Sales Contract, including possibly also punitive damages and attorneys fees, etc

It is well settled that "as is" clauses and their related releases are valid. (Loughrin v. Superior Court (1993) 15 Cal.App.4th 1188, 1192, 19 Cal. Rptr. 2d 161. "As is" clauses "put[] potential buyers on notice that the seller makes no warranties about the quality or condition of the thing sold." (Shapiro v. Hu (1986) 188 Cal.App.3d 324, 333, 233 Cal. Rptr. 470.)

"[G]enerally speaking," they "mean[] that the buyer takes the property in the condition visible to or observable by him." (Lingsch v. Savage (1963) 213 Cal.App.2d 729, 742, 29 Cal. Rptr. 201 (Lingsch).)

"As is" clauses do not release a party from liability for (1) defects that were not observable (ibid.; Katz v. Department of Real Estate (1979) 96 Cal.App.3d 895, 901, 158 Cal. Rptr. 766 (Katz); cf. Driver v. Melone (1970) 11 Cal.App.3d 746, 750, 90 Cal. Rptr. 98 ["as is" clause covers wiring defects "obvious to anyone who inspected the building"]), or (2) material defects that the seller knows about but does not disclose (Loughrin, at p. 1195; Lingsch, at pp. 740-741; Wilson v. Century 21 Great Western Realty (1993) 15 Cal.App.4th 298, 304-305, 18 Cal. Rptr. 2d 779; Reed v. King (1983) 145 Cal.App.3d 261, 265-266, 193 Cal. Rptr. 130).

"As is" language in a realty sales contract does not shield a seller or his agent from liability for affirmative or, as in this case, negative fraud. "Generally speaking, such a provision means that the buyer takes the property in the condition visible to or observable by him. [Citation.] Where the seller actively misrepresents the then condition of the property [citations] or fails to disclose the true facts of its condition not within the buyer's reach and affecting the value or desirability of the property, an 'as is' provision is ineffective to relieve the seller of either his 'affirmative' or 'negative' fraud....To enlarge the meaning of such a provision so as to make it operative against all charges of fraud would be to permit the seller to contract against his own fraud contrary to . . . law. (Civ. Code, § 1668.)" ( Lingsch v. Savage (1963) 213 Cal.App.2d 729, 742 [29 Cal.Rptr. 201, 8 A.L.R.3d 537]; see 1 Miller & Starr, Cal. Real Estate (2d ed. 1989) § 1:127, p. 446.)

Wilson v. Century 21 Great Western Realty (1993) 15 Cal.App.4th 298, 304-305.

So Sellers should not rely solely on the False Security provided by an “AS IS” clause, and must disclose in as much detail as possible all factors which they are aware of which could possible affect the “value or desirability” of the property to potential Buyers.

N.B. The contents of this Article do not constitute legal advice or create an attorney-client relationship, and you may NOT rely on it without seeking legal advice regarding your particular, unique situation from a competent Real Estate Lawyer or attorney.

Please also note that factual situations vary, and statutes, regulations and case law are frequently changing and evolving, and these materials thus also may now be or may become outdated or incorrect.

For further information on this topic and how the current law may apply to your particular contract, project or issues, Contact Us via email, phone (415)788-1881 or visit our website at www.wolfflaw.com for other contract information.

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