‘As is’ Clause in Real Estate | One Case-Study Reveals Secrets to Success

What recourse do you have if you purchase a home and later discover the home has severe defects. The answer may hinge on a contract clause called an “as is” clause in real estate. Sellers insert “as is” clauses into real estate purchase and sale agreements to help prevent a buyer from suing them about undisclosed defects in the property. On the other hand, a purchaser may seek to avoid the impact of an “as is” clause when the purchaser discovers defects after buying the property. While each case is unique, a couple from Tomball, the Halls, sued the sellers, the Rogers, for defects the Halls discovered after purchasing the Rogers’ home.

After the Halls purchased a home from the Rogers, unbeknownst to the Halls, the Rogers had removed a collapsed retaining wall from the property and replaced it with underground piers. The Rogers did not disclose the prior existence of the wall to the Halls. The Halls then discovered multiple sinkholes underneath their deck, which reduced the property’s value and was expensive to remediate. The Halls sued the Rogers for breach of contract and fraud, among other claims, for failing to disclose facts or making misleading statements about the property’s conditions. The Rogers argued that the Halls agreed to buy the property “as is” and in its “present condition,” as outlined in the parties’ contract (a standard form agreement created by the Texas Real Estate Commission (“TREC”).

At trial, the Halls argued the Rogers improperly represented in its Seller’s Disclosure Notice they were not aware of improper drainage, soil movement, water penetration, subsurface structures, or other structural repairs. Further, the Halls claimed that had the Rogers disclosed the retaining wall’s collapse, the Halls would not have purchased the property. On the other hand, the Rogers argued the retaining wall had been implemented for aesthetic reasons to raise the yard level. They were unaware of any problems with the underground piers stabilizing the soil at the time of the sale.

The Court of Appeals stated that under Texas law, an “as is” clause negates the elements of causation and reliance on claims relating to the sale. The court of appeals determined whether the “as is” clause at issue was valid to get to this holding. For an “as is” clause to be enforceable, three elements must be satisfied: (1) the “as is” clause must be a significant part of the basis of the bargain, (2) the agreement must not have been induced by false assurances or concealment, and (3) the buyer must have been able to inspect the property.

When analyzing the first element, the “as is” clause was a part of the agreement between two parties with equal bargaining positions. As to the second element, the court stated that the Rogers were not required to disclose knowledge of past conditions on the property that no longer exists when signing the Seller’s Disclosure Notice. Also, the Rogers did not know about any erosion issues after installing the underground piers. Even though the Rogers should have known about the potential for soil erosion, they did not have a duty to disclose information that they should have known about, rather only what they do know about. Thus, there was no evidence the Rogers fraudulently represented or concealed information about the property’s condition at the time of the sale. The court of appeals turned to the third element and found that the Halls could inspect the property, as the Halls hired an inspector to investigate the property. As a result, the court of appeals concluded that the Rogers were not liable to the Halls.

As a result, a buyer and seller need to understand the significance of an “as is” clause in real estate. Sellers must make clear the presence and significance of the ‘as is’ clause. In addition, sellers must disclose all known defects. Finally, buyers should always ensure the property is thoroughly inspected by a qualified professional.

If you have any questions, you can reach expert Construction Lawyer Joe Tolbert of Brackett & Ellis, P.C. at 817-338-1700 or contact us here.