You are probably going to start noticing a theme in my articles. In my more than twenty years as a Real Estate Attorney, and almost as long as a Real Estate Broker, I’ve learned to not rely on anyone else’s information without a legal right to do so. Always my advice- DO YOUR DUE DILIGENCE.
When you are buying real estate, the Seller and the agents of Seller are required to disclose any material defects related to the property, but only can do so if they are aware of those defects. The Seller is under no obligation to conduct any inspection or to make any inquiries regarding the property or its condition- to the extent the Seller does conduct an inspection and discovers a defect, they must disclose it to you. The First District of the California Appellate Court just affirmed the decision of a Sonoma County Trial Court that evidence of a Sellers’ actual knowledge of defects in a property must be shown to hold the Seller liable for such defects- imputed knowledge, based on the claim that professionals retained by the Seller “should have known” is not enough to create a triable claim against the Seller. Big relief to Sellers.
In RSB Vineyards, LLC v. Bernard A. Orsi, et.al., a vineyard with a property used as a tasting room was purchased by the Plaintiff/Buyer. The Seller had previously converted the tasting room from a single family residence, using licensed professionals, obtaining permits and approvals as required, and apparently without knowledge of any defect. The buyer waived all contingencies and inspection rights during the purchase- ugh. Later on, after already acquiring the property, the Buyer retained a civil engineer to investigate a leaking deck at the structure. The engineer concluded that the deck was improperly built, giving him cause to inspect the structure further, discovering a laundry list of defects ultimately requiring demolition of the property.
The Buyer sued the Seller under various theories, including fraud, misrepresentation, breach of contract, and negligence. The Buyer had no evidence that the Sellers were aware of the defects, but based their lawsuit on the premise that the professionals the Seller hired- architects, engineers, contractors, “should have known” of the defects, and that such knowledge should therefore be imputed to the Sellers. Both the trial and appellate courts disagreed, finding that imputed knowledge cannot be substituted for actual knowledge when actual knowledge is a requisite part of the cause of action. The Court further declined to impute knowledge to the Seller on the basis of agency- that the professionals retained by the Seller were agents of the Seller, and the Seller therefore liable for their acts, omissions, or knowledge. The Court found that these professionals were not acting as agents, as they were not dealing with third persons on behalf of the Seller, a key factor in agency liability. The last part of the claim was that the Seller had failed to fill out the Seller Property Questionnaire (SPQ) required by the real estate purchase contract. The Court found that the Buyer waived any claims to missing or additional reports or disclosures when they waived their contingency for same.
This is an important reminder for Buyers. Always do your own inspections and full due diligence. Never attempt to rely on professionals with whom you do not have a direct relationship. Although in this case, the Seller provided the Buyer with contact information for all of the professionals they had retained (the case opinion does not state whether the Buyer contacted any of those professionals), those professionals had no duty to the Buyer. This is why a Buyer always pays for their own inspections, creating the legal relationship and right to rely on them. This is not the time to save a few bucks. Due diligence is all up to the buyer. Conduct all of your inspections. Don’t assume that the Seller has done it for you.
Good news for Sellers- you are still only responsible to tell Buyers what you actually know. This was the right decision. Buyers, as always, beware.
Disclaimer: This article is intended to be primarily for entertainment purposes, and is not to be considered legal advice.
ABOUT LISA PHILLIPS, ESQ / CA Bureau of Real Estate Lic# 01189413
Lisa Phillips is an active Realtor in the Los Angeles area, with more than twenty years as a practicing real estate broker and attorney. Her unparalleled knowledge of real estate, from local markets and pricing to legal issues and deal-making, has made her a trusted and valuable asset to her clients. In addition to her real estate and business savvy, Lisa is passionate about helping others, and works tirelessly to achieve the best results for her clients. For more information, please visit www.LisaPhillipsRealEstate.com
