Caveat Emptor, Indeed
8th District Business Blog
The 8th District Business Blog reviews recent decisions by the Ohio 8th District Court of Appeals related to civil matters that could affect business owners, plaintiffs, or defendants.
AE Property Services, LLC
Trial Court Case No. CV-16-873295
The ancient doctrine of caveat emptor (buyer beware) was on full display in a recent 8th District decision regarding a residential real estate dispute. The case is a cautionary tale to residential home buyers, confirming that buyers should have a professional property inspection no matter how good the house appears during the open house.
In 2014, Plaintiff AE Property Services, LLC (“AE”) and Defendant Emilija Sotonji (“Sotonji”) entered into a residential purchase agreement (the “Contract”) for property located at 2030 Quail Street, Lakewood, Ohio 44107 (the “Property”). In her Ohio Residential Property Disclosure Form, Sotonji represented that she had knowledge of water damage but no knowledge of termites or wood-destroying insects in the premises
In its Complaint, AE claimed Sotonji actively concealed holes in wood at the Property that were caused by termites. AE claimed Sotonji hid the damage by filing the holes and painting over them and by installing a peg board ceiling in the basement to conceal damaged support beams. AE said it discovered extensive termite damage throughout the Property when it was making repairs following a burst pipe.
AE asserted claims for: (i) fraud; (ii) fraudulent concealment; (iii) negligence; and (iv) negligent misrepresentation. AE claimed its damages exceeded $35,000 and that the Property may have to be demolished.
The trial court granted Sotonji’s Motion for Summary Judgment based on the following facts:
• The Contract stated the property was being sold “as is.”
• AE, which specialized in house flipping and property management, did not hire a professional building inspector. AE expressly waived its right to have a professional inspection. Instead, AE’s owner and manager inspected the property on three occasions. The owner had 20 years of experience in construction trades including commercial and residential remodeling.
• In her affidavit, Sotonji stated that her late husband performed all maintenance work on the Property. The family thought cockroaches were entering the house through a sewer line, but she denied knowledge of any termite damage or cover up.
In deconstructing each of AE’s claim, the 8th District provided an excellent summary of the relevant issues.
Fraud and Fraudulent Concealment
AE argued caveat emptor does not apply to claims of fraud and fraudulent concealment. The 8th District disagreed.
As a general rule, Ohio follows the doctrine of caveat emptor in all real estate transactions, which precludes a purchaser from recovering for a structural defect if: “(1) the condition complained of is open to observation or discoverable upon reasonable inspection; (2) the purchaser had the unimpeded opportunity to examine the premises; and (3) there is no fraud on the part of the vendor.” McDonald v. JP Dev. Group, L.L.C., 8th Dist. Cuyahoga No. 99322, 2013-Ohio-3914, quoting Layman v. Binns, 35 Ohio St.3d 176, 519 N.E.2d 642 (1988), syllabus.
To prove its fraud claim, AE was required to show:
(a) A representation or, where there is a duty to disclose, concealment of a fact,
(b) which is material to the transaction at hand,
(c) made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred,
(d) with the intent of misleading another into relying upon it,
(e) justifiable reliance upon the representation or concealment, and
(f) a resulting injury proximately caused by the reliance.
See, Burr v. Board of County Comm’rs, 23 Ohio St. 3d 69, 23 Ohio B. 200, 491 N.E.2d 1101 (1986), paragraph two of the syllabus.
The Sotonji Court affirmed its holding in McDonald that: “[w]hen a buyer has had the opportunity to inspect the property, however, ‘he is charged with knowledge of the conditions that a reasonable inspection would have disclosed.’ An ‘as is’ sale indicates that the buyer has agreed to ‘make his or her own appraisal’ ‘and accept the risk’ of making the wrong decision.”
The 8th District held summary judgment was appropriate because AE accepted the risk when it failed to have a professional inspection completed. AE’s owner averred that he considered himself to be an expert in the construction field and had extensive experience in residential and commercial remodeling. The owner observed that the rooms had been freshly painted and walked through the Property three times, but he did not hire a professional inspector to examine for termites, plumbing, electrical, or other issues. AE expressly declined to hire an inspector.
The record is devoid of evidence that Sotonji acted knowingly, recklessly, or intentionally, or with such utter disregard as to truth or falsity that knowledge may be inferred, with the intent of misleading AE into reliance. AE said that it relied on the disclosure form and the disclosure form is based on ‘actual knowledge.’
Id. at P28, citing ORC § 5302.30(D)(1).
Negligence and Negligent Misrepresentation
AE did not fare any better with its negligence claims. “An ‘as is’ clause in a real estate contract places the risk upon the purchaser as to the existence of defects and relieves the seller of any duty to disclose.’” Id. at P29, quoting Moreland v. Ksiazek, 8th Dist. Cuyahoga No. 83509, 2004-Ohio-2974, ¶ 56, quoting Rogers v. Hill, 124 Ohio App.3d 468, 471, 706 N.E.2d 438 (4th Dist.1998). “Therefore, as long as a seller does not engage in fraud, these two principles, caveat emptor and the ‘as is’ clause, bar any claims brought by a buyer.” Id.
Waiving and Waving
Caveat emptor survived the death of Latin for a reason. “Let the buyer beware” has been a central tenet of contract and property law for almost 500 years. Buyers can and should be aware of hidden defects. It is nearly impossible to discover every flaw and defect in a house, but if a buyer waives the right to inspect they can also wave goodbye to any possible claims down the road.
- Scott Heasley is a litigation and business attorney at Meyers, Roman, Friedberg & Lewis. If you have questions regarding legal matters affecting you or your business, Scott can be reached at email@example.com or here.