Daily Development for
Wednesday, October 8, 1997

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

VENDOR/PURCHASER; DEED COVENANTS; PUBLIC REGULATION: Non-existence of a use permit for the property in its existing conformation and use is an "encumbrance" and a breach of the warranty of title.

Bianchi v. Lorenz, 1997 WL 381292 (Vt. 7/11/97)

Sellers desired to build a four bedroom house on their property. The construction required a septic system, and their system designer advised them that the property would support only a system for a three bedroom house. The plan further recommended that the system designer be consulted on construction and be permitted to examine the system before it was covered up. Notwithstanding this advice, the sellers resolved to build a four bedroom house. They relied upon their contractor (father of one of the sellers) to obtain all necessary public permits. They obtained a building permit by agreeing to comply with all applicable laws and construct a septic system as designed and approved by the system designer. The contractor built an inferior system even to the one designed, never notified the designer, and never obtained a certificate of completion or certificate occupancy after construction was complete.

Sellers knew of the basic problem, as the above facts show, but had no actual knowledge of the defects in the system or that no permits had been obtained.

Sellers transferred the home to buyers a year or two after the house was completed. The said nothing about septic problems. Within six months, major septic problems apepard. Buyers sued for fraud, negligence and breach of warranty. Only the breach of warranty claim survived summary judgment. The court found for plaintiff buyers on that count and awarded over $40,000 in costs to repair the septic system.

On appeal to the Vermont Supreme Court: held: Affirmed. Although the court stopped short of saying that *any* violation of zoning laws is an encumbrance, it did hold that any substantial violation is an encumbrance in violation of the deed covenants is "the seller can determne from municipal deed records that the property violates local zoning regulations at the time of conveyance, and the violation substantially impairs the purchaser's use and enjoyment of the property."

The court cited to Hunter Broadcasting, Inc. v. City of Burlington, 670 A.2d 836 (Vt. 1995), where it had held that an unlawfully subdivided lot created an encumbrance that violated deed covenants. In the case of an unlawful subdivision, however, the sale itself was unlawful, thus placing a direct cloud on the buyer's title. The court pointed out here that this was not a necessary part of the analysis in Hunter. Even where the buyers lawfully own the transferred property, they have a breach of deed covenant claim if conditions on the property or use of the property do not comply with applicable zoning laws and no permit has been issued.

The court distinguished Frimberger v. Anzellotti, 594 A.2d 1029 (Conn. App. 1991), which had held that a zoning ordinance is not an encumbrance where it is not discoverable. The court commented that in Vermont, at least, the defendant seller "must examine municipal records in addition to land records" in order to be confident that it meets the covenant requirements.

Two of the five judges on the panel wrote a special concurrence in which they pointed out that the majority opinion is likely to create great mischief in Vermont title examining because municipal occupancy permit files, where they exist, are not indexed, and sometimes they are not kept at all. In the instant case, the sellers had some reason to be held accountable for the failure to obtain the permit - their own contractor had caused the problem, and indeed they were aware of it prior to construction. But the majority opinion would impose liability on sellers where the defect in fact arose during the ownership of prior parties in the chain of title. Thus there would be no actual knowledge of any problem. Further, there would be no simple way to ascertain whether a permit indeed had been issued at some prior time, since, as pointed out, municipal records to not lend themselves to frequent and elaborate title searching.

Comment: The editor is struck by the fact that both majority and concurrence place so much emphasis upon the impact of the title search here. This perhaps stems from the fact that the liability is based upon deed covenants. Thus, liability here is treated like a title defect, instead of a defect in the condition of the property. If the parties do not draw an exception in the deed, then it is quite possible that a court will conclude that the buyer has not waived its claim.

Why couldn't we view this issue as to whether there is in a contract of sale an implied warranty that the property is validly permitted for its current use? The parties could negate such warranty where the seller has strong bargaining power or otherwise is able to make the point that the buyer is in a position to check the zoning itself. Under this rule, the seller generally would be liable only for affirmative misrepresentations. Because, arguably, these problems are really not title problems, the implied warranty would not be avoided by the buyer's acceptance of a deed which did not except it.

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