<i>Caveat Emptor</i> in the Purchase of New York Real Estate

Under New York law, the doctrine of caveat emptor, or buyer beware, applies to the purchase and sale of real property. Stambovsky v. Ackley, 169 AD2d 254, 257. Under this doctrine, which has undergone some recent modifications, the seller of real property is under no duty to speak (ie, make certain disclosures to the purchaser) concerning the condition of the property when the parties deal at arms' length. Id. Mere silence on the part of the seller concerning a defective or otherwise undesirable condition of the property, without some act or conduct that deceived the purchaser, does not amount to conduct that is actionable as a fraud. London v. Courduff, 141 AD2d 803, 804.

According to doctrine of caveat emptor, as applied by New York courts, the purchaser of real property has a duty to inspect the property and satisfy himself as to his bargain. Glazer v. LoPreste, 278 AD2d 198, 198-99. Where a purchaser has the means available to him for discovering, by the exercise of ordinary intelligence and diligence, the true nature of the transaction into which he is about to enter, he must make use of those means, absent which he will be precluded from arguing that he was fraudulently induced to enter into the transaction. Ittleson v. Lombardi, 193 AD2 374, 376. Indeed, New York courts have dismissed fraud claims asserted by purchasers where preexisting conditions were reasonably discoverable by inspection. These circumstances included underground contamination (Venezia v. Coldwell Banker Sammis Realty, 270 AD2d 480; Vandevort v. Higginbotham, 222 AD2d 831), prior use of a vacant lot as a landfill (London v. Courduff, supra), and a vintage cooperative apartment in a “dreadful state of disrepair.” (Ittleson v. Lombardi, supra). The common thread in these cases is the court's finding that the seller had no duty to disclose the pre-existing condition and, in fact, had not taken any action to prevent the purchaser from discovering the condition through the exercise of due diligence.

Even where purchasers have claimed that sellers made false statements upon which they relied, the courts have dismissed fraud claims where they found that the true information was easily available to the purchasers. Thus, the courts have dismissed claims based upon alleged misrepresentations concerning the adequacy of the water supply upon the property (Cohen v. Colistra, 233 AD2d 542), the legality of multiple kitchens in a home (Platzman v. Morris, 283 AD2d 561), and the location of the property's boundaries (Eisenthal v. Wittlock, 198 AD2d 395) where the courts found that the purchasers could readily have verified the truth of the representations, particularly by inspection of the premises or review of available documents such as the certificate of occupancy, survey and public records concerning the property.

In one notable case, Glazer v. LoPreste, 278 AD2d 198, the court dismissed the purchasers' claims that the sellers fraudulently represented that the residential home at issue was a good place to raise children by concealing the fact that a convicted sex offender lived in the neighborhood. The court found that the neighbor and his offense had been covered by local newspapers for several years and that the purchasers had not made any reasonable attempt to discover the character of the neighborhood.

When Effects Are Eased

The effects of the doctrine of caveat emptor are eased, however, where a purchaser can show that the seller engaged in acts that amounted to an active concealment, designed to thwart the purchaser's efforts to fulfill his responsibility to inspect the property and prevent the discovery of the defective condition, or where the defect in the property is peculiarly within the knowledge of the seller and not likely to be discovered by a reasonably prudent purchaser. Under these circumstances, a seller may have a duty to disclose the defect to the purchaser and, in appropriate circumstances, the real estate contract may be rescinded or the seller may be held liable for damages.

For example, where a seller has taken proactive steps to conceal defects in the property — including where the sellers covered the foundation walls with plasterboard to conceal cracks evidencing structural defects (Haberman v. Greenspan, 82 Misc2d 263), constructed false walls to conceal water problems (Stephens v. Sponholz, 251 AD2d 1061), buried industrial waste on property described as a horse farm (Tahini Investments, Ltd. v. Bobrowsky, 99 AD2d 489), and used floodlights and mothballs immediately before the purchasers' inspections to drive an infestation of bats away from the attic (Jablonski v. Rapalje, 14 AD3d 484) — courts have deemed the seller liable for fraud.

When Courts Find Sellers Liable

In the same vein, New York courts have found sellers liable for fraudulent conduct in instances where a seller had knowledge of an undisclosed defect, which defect could not otherwise have been discovered through a reasonable inspection by the purchaser. These instances have involved defective sewer systems (Cetnar v. Kinowski, 263 AD2d 842; Young v. Keith, 112 AD2d 625) and the pending revocation of a multiple-family certificate of occupancy (Scharf v. Tiegerman, 166 AD2d 697). In one unusual example, Stambovsky v. Ackley, supra, the court found fraud sufficient to rescind the contract for the sale of a home that the court found to be “haunted.” The court emphasized that, prior to the sale, the seller had deliberately cultivated a local belief that the home was the site of “supernatural occurrences,” which the court found even a most prudent purchaser would not be expected to contemplate, much less investigate. While at first glance, there may not appear to be any reason why the purchasers in Glazer, discussed above, should have been expected to investigate and discover the local knowledge of a sex offender in the neighborhood, while in Stambovsky, the purchaser was not expected to investigate, much less discover, the local knowledge of the haunting of his proposed residence, the difference may lie not with the purchasers, but rather with the sellers. The Stambovsky court emphasized the fact that the seller had in the past enthusiastically promoted the publication of her encounters with the spirits that haunted the house, creating and perpetuating its local reputation. The court found that having informed the public at large concerning the supernatural occurrences, the seller owed a duty to the purchaser to inform him also. By contrast, the seller in Glazer had no part in establishing the presence of the sex offender.

In addition to the foregoing case law, the New York State Legislature has implemented legislation that inures to the apparent benefit of sellers seeking to insulate themselves from fraud claims arising out of the alleged non-disclosure of conditions relating to residential property. In early 2002, the New York State Legislature enacted a Property Condition Disclosure Act (the PCDA) (RPL sec. 460 et seq.) that was intended to regularize disclosures in the sale of residential properties. Pursuant to the PCDA, in general, the seller of residential real property under a real estate purchase contract (ie, not a foreclosure or sheriff's sale) is required to make a minimum of 48 affirmative representations concerning the condition of the house and property being sold. However, the PCDA contains an “opt-out” provision allowing a seller to give the purchaser a $500 credit against the agreed-upon purchase price in lieu of the required disclosure statement. One of the few courts that have addressed this act ruled that the creation of the nondisclosure election, allowing the seller to refuse to make any disclosures or representations concerning the property, inherently eliminates any possible fraud claim, which must be based upon a false disclosure or misrepresentation. Bishop v. Graziano, 10 Misc3d 342, 346. Another court has noted that a seller filling out the disclosure sheet has the option of answering each question “unknown” and that an answer “unknown” “triggers a duty to inquire on the part of the purchaser and relieves the seller of any potential liability for defects that arise in regard to the part of the premises covered by the question.” Malach v. Chuang, 194 Misc2d 651, 663. Consistent with the apparent safe harbor that has been afforded sellers under the PCDA, the Legislature confirmed that the PCDA “is not intended to and does not diminish the responsibility of buyers to carefully examine the property they intend to purchase and public records pertaining to the property and, in fact, highlights the importance of professional inspections and environmental tests.” (L. 2001, c. 465, sec. 1, Legislative findings). The required disclosure form itself states that “it is not a substitute for any inspections or tests and the buyer is encouraged to obtain his or her own independent professional inspections and environmental tests and also is encouraged to check public records pertaining to the property.” RPL section 462(2). Thus, New York statutory and case law confirms that the doctrine of caveat emptor in the sale of real property remains alive and well in the State of New York.

Under New York law, the doctrine of caveat emptor, or buyer beware, applies to the purchase and sale of real property. Stambovsky v. Ackley , 169 AD2d 254, 257. Under this doctrine, which has undergone some recent modifications, the seller of real property is under no duty to speak (ie, make certain disclosures to the purchaser) concerning the condition of the property when the parties deal at arms' length. Id. Mere silence on the part of the seller concerning a defective or otherwise undesirable condition of the property, without some act or conduct that deceived the purchaser, does not amount to conduct that is actionable as a fraud. London v. Courduff , 141 AD2d 803, 804.

According to doctrine of caveat emptor, as applied by New York courts, the purchaser of real property has a duty to inspect the property and satisfy himself as to his bargain. Glazer v. LoPreste , 278 AD2d 198, 198-99. Where a purchaser has the means available to him for discovering, by the exercise of ordinary intelligence and diligence, the true nature of the transaction into which he is about to enter, he must make use of those means, absent which he will be precluded from arguing that he was fraudulently induced to enter into the transaction. Ittleson v. Lombardi , 193 AD2 374, 376. Indeed, New York courts have dismissed fraud claims asserted by purchasers where preexisting conditions were reasonably discoverable by inspection. These circumstances included underground contamination ( Venezia v. Coldwell Banker Sammis Realty , 270 AD2d 480; Vandevort v. Higginbotham , 222 AD2d 831), prior use of a vacant lot as a landfill ( London v. Courduff, supra), and a vintage cooperative apartment in a “dreadful state of disrepair.” (Ittleson v. Lombardi, supra). The common thread in these cases is the court's finding that the seller had no duty to disclose the pre-existing condition and, in fact, had not taken any action to prevent the purchaser from discovering the condition through the exercise of due diligence.

Even where purchasers have claimed that sellers made false statements upon which they relied, the courts have dismissed fraud claims where they found that the true information was easily available to the purchasers. Thus, the courts have dismissed claims based upon alleged misrepresentations concerning the adequacy of the water supply upon the property ( Cohen v. Colistra , 233 AD2d 542), the legality of multiple kitchens in a home ( Platzman v. Morris , 283 AD2d 561), and the location of the property's boundaries ( Eisenthal v. Wittlock , 198 AD2d 395) where the courts found that the purchasers could readily have verified the truth of the representations, particularly by inspection of the premises or review of available documents such as the certificate of occupancy, survey and public records concerning the property.

In one notable case, Glazer v. LoPreste , 278 AD2d 198, the court dismissed the purchasers' claims that the sellers fraudulently represented that the residential home at issue was a good place to raise children by concealing the fact that a convicted sex offender lived in the neighborhood. The court found that the neighbor and his offense had been covered by local newspapers for several years and that the purchasers had not made any reasonable attempt to discover the character of the neighborhood.

When Effects Are Eased

The effects of the doctrine of caveat emptor are eased, however, where a purchaser can show that the seller engaged in acts that amounted to an active concealment, designed to thwart the purchaser's efforts to fulfill his responsibility to inspect the property and prevent the discovery of the defective condition, or where the defect in the property is peculiarly within the knowledge of the seller and not likely to be discovered by a reasonably prudent purchaser. Under these circumstances, a seller may have a duty to disclose the defect to the purchaser and, in appropriate circumstances, the real estate contract may be rescinded or the seller may be held liable for damages.

For example, where a seller has taken proactive steps to conceal defects in the property — including where the sellers covered the foundation walls with plasterboard to conceal cracks evidencing structural defects ( Haberman v. Greenspan , 82 Misc2d 263), constructed false walls to conceal water problems ( Stephens v. Sponholz , 251 AD2d 1061), buried industrial waste on property described as a horse farm ( Tahini Investments, Ltd. v. Bobrowsky , 99 AD2d 489), and used floodlights and mothballs immediately before the purchasers' inspections to drive an infestation of bats away from the attic ( Jablonski v. Rapalje , 14 AD3d 484) — courts have deemed the seller liable for fraud.

When Courts Find Sellers Liable

In the same vein, New York courts have found sellers liable for fraudulent conduct in instances where a seller had knowledge of an undisclosed defect, which defect could not otherwise have been discovered through a reasonable inspection by the purchaser. These instances have involved defective sewer systems ( Cetnar v. Kinowski , 263 AD2d 842; Young v. Keith , 112 AD2d 625) and the pending revocation of a multiple-family certificate of occupancy ( Scharf v. Tiegerman , 166 AD2d 697). In one unusual example, Stambovsky v. Ackley, supra, the court found fraud sufficient to rescind the contract for the sale of a home that the court found to be “haunted.” The court emphasized that, prior to the sale, the seller had deliberately cultivated a local belief that the home was the site of “supernatural occurrences,” which the court found even a most prudent purchaser would not be expected to contemplate, much less investigate. While at first glance, there may not appear to be any reason why the purchasers in Glazer, discussed above, should have been expected to investigate and discover the local knowledge of a sex offender in the neighborhood, while in Stambovsky, the purchaser was not expected to investigate, much less discover, the local knowledge of the haunting of his proposed residence, the difference may lie not with the purchasers, but rather with the sellers. The Stambovsky court emphasized the fact that the seller had in the past enthusiastically promoted the publication of her encounters with the spirits that haunted the house, creating and perpetuating its local reputation. The court found that having informed the public at large concerning the supernatural occurrences, the seller owed a duty to the purchaser to inform him also. By contrast, the seller in Glazer had no part in establishing the presence of the sex offender.

In addition to the foregoing case law, the New York State Legislature has implemented legislation that inures to the apparent benefit of sellers seeking to insulate themselves from fraud claims arising out of the alleged non-disclosure of conditions relating to residential property. In early 2002, the New York State Legislature enacted a Property Condition Disclosure Act (the PCDA) (RPL sec. 460 et seq.) that was intended to regularize disclosures in the sale of residential properties. Pursuant to the PCDA, in general, the seller of residential real property under a real estate purchase contract (ie, not a foreclosure or sheriff's sale) is required to make a minimum of 48 affirmative representations concerning the condition of the house and property being sold. However, the PCDA contains an “opt-out” provision allowing a seller to give the purchaser a $500 credit against the agreed-upon purchase price in lieu of the required disclosure statement. One of the few courts that have addressed this act ruled that the creation of the nondisclosure election, allowing the seller to refuse to make any disclosures or representations concerning the property, inherently eliminates any possible fraud claim, which must be based upon a false disclosure or misrepresentation. Bishop v. Graziano , 10 Misc3d 342, 346. Another court has noted that a seller filling out the disclosure sheet has the option of answering each question “unknown” and that an answer “unknown” “triggers a duty to inquire on the part of the purchaser and relieves the seller of any potential liability for defects that arise in regard to the part of the premises covered by the question.” Malach v. Chuang , 194 Misc2d 651, 663. Consistent with the apparent safe harbor that has been afforded sellers under the PCDA, the Legislature confirmed that the PCDA “is not intended to and does not diminish the responsibility of buyers to carefully examine the property they intend to purchase and public records pertaining to the property and, in fact, highlights the importance of professional inspections and environmental tests.” (L. 2001, c. 465, sec. 1, Legislative findings). The required disclosure form itself states that “it is not a substitute for any inspections or tests and the buyer is encouraged to obtain his or her own independent professional inspections and environmental tests and also is encouraged to check public records pertaining to the property.” RPL section 462(2). Thus, New York statutory and case law confirms that the doctrine of caveat emptor in the sale of real property remains alive and well in the State of New York.