Daily Development for
Wednesday, July 9, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

VENDOR/PURCHASER; BUYER'S PRE-CLOSING OCCUPANCY; DUTY OF CARE: The Alaska Supreme Court held that potential purchasers of home who had been occupying home were not automatically granted the rights of tenants, but instead certain findings of fact were required to determine the duty of care which potential sellers of home owed to such purchasers.

Brigdon v. Lamb, 929 P.2d 1274 (Alaska 1997).

This case is particularly interesting because in involves an interpretation of the Uniform Residential Landlord/Tenant Act, which exists in about 23 states. But the issues go beyond those in states having the Act.

Buyers and sellers contracted for the sale of the house, which was subject to a mortgage from a state sponsored subsidized housing program. The state program administrators refused to permit the sale to these buyers until they had lived in the house for a year.

While attempting to satisfy the conditions to purchase the house in question, potential purchasers lived in the house under an occupancy agreement which provided for payments to sellers for such occupancy. After the first year, the sellers proposed an extension of the sale agreement. They sent a written extension to the buyers, but the buyers never signed it. They occupied the home for nearly two years prior to this action.

Eventually, it was determined that the furnace had a leak which released carbon monoxide fumes into the house. The potential purchasers terminated their occupancy and brought this action against the potential sellers for damages which they sustained as a result of living in the house with the furnace leak.

The Uniform Act provides expressly that it does not apply to occupancy pursuant to a home purchase agreement. Relying upon the statue, the court below had granted summary judgment to the sellers on the question of whether the seller had the duties that the Act imposes on landlords.

The Supreme Court of Alaska partially reversed summary judgment, refusing to hold unequivocally that potential purchasers were to be treated as tenants for the period following the first extenstion. The court held that it was not clear at what point, if any, a landlord-tenant relationship arose between the potential purchasers and potential vendors, particularly since the buyers had not expressly assented to the proposed extension of the sale agreement. Consequently remanded the case to be tried in full without summary judgment.

Comment 1: This case highlights a very troublesome and all-to-common problem that often gets "brushed under the rug" in the eagerness to put a residential deal together. The law in many states imposes extensive responsibilities, usually no waivable, upon landowners who elect to go into the "landlord" business. These responsibilities begin, but do not end, with the duty to provide a habitable premises in good working order, both at the inception of and throughout the tenant's occupancy. The tenant's knowledge or acceptance of defects, or attempts to transfer responsibility for maintenance to the tenant, usually do not avail the landlord. The landlord's duty is based upon public policy considerations, including the sentiment that the landlords hold the "whip hand" in residential lease negotiations.

Of course, the presumption regarding landlord's bargaining power is not necessarily accurate when the "tenant" is in fact a putative buyer of the premises and the "landlord" is a seller anxious to relocate and unable to unload the property. Notwithstanding modern developments increasing duties upon sellers of residential properties to disclose defects, the law of vendor/purchaser has not imposed upon sellers any absolute duty to warrant or maintain the property equivalent to the duty imposed on residential landlords. (There is an such a rule in some states for vendors who are also builders of the home in question.)

But how should the law deal with the buyer who takes possession prior to closing? Is this buyer a "tenant" or an "owner to be?" Is it relevant whether the parties have crafted the possessory agreement so that the occupant/buyer pays periodic "rent" to the owner/seller? Should it not be more relevant whether the occupant has rights of continued possession defined in terms other than the terms of the sale agreement itself?

Courts will have to walk carefully here. If they mean to continue in effect the standard protection of residential tenants, then they must avoid situations in which clever landlords avoid their responsibilities simply by giving the tenant an "option" to purchase title (in circumstances where the landlord is confident the option will never be exercised due to price or financial weakness of the buyer.)

Comment 2: Practice Tip: Where there is no statute such as the provision of the Uniform Act exempting most "possession prior to sale" arrangements, seller's counsel should at least consider drafting these arrangements so as to highlight their relationship to the sale arrangement and avoid characterization as a landlord/tenant relationship. They further should warn their seller clients of the dangers of such characterization anyway. Of course, most purveyors of conventional wisdom in this area would advise to avoid using this arrangement except under the most extreme circumstances.

Comment 3: Students of jurisprudence might enjoy reading the dissent, which appears to be dealing with an entirely different case - one in which the seller calculatedly used a scheme to "hide behind" the mortgagee's requirements in order to avoid the application of the Uniform Act's warranty of habitability.

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