ASSERTING NON-DISCLOSURE CLAIM INVOLVING RESIDENTIAL REAL PROPERTY AND WHETHER FACTS ARE “READILY OBSERVABLE”

Posted on September 6, 2021September 6, 2021 by Edward Garber

Under Florida law, there is a claim dealing with the purchase and sale of residential real property known as a Johnson v. Davis or a non-disclosure claim: “[W]here the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer.” Lorber v. Passick, 46 Fla.L.Weekly D1952a (Fla. 4^th DCA 2021). A seller’s duty to disclose extends to a seller’s real estate agent/broker. Id.

A non-disclosure claim is asserted by the buyer of residential real property when the buyer discovers defects or damages with the real property that he believes materially affects the value of the property. While there may be the sentiment these are easy claims to prove, they are not.

Remember, a non-disclosure claim deals with facts that materially affect the value of residential real property and are NOT readily observable. The use of the language “readily observable” has been found to mean:

“[I]nformation [that] is within the diligent attention of any buyer. To exercise diligent attention…a buyer would be required to investigate any information furnished by the seller that a reasonable person in the buyer’s position would investigate and take reasonable steps to ascertain the material facts relating to the property and to discovery them—if, of course, they are reasonably ascertainable.”

Lorber, supra, quoting Nelson v. Wiggs, 699 So.2d 258, 260-61 (Fla. 3d DCA 1997) (internal quotations and citations omitted).

When a buyer asserts a non-disclosure claim, the buyer should also consider adding a negligent misrepresentation claim. “[E]ven when a defect can probably be discovered through the exercise of diligent attention, the requisite level of diligent attention is of less importance in claims involving misrepresentations – especially those involving fraud.” Lorber, supra. The issue appears to be one that involves comparative negligence and despite readily observable defects, a buyer is entitled to rely on a seller’s representations. Id.

Lorber provides a good discussion of a residential real property non-disclosure claim and related claims for a seller’s misrepresentation.

In this case, a buyer did not move through with closing because he smelled an odor in the house and learned, right before closing, the home had experienced substantial water damage/ a prior flood event. The buyer claimed this was never disclosed by the seller, was not readily observable, and materially affected the value of the property.

The seller sued the buyer for failing to close and the buyer countersued for breach of contract, fraudulent inducement, and negligent misrepresentation.

During the course of litigation, the seller moved for summary judgment. Testimony established that the buyer knew there was a musty odor when he first stepped foot in the house and asked about the odor. The buyer was told by the seller’s agent it was due to the air conditioning being off but acknowledged the odor might be mold. Moreover, the buyer’s real estate agent testified the odor was similar to other properties he had seen that had water intrusion; although, the agent testified he did not inform the buyer that water intrusion was possible. Based on this testimony, the seller argued the water intrusion and mold was readily observable thereby defeating a non-disclosure claim. The buyer argued that while he was not denying he smelled the odor from the get-go, the seller’s real estate agent dismissed the odor and there was nothing readily observable that connected the odor to a prior flood, as supported by the seller’s disclosure form which indicated the property suffered no water intrusion or flood damage. In other words, the buyer claimed how could he investigate a flooding condition he did not know existed and was not disclosed to him, and how could he have knowledge the odor’s existence was related to a past flood event.

The trial court granted summary judgment in favor of the seller. The trial court held the fact that the buyer smelled the musty odor that could be mold made the fact there was a prior water intrusion event readily observable. The Fourth District Court of Appeal disagreed.

Buyer’s Breach of Contract Claim

The buyer’s breach of contract claim against the seller was a non-disclosure claim. Thus, the buyer’s failure to exercise diligent attention would be fatal to a non-disclosure claim because the facts would be readily observable. In this regard, the Fourth District Court of Appeal noted that if the buyer’s claim was premised on mold, his non-disclosure claim would fail because he observed the musty odor.

However, the buyer’s claim was not predicated on the existence of mold, but on the existence of a past flood event/damage; the buyer testified “he was unaware of any steps he could have taken to investigate a prior flood about which he was never informed, and he had no knowledge that the mold’s existence was in any way related to a prior water intrusion event.” For this reason, the Fourth District found that there was a genuine issue of material fact as to whether the prior flood event was readily observable. There was also an issue of material fact as to whether the flood event/damage materially impacted the value of the property as the buyer testified the home was worth much less after having suffered a flood.

Buyer’s Fraudulent Inducement Claim

As to the buyer’s fraudulent inducement claim, the Fourth District Court of Appeal held there was a genuine issue of material fact as to whether the seller knew its representations concerning the property were false with the intent to induce the buyer to enter into the purchase-sale agreement.

While a party cannot recover for fraud that is contradicted or covered by the actual contract, the sale of residential real property creates an exception. “The inclusion of an ‘as is’ clause in a contract for the sale of residential real property does not waive the duty imposed upon a seller under Johnson [v. Davis].” Lorber, supra (citation omitted).

Buyer’s Negligent Misrepresentation Claim

As to the buyer’s negligent misrepresentation claim, the Fourth District Court of Appeal held that the “issue was one of comparative negligence.” Lorber, supra. Genuine issues of material fact remained “as to whether Seller knew or should have known about the Disclosure Form’s falsity, whether Seller intended to induce Buyer to rely on the Disclosure Form, and whether Buyer acted in justifiable reliance upon the Disclosure Form, in conjunction with seller’s agent’s statement that the smell was attributable solely to the air conditioning being off.” Id.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CLAIMS BASED ON MISREPRESENTATION MUST BE INDEPENDENT OF CLAIMS BASED ON A CONTRACTUAL BREACH

Posted on March 28, 2020March 28, 2020 by Edward Garber

While misrepresentation-type tort claims (fraudulent inducement, fraudulent misrepresentation, or negligent misrepresentation) sometimes sound like attractive claims, they are oftentimes not appropriate claims, particularly when there is a contract between the parties. The reason being is the the same damages for the breach of contract and misrepresentation-type tort claims are pursued and the claims rely on the same conduct as the breach of contract claim. This is wrong. As explained further in this article, the misrepresentation forming the fraudulent inducement, fraudulent misrepresentation, or negligent misrepresentation claim (1) must be pled with specificity in the operative pleading (complaint or counter-claim), (2) are not a substitute or way to navigate around the burden of proof of a breach of contract claim, and (3) must be based on conduct independent of the breaches of contract, i.e., a breach of the actual contract is not a misrepresentation.

SUING A PUBLIC ENTITY FOR NEGLIGENT MISREPRESENTATION …NOT SO FAST

Posted on April 14, 2018April 14, 2018 by Edward Garber

Suing a public entity for negligent misrepresentation…let’s just say, is not that easy. Not that easy at all! Putting aside the doctrine of sovereign immunity (the doctrine that the king can do no wrong), a public entity does not have an affirmative duty to necessarily convey accurate information, no matter how fair or unfair this may sound. And, a negligence claim fails without the defendant (in this case, public entity) owing the plaintiff a duty of care.

For example, in City of Dunedin v. Pirate’s Treasure, Inc., 43 Fla. L. Weekly D783a (Fla. 2d DCA 2018), a commercial owner wanted to renovate its property to accommodate a refurbished marina and a new restaurant. The owner met with the city to review its preliminary conceptual site plan. Based on this meeting, the owner prepared a costly site plan to comply with the City’s development code for the restaurant and marina. The City’s engineering department approved the site plan. However, the City then informed the owner that it had concerns with the restaurant’s square footage and parking. The owner and City agreed that the site plan for the marina and restaurant would be separated, as the owner did not want to ruffle any feathers. The City then approved the separate site plan for the marina but told the owner that the site plan approval for the restaurant was terminated as the owner needed to submit a brand-new application and comply with the updated development code. The owner filed suit against the City claiming, among other things, the City made misrepresentations about the site plan approval only to engage in a bait-and-switch tactic where the misrepresentations were made to induce the development of the marina, without the accompanying restaurant.

The City moved to dismiss the negligent misrepresentation claim on sovereign immunity grounds. The trial court denied the City’s motion finding as a matter of law the City was not entitled to sovereign immunity and the City appealed.

Interestingly, the appellate court rejected the City’s sovereign immunity argument but still reversed the trial court’s holding that the City is not liable to the owner for negligent misrepresentation. The court based its reversal on its determination that the City did now owe the owner a duty of care, hence the negligent misrepresentation claim failed as a matter of law.

A duty of care analysis is different from the analysis whether the City is sovereignly immune from the suit. If there is no duty owed, there is no reason to delve into whether sovereign immunity applies. Here, the Court found no duty was owed because the City “does not owe a duty to convey accurate information concerning whether Pirate’s Treasure’s [owner] site plan complied with the City’s development code.” City of Dunedin, supra.

The owner in this case could have been 100% correct. It had assurances from the City and acted on those assurances in devoting the money and time in finalizing its site plan based on the current development code. It then submitted separate plans at the behest of the City (to appease the City) only for the City to approve the marina (the project it wanted) while terminating the site plan for the restaurant (the project it really did not want). But, assuming this is all true, it does not matter because the court found that the City never owed an affirmative duty to the owner to convey accurate information, i.e., in this case, whether the owner’s site plan complied with the development code.