Issues with respect to home inspections seem to arise in connection with real estate contracts in the following contexts:
- Property Condition Disclosure Report and Other Seller Representations
- The Home, Pest and Environmental Inspection Contingency
- Work having been done by a Seller without obtaining and closing out proper permits
- Swimming Pools and Central Air Conditioning
- Walkthrough Issues
I. The Property Condition Disclosure Report and Other Seller Representations
The Property Condition Disclosure Report is required under Section 20-327 of the Connecticut General Statutes. Although certain exemptions apply, the Seller of residential real estate must either fill out the Property Condition Disclosure Report and furnish it to Buyer prior to the time the contract is signed, or be liable to pay Buyer $300.00 at closing for failure to do so. The report only extends to the Sellers’ actual knowledge of the property. The report plainly states that it “is not a substitute for inspections, tests and other methods of determining the physical condition of the property”. Thus, for a Buyer to recover against a Seller for misrepresentations contained in the Property Condition Disclosure Report, the Buyer must prove: 1. that the Seller had actual knowledge of the condition (not that the Seller should have known of the condition); and 2. That the Buyer reasonably relied on the Seller’s representation contained in the Property Condition Disclosure Report.
It may be difficult for the Buyer to prove such reliance since the report, itself, invites a Buyer to obtain a home inspection.
However, a different theory upon which a Buyer may recover from a Seller for misrepresentations as to the condition of the Seller’s property is for negligent misrepresentation of the condition of the house under common law. For such liability to attach, the Buyer must prove that: 1. The owner made a misrepresentation; and 2. The Buyer reasonably relied on the misrepresentation.
A few representative cases may help in understanding when Seller liability attaches to inspection issues.
The leading case on this subject is Giammetti vs. Inspections, Inc., a 2003 case that was heard by the Connecticut Appellate Court. The Buyer alleged that the Seller made misrepresentations concerning carpenter ant infestation in the house. As a result of the infestation, the Buyer had to replace the kitchen floor and treat for carpenter ants for a total of $4,600. At the Seller’s urging, the Buyers hired a professional inspector to inspect the dwelling as required by the contract of sale. The inspector did not discover any infestation. Noting that a Seller is not required to obtain a pre-conveyance inspection test with respect to the physical condition of the subject property the Court held that, since the Seller had no actual knowledge of the infestation, the Buyer could not sue under Section 20-327e of the General Statutes which require the Seller to provide a property condition disclosure report form, holding that 20-327 does not govern negligent misrepresentation actions. Although the Court found that the Seller’s representation was negligent, the Court concluded that the Plaintiff did not rely on the negligent misrepresentation since the Buyer employed a home inspector at the Seller’s urging.
Contrast that with Shearn vs. McGinnis, a 2005 case in which the Seller represented that a swimming pool was in good working order. When Buyer did the inspection, the pool cover had snow on it and couldn’t be removed for inspection prior to purchase. When the pool cover was removed after closing, the Buyer discovered that the walls had collapsed. The swimming pool company representative testified that the pool’s failure had been on going for one year. The Court concluded it was unlikely that the Seller did not know about the pool’s condition.
In Grossman vs. Listro, a 2005 case, the Plaintiff alleged that the Seller made misrepresentations in the property condition disclosure report form about the hot water heater. A professional home inspector employed by the Buyer recommended that the Buyer consult a plumber to repair the hot water heater. After the closing, the Buyer sued the Seller to replace the furnace, and the Court found that the Buyer did not rely to their detriment on Seller’s misrepresentation. The Court stated that after a Buyer becomes aware of a defect, the Buyer is obligated to negotiate an acceptable solution or walk away from the deal. Thus, depending on circumstances, Buyer may not be entitled to rely on the home inspection report.
In Sabo vs. Zacarola, a 2005 case, the Sellers failed to disclose drainage problems on the property condition disclosure report form provided to the Buyer. The listing agreement stated that they were hardwood floors. After the closing, the Plaintiffs discovered that they were plywood floors and severe drainage problems. A real estate broker testified that the Sellers said they were hardwood floors. The Court entered judgment for the Plaintiff for the cost of the drainage system and hardwood floors.
In Ciarlo vs. Harlamon, a 2005 case, the Plaintiff purchased the property from a Seller who marked the status of the septic system as “unknown” on the property condition disclosure report form. However, the Seller had purchased the property recently and had a septic inspection done. The Seller’s inspector reported a high probability of failure. The Court found that the Seller’s representations were deceptive and entered judgment for the Plaintiff in the amount of $29,114.31.
In Ziel vs. Walsh, another 2005 case, Sellers indicated on their residential property condition disclosure report that they did not know about any problems with sewer lines, except that the sewer line to the street had to be cleaned approximately every two years. The Buyer took title to the property, the plumbing and sewer line allegedly collapsed, causing the Buyer to spend over $15,000 to remediate. The Buyer sued the Seller claiming that the Seller should have responded “unknown” to the plumbing and sewer system question. The Court found that the property condition disclosure report encouraged the Buyer to arrange an inspection with a professional inspector and that the inspector they employed did not disclose any problems with the sewer. Since there was no proof that the Sellers had any actual knowledge about the sewer problem, the Court found in their favor. The Court concluded that the Sellers did not knowingly misrepresent the property’s condition.
II. Home, Pest and Environmental Inspection/Tests
Paragraph 17 of the Greater Hartford Association of Realtors contract contains the home inspection contingency. It provides a date by which the inspections need to be accomplished, and the basic standards the house must meet to pass the inspection. The standard for the home inspection is that improvements are structurally sound and the mechanical, electrical and plumbing systems are in good repair. As to wood destroying insects, the property must not be infested by termites or wood-boring insects and the buildings are not damaged thereby. As to the environmental tests, the result must be satisfactory to the Buyer, provided the Buyer’s determination is reasonable. The paragraph goes on to say that if the results of any report do not meet such terms, and Seller and Buyer can not reach a mutually satisfactory agreement regarding these matters, then Buyer may terminate the contract by giving Seller written notice of termination no later than three days after the inspection contingency date. Failure by Buyer to so terminate relieves Seller from any obligation with respect to the condition of the property. If Buyer terminates the contract in a timely fashion, Buyer is entitled to the return of their deposit.
Although a Court may not hold that the date for the inspections, and the three days thereafter for termination, are time is of the essence type dates, it would be fool hardy to be unmindful of the relevant time frames.
I think it is important that any letter sent to a Seller requesting that they perform certain work indicate that the work to be performed must be done by a licensed contractor and in accordance with the requirements of the applicable building code. Many of the letters that I see in this regard are inadequate because of their imprecision. In many instances it may be better, in lieu of Seller repairs, for credits to be given to Buyers at closing often in the form of closing cost credits. However, a memorandum should be prepared setting forth the repairs such credits are in lieu of.v
III. Failure to obtain and close out permits
Is a seller obligated to a buyer to obtain and close out permits? I suspect the buyer could raise such issues as part of their home inspection and is probably by taking this position, that the failure of the seller to obtain or close out permits reasonably leads to buyer to conclude that improvement may not conform to building code, and therefore, may be unsound or unsafe.
If, however, the issue is not raised as a result of the home inspection, but comes up shortly prior to closing, the question is whether the buyer has a remedy. The answer may depend, in part, on whether there is an open permit on the subject improvements which have not been closed out, or whether no building permit was ever applied for. The seller may have some liability for common law misrepresentation or concealment in the event that a seller fails to disclose the defect which is known to the seller but not known to the buyer. Since an open permit is discoverable by a buyer using ordinary due diligence, the seller may not be obligated to disclose that fact. However, where work is done by a seller who never even applies for a permit, the buyer may not easily be able to discover that fact, although it may well be within the knowledge of the seller who may have a duty, therefore, to disclose it to the buyer.
Notwithstanding the language of the contract, therefore, the buyer may have rights under such circumstances to extend the contract and obtain their deposit back.
Section 29-265 of the Connecticut General Statutes provides that no building or structure shall be occupied or used until a Certificate of Occupancy has been issued by the building official certifying that such building or structure conforms to the provisions of the state building code. The statute contains a safe harbor which provides that a building or structure will not have to be removed provided it was used for six years, unless there is an impact upon safety of life or property.
My suggestion as to the best practice in this area is to include in your real estate contract a provision for attorney review. A diligent buyer’s attorney should insert a provision into the contract requiring seller to obtain and close out permits for any required buildings, structures or improvements subsequent to the issuance of the original Certificate of Occupancy.
IV. Swimming pools and central air conditioning
Although the Property Condition Disclosure Report requires the Seller to disclose any problems with central air conditioning, no such reporting requirement exists with respect to swimming pools. However, as to both of these items, during the colder six months of the year, it may be impossible for Buyer’s inspectors to test the functionality of a swimming pool or central air conditioning system. Therefore, it is important to obtain Seller representations in writing as to the condition of the swimming pool and central air conditioning during the cold times of the year, plus copies of all service records. It would also be useful to have a provision in the contract allowing the Buyer time to contact the relevant service providers to ascertain the extent to which the swimming pool and central air have been properly serviced. Finally, it may be useful to provide for an escrow at closing for such items and/or to purchase a home warranty to cover the potential repair to such items.
V. Walk through issues
Walk throughs of the premises prior to the closing should be confined to determine two things: 1. First, that any repair work the Seller agreed to do has been done; and 2. To make sure that the property is in the same condition as it was on the date of contract, ordinary wear and tear excepted. It is important to schedule the walk through for a time after the Seller is fully moved out. Some Buyers see the walk through as another opportunity to raise inspection issues they should have raised during the inspection period. There is nothing in the contract which permits this. Often, I will hear that a Buyer claims that they could not have discovered during the inspection period what they are discovering for the first time minutes before the closing.
Courts are not usually sympathetic to Buyers who could have made a more thorough inspection during the time of the inspection period; however, if there is really something that is important to the Buyer which cannot be inspected during the inspection period, there ought to be a writing signed by both Buyer and Seller which extends the inspection period as to that item only.
VI. Realtor Liability
Realtors who represent Buyers pursuant to Buyer-Broker agreements incur liability for housing defects not contemplated by the Buyers at the time of closing. A recent case, Ajruli vs. Possemato, (April, 2007) is instructive.
The law suit was brought by a couple who purchased property without having a home inspection done first. The contract provided that the Buyer would purchase the house in “as is” condition, but that the Buyer had the right to have the house inspection done “for informational purposes only” fifteen days from the date of the sales contract. Although the Buyers had told their agent that they wanted to have the home inspection, and although the agent said he would take care of it, in fact, the home was not inspected. The agent, however, indicated to the Buyers that everything went fine. Shortly after the closing, it rained heavily and the basement filled up with water causing damages. The realtor defended the lawsuit on the basis that they had no contractual obligation to obtain a home inspection for the Buyers, but the Court disagreed, citing the Buyer Broker Contract which indicated that the Broker had a duty to negotiate on Buyer’s behalf terms and conditions agreeable to Buyer and to assist the Buyer in the purchase of the property, and to act in the Buyer’s interest regarding the purchase.
The Court found the Realtor liable for breach of contract, fraud, breach of fiduciary duty and CUTPA violations. The Court awarded the Plaintiff in excess of $60,000.00, plus costs.
VII. Home Inspector Liability
The test relative to home inspectors seems to be that if the Buyer can establish that it was reasonably foreseeable that he or she would rely on the report rendered by the home inspector, and that the home inspector failed to exercise due care in the inspection or the preparation of the report, and the inspector’s failure to exercise due care in the inspection or in the preparation of the report of the inspection was the approximate cause of the Plaintiffs losses, the Plaintiff may recover damages against the home inspector. In Hopperstead vs. Inspector, Inc., a 1997 case, the inspector did not enter the crawl space area. Although the report indicated that the inspection covered “readily accessible areas of the property, including attics and crawl spaces which permit entry” the Court found that the inspector’s failure to enter the crawl space rendered the inspection severely deficient. The inspector missed problems of dry rock, powder post beetle infestation, termite damage and other repairs. The Court awarded the Plaintiff damages in excess of $10,000.00 stating that the home inspector knew or should have known that the purchaser would have relied on his report on the condition of the premises in decided whether to purchase the property or to seek the cost of repairs from the owner.
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Very truly yours,
Mark S. Steier