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AS-IS? As if. Florida Residential Real Estate Seller’s Property Disclosure.

On this Throwback Thursday we will look at an oldie-but-goodie opinion issued by the Florida Supreme Court. Specifically, we will look at the landmark case of Johnson v. Davis, 480 So. 2d 625 (Fla. 1986), a case which forever changed the expectations and duties placed upon sellers of residential property in Florida.

Most of you are likely aware of “AS-IS” contracts. “As is” has been defined as “in the condition that something is in,” and “in the state that something is in at the present time.” In other words, a seller that is selling property in its “as is” condition is likely expecting the buyer to purchase and accept the property exactly as it exists, with any and all defects that may be present. From a legal standpoint, the inclusion of those two magic words in a contract for goods usually has the effect of excluding any form of implied warranty or guaranty that may exist. Used vehicles are often sold via “as is” contracts. And many homes in Florida are also sold via “as is” contracts, specifically, the FAR/BAR “AS IS” residential contract for sale and purchase. Notwithstanding, even when using an “as is” Florida real estate contract, such as the Farbar “as is” contract, sellers of residential property in Florida have an affirmative duty to provide certain disclosures to buyers, thanks to the Johnson case.

Facts of Johnson v. Davis

In May of 1982, the Johnsons and the Davises contracted for the sale/purchase of the Johnsons’ three-year-old residence. The contract required a $5,000 initial deposit and an additional $26,000 deposit within 5 days. The contract contained a clause requiring the roof to be in “watertight” condition and, should the roof not be watertight, requiring the seller to pay for repairs to be made by a licensed roofing contractor.

After the contract was entered into, but prior to making the additional deposit, the buyers noticed some buckling and peeling plaster around the corner of a window frame and stains on the ceilings of a couple of rooms in the home. Upon inquiring, the buyers were told by the sellers that the window did have a minor problem that had long since been corrected, and that the stains were wallpaper glue and the result of ceiling beams being moved. After that conversation with the sellers, the buyers paid the additional deposit and the sellers vacated the home. Several days later, following a heavy rain, the buyers entered the home and discovered water “gushing” in from around the window frame, the ceiling of the family room, the light fixtures, the glass doors, and the stove in the kitchen. Two roofers hired by the sellers’ broker concluded that certain leaks in the roof could be repaired for under $1,000 and by doing so, the roof would then be “watertight.” Three roofers hired by the buyers found that the roof was inherently defective, that any repairs would be temporary because the roof was “slipping,” and that to be “watertight,” a new roof was required.

No repairs were actually made, and the buyers sued the sellers for breach of contract, fraud and misrepresentation, and sought rescission of the contract and return of their deposit. The sellers counterclaimed, and sought the deposit as liquidated damages. The trial court entered a final judgment, which made no findings of fact, but awarded the buyers $26,000 plus interest, but also awarded the sellers $5,000 plus interest, with both parties to bear their own attorney’s fees and costs. Both parties appealed and the Third DCA found in favor of the buyers, awarding them the full $31,000.00 worth of deposits, plus their attorney’s fees and costs.

The Florida Supreme Court noted that the evidence at trial showed that after receiving the initial deposit payment, the sellers affirmatively repeated to the buyers that there were no problems with the roof, following which the buyers paid the additional $26,000 deposit payment. The court further noted that the record reflected a statement made by the seller which was a false representation of material fact, made with knowledge of its falsity, upon which the buyers relied to their detriment when they made the additional deposit. The Florida Supreme Court affirmed the decision of the Third DCA in favor of the buyers, and held as follows:

[W]here the seller of a home knows of facts materially affecting the value of the 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. This duty is equally applicable to all forms of real property, new and used.

The holding of Johnson v. Davis is curious because the facts of the case as accepted by the Florida Supreme Court were that actual misrepresentations of fact were made by the sellers, which the buyers relied upon. Existing law already treated that as fraud, which theoretically would have given the buyers the same result. Therefore, the Florida Supreme Court’s holding in Johnson (as quoted above) expanded sellers’ obligations to now be required to affirmatively disclose facts materially affecting the value of property which are not readily observable.

If you recently bought or sold a home and are experiencing issues with, or allegations of, non-disclosure, you should contact a real estate attorney to review your matter, and counsel you through the process.

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