Property Condition Disclosure Highlights: 1Q 2020

The Property Condition Disclosure cases retrieved this quarter addressed property disclosure statements with regards to plumbing and sewer/septic systems that were identified after the properties were purchased. Property condition disclosure issues were identified in eleven cases. 

1. Bynum v. Sampson, No. W2019-00188-COA-R3-CV, 2020 WL 290840 (Tenn. App., January 1, 2020)

Sellers argued they were at a disadvantage in entering a contract because an experienced real estate professional drafted it.

Alexander Bynum, partnered with his father, Hal Bynum (“buyers”), to purchase Sharon Food Locker from sellers for $235,000. Sharon Food Locker was a slaughterhouse built in the 1970s. Hal provided the funds for the purchase. The buyers intended to keep the business going under the new name Southern Chop Shop, LLC. Alexander prepared the contract, which was executed on April 24, 2014. One year after the closing, the buyers discovered a pipe on the property that was gushing animal blood straight from the kill floor of the slaughterhouse into a ditch. Buyers contacted sellers who stated that the pipe was an “overflow pipe.” The sellers suggested that the buyers pump the septic system and send them the bill. However, the problem proved hard to solve. The State became involved and demanded a halt to the discharge. When remedial efforts proved economically unfeasible, the buyers shut down the slaughterhouse in August 2016. Earlier, in July 2015, buyers sued the sellers alleging sellers breached the contract by certifying “the plumbing systems were in good working order on the day of closing when in fact they were not.” In response, the sellers argued that they were at a disadvantage in entering the contract because Alexander was an experienced real estate professional who drafted the contract and used his business letterhead. They argued that the contract was one of “adhesion, a ‘take it or leave it’ contract.” 

The courts held that the plumbing system was not in “working order on the day of the closing.” The plumbing system violated environmental and regulatory rules such that, if those violations were brought to light, the business would have to shut down. Therefore, the court found the sellers did breach the contract. Additionally, the court did not find that sellers were under any pressure to enter the contract drafted by Alexander. The court affirmed the judgment, awarding buyers rescission of the contract or $193,717, and $29,662.50 in attorney’s fees.

2. Scaramuzzo et al. v. Nutmeg Properties, LLC, No.CV186014780S, 2020 WL 1028852 (Conn. Super., February 3, 2020)

The buyers alleged that they were denied the opportunity to inspect septic system as a direct result of the defendants' misrepresentations.

On June 14, 2016, buyers purchased a residential property at 456 Kensington Avenue in Meriden, Connecticut. Buyers claim the property was sold to them based on the representation that it was hooked to public sewer systems in Meriden, but after purchase, they learned that it was not. The buyers alleged that they were denied the opportunity to inspect the existing failing septic system as a direct result of the defendants' misrepresentations. They claim the property was listed and advertised as being connected to the public sewer, and the seller’s Residential Property Condition Disclosure represented the same. They brought suit against the seller and the seller’s real estate brokerage company (“Defendants”).¹  The buyers sought compensatory damages from both defendants including actual and consequential damages including costs, interest, expenses, and reasonable attorney’s fees. They claim that they suffered “financial harm” from the defendants' conduct. The seller moved for summary judgment. The court heard oral argument and issued the decision to grant the summary judgment as to the negligent misrepresentation claim. All other counts against both defendants remain pending.

3. Ramdin v. Israel et al., No. UWYCV196048297S, 2020 WL 1231095 (Conn. Super., February 14, 2020)

“A real estate broker shall exercise diligence at all times in obtaining and presenting accurate information in the broker's advertising and representations to the public.”

The buyers purchased a residential property located in Watertown, Connecticut. They allege that prior to their purchase of the property, seller provided them with a seller’s disclosure form in which he misrepresented that the property had a lead-free water system. As a result, the buyer sued seller along with seller’s real estate broker (“Broker”), for breach of contract and negligence. In response to the breach of contract claim, the Broker filed a motion to strike on the grounds that the complaint failed to allege the existence of a contract between the buyers and Broker. As for the negligence claim, Broker also moved to strike for failure to allege that Broker made any specific representations regarding the condition of the water system.

During oral argument, the buyers asserted that Broker’s duty and liability to them arose from the misrepresentation made by the seller in his statutorily mandated property disclosure form, which Broker delivered to them. In support of their position, the buyers relied on §20-328-5a of the Regulations of Connecticut State Agencies, entitled “Misrepresentation, disclosure and advertising.” That section states, in pertinent part: “[a] real estate broker shall exercise diligence at all times in obtaining and presenting accurate information in the broker's advertising and representations to the public.”

The court held that regardless of whether the regulation relied on by the buyers relates exclusively to the “broker's advertising, or whether the regulation relates more broadly to the broker's general duties to the public,” the buyers' breach of contract and negligence claims are legally insufficient because they failed to allege that a contract existed between them and Broker, or that Broker made any specific representations to them regarding the condition of the water system. The court granted Broker’s motion to strike.

2. Statutes and Regulations

Arkansas 

An amended statute² now requires closing agents to disclose agricultural operations near real property located in a rural area.

North Dakota

A new statute was enacted relating to property disclosure requirements.³

1. The buyers asserted several theories of liability against the two named defendants not discussed in this summary.
2. Ark. Code Ann. § 18–11–107 (2019) (as amended by S.B. 408)
3. N.D.C.C. § 47–10 (2019) (as amended by H.B. 1251)