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An Illinois court has considered whether an “as-is” clause in the purchase agreement shielded the seller from liability.
In 1996, Nick and Donna Giannis (“Sellers”) experienced a major flood at their home which caused over $400,000 in damage to the home’s basement. The flood affected several other homes in the area, and the flood was discussed at a village board meeting that same year. The Sellers repaired the flood damage, and listed the home for sale in 1997.
Marshall Bauer (“Buyer”) purchased the home from the Sellers. The Buyer claimed that he was never told about the 1996 flooding problems by the Sellers. The Sellers checked “no” to a question on the required property condition disclosure form which asked about “recurring leakage problems in the crawlspace or basement”. The disclosure form also stated that it did not limit the parties to contract for sale of the property “as is”. The purchase contract contained a rider which contained an “as-is” clause, with the clause stating: that the purchaser had examined the property “at least” six times; that he had had the property professionally inspected; and that he was aware of the property’s condition and accepted the condition “as-is”.
In 2001, the Buyer’s home flooded. The Buyer brought a lawsuit alleging that the Sellers had concealed the prior flooding on the property. The Sellers filed a motion seeking judgment in their favor based on the “as-is” clause contained in the purchase contract rider. The trial court denied the Sellers’ motion, but certified three questions to the appellate court related to the enforceability of the “as-is” clause.
The Appellate Court of Illinois, Second District, ruled that the presence of an “as-is” clause in a real estate purchase contract did not remove a seller’s obligation to make truthful disclosures in a property condition disclosure form. The Buyer alleged that the Sellers had made a fraudulent misrepresentation and had fraudulently concealed the prior flooding. In order to allege fraudulent misrepresentation, a party must allege a false statement of a material fact which the party justifiably relied upon, causing damage. In order to allege fraudulent misrepresentation, a party must show that the other party concealed a material fact when there was duty to disclose and the concealment could not otherwise have been discovered by the other party, causing damage. The Sellers argued that the “as-is” clause protected them from any claims of reliance by the Buyer.
The court looked at the Illinois property condition disclosure law. A seller is required to disclose all material defects of which the seller has knowledge but does have a duty to investigate the condition of the property in order to complete the report. Failure to make a complete disclosure or providing false information will cause the seller to be liable for actual damages. A purchaser is entitled to rely upon the truthfulness and accuracy of the disclosure. A seller does not have to disclose prior defects that he or she reasonably believes have been corrected.
Based on the state’s disclosure law, the court determined that the Buyer’s lawsuit could proceed on the allegation that the Sellers failed to accurately disclose the prior flooding on the property. The Buyer was entitled to rely upon the disclosures made in the disclosure form, and the insertion of an “as-is” clause did not allow the Sellers to contract out of their disclosure obligations. The court did state that the Sellers could still defeat the Buyer’s lawsuit by showing that the defect causing the flooding was “latent”, or hidden, or that the Sellers reasonably believed the defect was corrected. Therefore, the court affirmed the trial court and the case was sent back to the lower court for further proceedings.
Bauer v. Giannis, 834 N.E.2d 952 (Ill. App. Ct. 2005).