Daily Development for Monday, August 9, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu

VENDOR/PURCHASER; MISREPRESENTATION; “AS IS” CLAUSE: Seller’s broker not relieved from liability for nondisclosure of known latent defects by clause in sale agreement that court construes to function as an “as is” clause.

Syvrud v. Today Real Estatae, Inc., 858 So. 2d 1125 (Fla. App. 2003)

Buyers brought suit for rescission and damages against sellers and sellers’ broker in connection with the acquisition of a condominium unit. Buyers alleged that the condominium unit itself and the condominium project in general were heavily infested with termites, that seller had knowledge of this problem, and in fact had received several communications from the homeowners’ association warning of dire assessments to resolve the issue. They alleged that brokers also were familiar with the issues.

The contract to acquire the condominium from Seller was a form agreement approved by the Florida Bar and the Florida Association of Realtors. The form included a paragraph (Paragraph “W”) stating that the seller warranted that there were “no facts known to Seller materially affect the value of the Property which are not readily observable by Buyer which have not been disclosed to Buyer.”

The parties amended the agreement by a typed amendment that included the following language:
“Buyer(s) hereby acknowledge that the property being sold is not new and that the seller(s) and broker(s) make no verbal representations, warranties or guarantees as to the condition of the property and it’s [sic] appurtenances and/or fitness for specific purpose. . .

Buyer(s) and Seller(s) agree to rely upon themselves and those licensed to give professional advise [sic] regarding compliance with or and [sic] aspect of the property including, but not limited to . . . roofing, mechanical, electrical, plumbing, appliances and other appurtenance conveyed with the sale. The Real Estate Agents[‘] opinions, if any, have been only in marketing and sales negotiations.”

The addendum also indicated that the contract was contingent upon buyer’s receipt and approval of seller’s disclosure statement and buyer’s satisfaction of an inspection report. There was a disclosure statement, submitted by seller, that did not mention the termite conditions.

The trial court, on the basis of the language quoted above, concluded that the broker had no responsibility for disclosure of the alleged defective conditions and dismissed the broker out of the lawsuit.

On appeal: held: reversed.

The appeals court concluded that the exculpatory language in the addendum amounted to an “as is” clause and treated it as such. But the court stated that the leading case of Johnson v. Davis, 480 So. 2d 685 (Fla. 1985), which follows the common law rule requiring the disclosure of known latent defects to the buyers, and which has been held applicable to brokers as well as to sellers, is not avoided by an “as is” clause according to several Florida cases.

The broker cited more recent authority to the court (which the court does not identify or discuss) indicating that common law disclosure duties may be waived in a contract. The court stated that it did not need to reach that issue because the contract itself imposed a disclosure duty on the brokers and the waiver language did not refer to the contract provision imposing that duty, so the duty was not waived.

Comment 1: This is a pretty clumsy opinion overall. Although the editor agrees with the result, in the editor’s view the court should have stepped up to the issue and held that, whatever the recent cases mean, they should not be read as holdings that an “as is” clause can absolve brokers in residential transactions from failure to advise buyers of known material latent defects of which the brokers have actual knowledge. Whatever the policy reasons for permitting the parties to exculpate sellers from this responsibility, there is no reason to permit brokers to avoid what ought otherwise to be their professional responsibility.

Instead, the court makes some weird interpretation of the provision dealing with the seller’s disclosure statement (paragraph W) to conclude that the contract imposed on the brokers a duty of disclosure. It is quite possible, of course, that there was a contractual duty of the sellers that wasn’t waived, but where did the court get a brokers’ duty out of that language? Note that the entire text of that paragraph, as cited by the court, dealt with the duty of sellers. Note also that the contract expressly mentioned brokers separately in many areas where the intent was to affect both the parties and the brokers.

Comment 2: The editor believes that it is and should be outside of the ethical responsibility of brokers to advise parties on the sale of a house and in the same document, as a condition of securing a deal with someone else, require that brokers be released from liability for nondisclosure of known latent facts..

If the brokers want to be released from liability, let them obtain express separate waivers in connection with their provision of the services in question. Buyers and sellers should be free to reach whatever bargain they desire between themselves without the encumbrance of waivers of claims against brokers or their related companies.

It is not surprising to the editor that the court here is hostile to such waivers. It would be better to have them struck down entirely. The editor is fully aware that brokers have run to the legislature in many states and have obtained waivers of liability and changes in ethical duties in many cases. That’s their right - if that’s where the legislature feels the public policy balance lies - let them unleash the brokers to mislead consumers. But it is quite a different thing, absent statute, for brokers to slip exculpatory language into form documents relating to their clients’ transactions with third parties. The brokers shouldn’t do it.

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