A Seller’s Disclosure Obligations When Entering Into a Real Estate Sales Contract
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Before entering into a contract to sell a piece of real estate to a prospective buyer, a seller is obligated to disclose certain things to the buyer. When the seller fails to make those proper disclosures, the buyer has available several legal and equitable remedies that he or she can bring against that seller. This is because, under Florida law, a seller’s failure to disclose certain conditions is considered a breach of the real estate sales contract. But a seller does not always have a duty to disclose, meaning the buyer is still subject to the doctrine of caveat emptor in some situations. This blog post discusses when the seller of real estate is under a duty to disclose, what the seller is required to disclose and under what circumstances the seller has no obligation to disclose.
In Florida, a seller’s disclosure obligations have been developed over the years by the courts. To properly understand the nuances within this area of Florida case law, it is important to recognize that courts have made certain distinctions. First, courts have distinguished between what are known as latent defects and patent defects. Latent defects are those defects not readily observable or known to the buyer. Simply put, latent defects are hidden flaws. Patent defects, on the other hand, are defects that are readily observable or that can be easily discovered upon inspection. Second, Florida’s courts have distinguished between residential property and commercial property when it comes to a seller’s disclosure obligations.
Florida’s landmark case concerning this area of law is Johnson v. Davis. In that 1986 Florida Supreme Court case, the court made clear that latent defects must be disclosed to the buyer prior to the seller entering into a real estate sales contract for residential property. “[W]here the seller of a home knows of facts materially affecting the value of property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer.” Johnson v. Davis, 480 So.2d 625, 629 (Fla. 1986). The determining factor for invoking this duty of the seller is whether the seller had “actual knowledge” of the defects. See Id. In other words, this duty to disclose only applies when the seller has actual knowledge of the property’s defective condition and fails to disclose that condition to the buyer. Id. It is important to note that this disclosure obligation applies only to residential property, but it applies “to all forms of [residential] real property, new and used.” Id. Moreover, the seller of residential property cannot avoid this duty to disclose latent defects by including a broad “as is” clause in the real estate sales contract. Levy v. Creative Constr. Services of Broward, Inc., 566 So.2d 347 (Fla. 3d DCA 1990).
This brings us to a seller’s disclosure obligations when contracting to sell commercial property. Rather than there being one landmark case here, this area of law has been molded by multiple courts over the years. The main rule of law involving the sale of commercial property is the doctrine of caveat emptor, or buyer beware. “[T]he doctrine of caveat emptor . . . is still the common law rule applied to purchasers of commercial property.” Wasser v. Sasoni, 652 So.2d 411, 412 (Fla. 3d DCA 1995). In other words, a seller is under no duty to disclose when it comes to selling commercial real estate.
Courts have clarified this doctrine of law as it relates to commercial property to mean that the mere nondisclosure of a material fact, unaccompanied by words or acts by the seller sufficient to constitute his or her active concealment of defects, is not actionable by the buyer. Green Acres, Inc. v. First Union Nat’l Bank of Florida, 637 So.2d 363 (Fla 4th DCA 1994). Sellers must walk a fine line here. Although sellers have no duty to disclose, they cannot take actions that rise to the level of fraudulent concealment of defects. Stated another way, a seller of commercial real estate can still be held liable for harm caused to a buyer from a material misrepresentation, the active concealment of a material fact, or any other scheme for creating a false impression of the commercial property being sold. Id.