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“As Is” in a Real Estate Contract: What Does It Really Mean?

“As Is” in a Real Estate Contract: What Does It Really Mean?

Anyone who has bought or sold real property in California is well aware of the massive disclosure documents that the law imposes on the parties as to the nature of the property and the locale surrounding the property. In a flurry of efforts to protect the consuming public, the California legislature has passed dozens of laws increasing the disclosure requirements by which a seller must make known to a buyer defects, conditions, dangers, hazards, etc. and get the buyer to sign off the disclosures before the deal closes-or face significant liability.

But there are times when both the buyer and seller are anxious to close a deal in which such warranties and disclosures of condition are not necessarily made know. At times, a seller has no interest in inspecting or warranting the condition of the property and is willing to sell at a significant discount to achieve a quick sale in which the buyer assumes the risk of conditions.

Such contracts are often termed “as is” contracts by which the buyer accepts the property in its current condition, “as is” without warranty by the seller as to any particular conditions.

Sounds simple and easy? It is not, for the courts and the legislature have put some requirements and conditions on what is the effect of an “as is” clause, which is the scope of this outline.

BASIC LAW ON “AS IS”

An “as is” clause in a purchase and sale agreement does not necessarily insulate the seller from the common law duty to disclose defects or the requirements of Civ. Code §§1102 et seq.

“As is” language serves to give notice of patent defects and means that the buyer accepts the property in the condition in which it is reasonably observable by him or her.

If augmented by language indicating that the buyer is relying on his or her own inspection of the property, it may also relieve the seller of the duty to inspect for defects or to disclose matters that the seller should know but does not.

However, the benefits of Civ. Code §§1102 et seq. are not waived merely by the buyer’s acceptance of “as is” language in the purchase agreement, and the seller remains liable for any failure, whether negligent or intentional, to reveal known concealed defects not apparent from an inspection of the property.

Similarly, “as is” language in a real property sale agreement does not shield a seller from liability for fraud. Civ. Code §1668 (providing that contracts that directly or indirectly exempt anyone from responsibility for fraud are against policy of law).

STEPS TO ACHIEVE TRUE “AS IS” STATUS

The seller who wishes to eliminate all possible liability using an As Is contract will still have to reveal known defects IN WRITING AND IN DETAIL or else the buyer can later change his or her mind and claim lack of disclosure despite the As Is wording. Further, wording as to the inspection of the property by the buyer being accomplished will limit the liability of the seller for not finding various possible defects.

Lastly, various local and state statutes requiring disclosure of various conditions (property being on a flood plain, earthquake zone, etc.) may have to be made and many statutes do not allow waiver of that written notice.

Clearly the wise seller will take steps to draft a carefully constructed contract, with legal advice, and not rely on merely using the words “AS IS” to provide full protection. Effectively, California law requires disclosure of any defects known and to give the buyer access to the property to inspect before one can assume AS IS gives any real protection.

CONCLUSION

“Nothing’s as simple as it seems…” wrote Gilbert and Sullivan and in this complex real estate world of California, that applies to what used to be the simple act of scrawling “as is” in a contract. As with so much, good legal advice and careful drafting is a good idea to avoid potential liability or demands for rescission and no matter what the buyer says, be sure to require an inspection and to advise in writing of known defects.

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