“AS IS” PROVISION IN REAL ESTATE CONTRACT NOT ENOUGH TO EXCUSE WITHHOLDING MATERIAL DEFECTS, APPELLATE DIVISION FINDS

A recent unreported New Jersey Appellate Division decision highlights a seller’s responsibility to disclose real estate defects and the limits of “as is” clauses.

In that case, Battaglia v. Aversa, 2023 N.J. Super. Unpub. LEXIS 1576, the plaintiff purchased a home. The home inspection did not reveal any potential water issues. The contract explicitly stated that the home was being sold “as is” and that the buyer was not entering the contract based on “any representations…as to the [the] character or quality of the [p]roperty.” The seller also provided a disclosure statement acknowledging his obligation to “disclose…all known facts that materially and adversely affect the value of the property…and there [were] not readily observable.” The disclosure statement denied knowledge of past or present flood/drainage problems to the property or neighboring properties and any past or present water leakage in the home, basement, or crawlspace. The statement disclosed the present of a basement sump pump.

Ten days after the closing, the basement flooded – the first of seven times the basement flooded in the year following the sale – and the plaintiff sued for breach of the sales contract. At trial, plaintiff proved that previous owners of the house had experienced water issues, that basement water issues were “well known” and “common” in the neighborhood, and that the defendant had painted the basement floor prior to the sale, which covered any signs of past water damage. The trial court found the seller liable for plaintiff’s damages to redress the water damage, and the seller appealed.

In affirming the decision, the Court reaffirmed that a seller of property must disclose material, defective conditions that are known to the seller and unknown and “not readily observable” by the buyer. Importantly, the court found that even when including an “as is” provision in a real estate contract, a seller still may not intentionally “conceal or fail to disclose a known latent condition material to the transaction.” Instead, the “as is” clause assumes the seller has satisfied its duty to disclose all known latent defects that are not readily observable by the purchaser. Therefore, the “as is” provision did not exempt the seller from liability for misrepresenting the basement’s flooding history and withholding his knowledge of an adjacent property’s flooding issues.