Since Florida Supreme Court’s decision in Johnson v. Davis in 1985, Florida law has mandated that “where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and not known to the buyer, the seller is under a duty to disclose them to the buyer.” However, Florida case law has muddied the waters through the development of the legal premise that “a party cannot recover in fraud for alleged oral misrepresentations that are adequately covered or expressly contradicted in a later written contract.” Mac-Gray Services Inc. v. DeGeorge. This begs the question, under what circumstances can a seller remain exempt from liability for fraudulent misrepresentations about real estate, or a general failure to disclose, in order to induce a buyer into purchasing such real estate, by simply including an “as is” clause in the contract? Further, does the answer to this question depend on how the property is classified, whether that be as commercial or residential?
This question was recently addressed in April 2021 by the Fourth District Court of Appeals in Florida Holding 4800. This case involved two parties entering into a purchase and sale agreement for commercial property. The agreement included the typical “as is” clause that expressly provided that the seller made no representations concerning the property or the condition or quality thereof and that the buyer would be purchasing the property in the current “as is” condition. The Purchase and sale agreement then allowed for the Buyer to inspect the property of which the buyer took advantage of and hired an engineer to conduct inspections. However, it was not until after the sale did the buyer discover numerous issues with the real estate property including HVAC failures, mold growth, and roof leaks.
After the closing, the Buyer brought an action against the seller alleging that the seller fraudulently misrepresented the conditions of the property, and these facts were presented to the Court along with an affidavit from the property manager who attested that the seller undertook efforts to “actively conceal an old, decaying, damaged, and actively leaking roof by covering the damaged areas of the roof to hide the leaking condition,” to which the Seller provided no evidence to rebut.
In reviewing these facts, the Fourth Circuit District Court of Appeals, following its reasoning in Mac-Gray, determined that even where a seller made fraudulent oral representations concerning the condition of commercial property, a party may not recover against such oral representations which are covered in or contradicted by a later agreement, such as an “as is” clause in a purchase and sale agreement.
The court went on to recognize the history and case law behind the application of the doctrine of Caveat Emptor to the purchase of commercial property, therein holding that the duty to examine and judge the value and condition of property being purchased is placed solely on the buyer, and protects the seller from liability for any defects or alleged misrepresentations absent three conditions, those being: 1) where some artifice or trick has been employed to prevent the purchaser from making independent inquiry; 2) where the other party does not have equal opportunity to become apprised of the fact; and, 3) where a party undertakes to disclose facts and fails to disclose the whole truth.”
Interestingly, some five months later the same court was called upon once again to answer this question but with respect to Residential property as the decision in Florida Holding 4800 was not expressly limited to commercial property. This decision, Lorber v. Passick as Trustee of Sylvia Passick Revocable Trust, expressly distinguished the holding of FloridaHolding 4800 and its application of Mac-Gray’s reasoning as only applying to transactions involving commercial real estate property.
The Lorber court found that despite the similar use of an “as is” provision in residential real estate purchase and sale agreements, pursuant to Johnson a seller must disclose non-observable defects in residential property unknown to the buyer. The court therefore held that the substantive differences between commercial and residential property were sufficient to distinguish Florida Holding 4800, and its progeny, from the instant case. Furthermore, in continuing to apply Johnson to residential real estate transactions, this court also distinguished Florida Holding 4800 by holding that regardless of whether a defect is clearly observable, a residential real estate seller’s misrepresentations as to the condition of the property will provide for recovery by a buyer against the seller even where an “as is” provision is later used.
What does this mean for property purchasers in Florida?
What these various holdings mean, is that misrepresentations and the requirement to disclose defects varies greatly from commercial to residential property (and it may vary by court district). The Florida Holding 4800 and Lorber decisions are both relatively new, issued in the past six months, and may present uncertainty for buyers or sellers of real estate property with respect to their associated rights. As such, having a law firm (as opposed to a non-lawyer title agent or your realtor) help you navigate these disclosure rules is key to investing in Florida.
If you are planning the sale or purchase of a property in Florida and seek assistance, feel free to contact us by email at email@example.com or by phone at (305) 600-3816.