By Robert S. Kutner, Esq
Partner, Casner & Edwards
When representing sellers, many attorneys add language in every agreement that the property is being sold “as is,” believing that this clause protects their seller-clients as well as the sellers’ listing agent. Standard disclaimers, such as “as is” clauses, can be effective in certain situations, but do not provide absolute protection from claims for fraud
or for intentional violation of the Consumer Protection Act, Chapter 93A.
Courts are inclined to enforce disclaimers where they are not merely inserted into every agreement (boilerplate), but are customized during negotiations of counsel. It is important for brokers to understand the limitations of these clauses and the benefits that they provide.
Fraud or Misrepresentation
Massachusetts courts distinguish between claims for fraud (intentional misrepresentation and intentional failure to provide a required disclosure) and claims for negligent or innocent misrepresentation. A Massachusetts statute, Chapter 93A, also requires that all real estate agents advise buyers about known defects in the condition of a property, even if the buyers do not ask. To fail to disclose a problem, despite actual knowledge, is considered to be
an “unfair or deceptive act or practice” for which a successful claimant will be awarded damages and attorneys’ fees.
If the broker’s violation is willful or knowing, double or treble damages may be awarded. Persons selling their own homes are subject to claims for fraud and misrepresentation, but are not subject to Chapter 93A. They do not have an obligation to volunteer information about defects, but merely owe a duty to answer questions truthfully, avoiding half-truths. One exception is that sellers have an affirmative duty to disclose knowledge of lead paint. Commercial sellers are generally subject to Chapter 93A and must disclose known defects.
In the 1987 case, Sheehy v. Lipton Industries, a commercial buyer of land in Woburn filed suit against the commercial seller. The buyer had first made an offer for $1.6 million, subject to obtaining lease commitments and financing. Several months later the seller made a counteroffer, reducing the price to $1.1 million while striking the buyer’s financing and lease commitment contingencies and adding a clause that the land was being sold in “as is” condition. Before closing, possible contamination of the land by hazardous material had become an issue. The buyer learned that an adjacent property had been the site of a tannery and chemical company. The buyer claimed that he had asked the listing broker about the problem and was told “Don’t worry about it.” The buyer purchased the land.
After the sale, the buyer found out that animal wastes and chemicals contaminated portions of his own property. The buyer sued the seller, claiming intentional fraud and negligent misrepresentation and citing the broker’s statement not to worry’. Believing that the “as is” clause automatically protected the seller and since the buyer, an experienced businessman, was represented by an attorney, the superior court judge dismissed both negligent misrepresentation and intentional fraud claims on a motion for summary judgment. On appeal, the Appeals Court disagreed and ruled hat factual disputes allowed the fraud claims to proceed.
“As Is” as a Defense
The Appeals Court recognized that courts give great respect to the finality and certainty of agreements, particularly when they were the result of uncoerced negotiations between parties who had been represented by legal counsel. The Court noted that the purchase and sale agreement stated that: (1) the Buyer had not relied on any warranties or representations not set forth in writing, except the following additional warranties: “None;” (2) contained a clause that the sale of the property was in “as is” condition; and (3) contained a customized clause stating that the buyer relied completely on the home inspector. Nevertheless, the Appeal Court rejected the seller’s claim that the “as is” clause and other disclaimers provided an absolute defense to all claims, ruling that: “Massachusetts case law rejects the assertion of “as is” and like clauses as an automatic defense to allegations of fraud.” Sellers cannot use an “as is” clause to protect themselves from claims for intentional wrongdoing. Since there were factual questions concerning whether the seller (and broker) had actual knowledge about contamination of the land being sold, fraud claims were reinstated. The Appeals Court, however, upheld dismissal of the claim for negligent (not intentional) misrepresentation, holding that the “as is” language and other disclaimer barred those claims.
The Appeals Court was presented a similar issue in the 2003 case, Cone v. Ellis, but in the context of the sale of a private home. During a home inspection, the buyers’ home inspector discovered wood boring insects in the second floor bathroom. In response to a question about the situation, the seller stated that the infestation was limited to the
bathroom. The purchase and sale agreement contained boilerplate language that the buyers were not relying on any representation of the seller other than set forth in writing, after which the word “None” was inserted. A rider was negotiated by attorneys for the buyer and seller that stated:
“A. By execution hereof, Buyer acknowledges that she has completed all structural and pest contingency inspections as specifically reserved in her offer to purchase and is satisfied with the results thereof and has relied completely thereon. The only exception to Buyer’s satisfaction with the premises are the following:
“1. Active wood boring insects were located in the two bathrooms on the second floor and the exposed wood beams in these rooms must be treated with Bora Care (two coats) by Seller at Seller’s expense prior to closing.”
After their purchase, the buyers sued, claiming that the seller committed fraud, since she must have known that the infestation was not limited to the bathroom. The superior court judge dismissed that fraud claim on a motion for summary judgment. On appeal, the Appeals Court upheld dismissal of that claim. It found that the clause stating that the buyers relied completely on the home inspector had been customized to this contract. It had been reviewed by the buyers’ attorney and survived his revisions and additions constituting part of the signed contract. The Court ruled that: “These actions constitute the type of deliberate, uncoerced, and businesslike negotiations to whose product we give effect.”
Comparing the Sheehy and Cone cases, it may be concluded that “as is” and other disclaimers do not automatically protect sellers and brokers from claims of intentional fraud, but do provide protection against claims for negligent misrepresentation. Where the seller is a private homeowner and where disclaimer language is added or customized during negotiations of counsel, such clauses may protect the homeowner against all claims. Such clauses do not, however, relieve real estate agents from the duty to disclose all known defects.