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Can real estate buyer waive seller’s disclosure…Pennsylvania’s Real Estate Seller Disclosure Law

by Monica Reynolds

Can a buyer of residential real estate waive a seller’s disclosure obligations under Pennsylvania’s Real Estate Seller Disclosure Law?

The short answer is: maybe, but in any event, not absent an affirmative waiver. In Phelps v. Caperoon, — A.3d –, 2018 WL 3016477 (Pa. Super. June 18, 2018), the Pennsylvania Superior Court recently addressed the issue of whether an “as-is” clause in the agreement of sale implicitly waived a seller’s disclosure obligations under the Real Estate Seller Disclosure Law, 68 Pa. C.S. §§ 7101-7103, 7301-7314, et seq., (“RESDL”), but stopped short of giving a definitive answer as to whether an explicit waiver would be permitted.

The law: Seller’s disclosures are required for most “residential real estate transfers” under Pennsylvania’s Real Estate Disclosure Law (“RESDL”), With a handful of limited exceptions set forth in Section 7103(B),

[a]ny seller who intends to transfer any interest in real property shall disclose to the buyer any material defects with the property known to the seller by completing all applicable items in a property disclosure statement which satisfies the requirements of section 7304 (form identifying required disclosures). A signed and dated copy of the property disclosure statement shall be delivered to the buyer in accordance with section 7305 prior to the signing of the agreement of transfer by the seller to the buyer with respect to the property.

68 Pa.C.S. § 7303 (emphasis added). The RESDL, while not imposing an affirmative duty on a seller to make any specific investigation or inquiry in an effort to complete the property disclosure statement, requires a seller not to make any representations that the seller knows or has reason to know are false, deceptive or misleading and shall not fail to disclose a known material defect. 68 Pa.C.S. § 7308.

The facts: In Phelps, the Seller of a property entered into an Agreement of Sale and contemporaneous Lease with a Buyer, whereby the Buyer leased the property for 6 months and then purchased the property. Prior to signing the Agreement of Sale, the Buyer inspected the property 3 times. During his inspections, the Buyer testified that he asked Seller if there was anything he needed to know and Seller responded that “everything was fine. There was nothing to be concerned with.” The Buyer also acknowledged that he chose not to hire a property inspector and that he was aware that a seller should provide a RESDL disclosure statement. The Buyer further testified that he did not find it unusual that the Seller did not provide a RESDL disclosure statement in this case.

The Agreement of Sale included an “as-is” clause, but it did not mention Seller’s RESDL disclosure obligation:

Inspection of the Premises – Buyer certifies that he has personally inspected the premises, or has caused it to be inspected in a manner satisfactory to him. Buyer agrees that the property is in satisfactory condition and repair. Buyer hereby acknowledges that he is purchasing the property “as is”. Buyer expressly waives any and all implied warranties to which the Buyer might be entitled, and acknowledges that he was given no express warranties.

Buyer lived at the property for six months under the lease, and it was not until after the Buyer purchased the property that he discovered numerous problems that were expensive to repair, including: a deteriorated septic system requiring replacement, a cracked furnace heat exchanger, leaky roof, flawed electrical wiring, water damage from a never connected washer drain, and various issues associated with the improper removal of load-bearing walls and heating ducts.

The Seller admitted that he did not provide a RESDL disclosure form to the Buyer, but also asserted that he did not disclose any of the alleged defects because they either didn’t exist or were not known to the Seller at the time the Agreement of Sale was executed. The Buyer moved for summary judgment and the trial court granted judgment on Buyer’s RESDL claim holding that “the provisions of the RESDL cannot be waived.” 2018 WL 3016477, at *1-2.

The holding: While acknowledging that pre-RESDL case law holding that an agreement of sale for property in “as-is” condition effectively puts the buyer on notice that there may be some liabilities attendant to the purchase, this authority does not allow Seller to disregard the mandatory language of Section 7303. Therefore, the existence of an “as-is” clause in the Agreement of Sale was insufficient to relieve the Seller from his obligation to comply with the RESDL’s disclosure requirements

Takeaways: The Phelps decision provides all home sellers and real estate professionals with at least one clear directive and another interesting possibility to consider.

1. Unlike typical RESDL cases that deal with the Seller’s knowledge of the defects – which would be required to show misrepresentation or fraud – the Seller’s knowledge of the defects was not considered by either the trial court or the Superior Court with respect to Seller’s RESDL disclosure. Here, both the trial and appellate court focused exclusively on the Seller’s obligation to make some disclosure and entered judgment for the Buyer because Seller failed to follow the required disclosure process, whether or not the Seller knew of any defects. In other words, a failure to make a disclosure in and of itself creates liability and sellers should comply with the RESDL disclosure procedure whenever applicable, even where concerns about potential substantive disclosures or a Seller’s lack of knowledge may exist.
2. In Phelps, the Superior Court was careful to note:
(i) that the Seller did not argue that the Agreement of Sale was a contractual waiver of Section 7303, and
(ii) to the extent that Seller’s argument could be construed as a contention that the Buyer contractually waived the RESDL disclosure requirement, the Seller did not identify any facts establishing Buyer’s intent to affirmatively relinquish the statutory right to disclosure. 2018 WL 3016477, at *6, FN 13.

In highlighting these points, the Superior Court expressly left open the possibility that a seller who obtains a written waiver from a buyer affirmatively waiving the seller’s RESDL disclosure requirements may indeed be able to avoid the RESDL obligations, provided the buyer’s waiver is sufficient to establish the buyer’s clear intent to waive the RESDL disclosure requirements.