As-is Contract Purchases: Buyers Beware
Typically, even when you buy property “as-is”, the seller has a duty to disclose latent material defects. Furthermore, if the seller misrepresents facts to the buyer, the buyer has the right to sue after closing. But buyers beware, a recent Illinois case has held that if you agree to buy property as-is, you are really buying it as-is, and if you learn something about the condition of the property after closing and decide to go after the seller for failing to tell you about it, you may very well lose. Kopley Group V, LP v. Sheridan Edgewater Properties, Ltd., 376 Ill.App.3d 1006 (1st Dist. 2007) illustrates this point.
In Kopley, the buyer purchased a large residential/commercial building as-is. The contract allowed the buyer time to inspect the property, and if the buyer was not satisfied after his inspections, he could cancel the contract and receive a full refund of his earnest money. The buyer chose not to complete any professional inspection of the property.
After the closing, the City of Chicago cited the buyer for various defects at the property, including structural defects, which the buyer repaired at considerable expense. The buyer then sued the seller for breach of contract and for fraudulent and negligent misrepresentation. The buyer asserted that the seller should have disclosed information related to the city’s previous inspections of the property and the repairs the seller had completed.
With respect to the buyer’s first claim, breach of contract, the court decided in favor of the seller. The contract had an as-is provision and the buyer had enough time to complete an inspection, which he chose not to do. The court stated that the seller did not breach the contract.
With respect to the buyer’s second claim, fraudulent and negligent misrepresentation, the court again favored the seller. The seller had made no representations about the structural condition of the property that buyer relied on. Additionally, the buyer had reviewed documentation relating to quotes for certain repairs on the property during the inspection period, and one of these documents was a quote for repairing the shifted brick lintel of the building. Therefore the court stated that the buyer had knowledge of the structural condition of the building, and Seller had not attempted to misrepresent it.
Why is Kopley at odds with other Illinois cases? Well, we can’t be sure, but it could be for a number of reasons. Perhaps it was because the buyer in Kopley was a sophisticated party with experience in commercial real estate transactions, as opposed to someone who is just buying a home and may not know much about real estate. Or it could have been because the parties explicitly bargained for and agreed to the as-is provision of the contract. Regardless of the reason, the case is now out there and on the books. If you are buying property as-is, make sure you inspect the property and review all relevant documentation diligently to prevent being in a Kopley situation!