7 April 2016

Understanding the “As Is” Clause in Purchase Agreements

What are “as is” clauses, and what value do they hold in purchase agreements?

It’s a common question, not least because buyers are uncertain what rights are afforded to them should the property sale turn sour. To put it simply, an “as is” clause indemnifies the seller against responsibility for existing property defects. It means the buyer accepts the property in its existing state – they accept the property “as is”. However, an “as is” clause is not an insurance policy of sorts for sellers, as they too have obligations that need to be met.

What obligations do sellers have?

A seller has a duty – a legal obligation – to inform buyers of any defects, existing or latent, in the property they wish to sell. This does not mean that buyers are obliged to inform buyers of every conceivable defect, but they must not misrepresent or distort the state of the property. For example, a seller would be in error – if asked about the property’s electrical system – to convey a positive impression if he’s aware of systemic electrical defects.

So yes, buyers are protected as much as sellers – as long as both sides are aware of the legal ramifications of the “as is” clause. Sellers may not be actively aware of the implications of the clause, and so might assume an “as is” clause levels full responsibility to the buyer, but this is not what the clause states. The clause is designed to protect both buyers and sellers, though it leans in favour of buyers in the sense that it immunises them against the prospect of fraud.

There’s a vital difference between what the seller informs the buyer prior to signing a non-disclosure clause, and what attempts the buyer has made to glean this information from the buyer. Should the buyer make little effort in learning about the state of the property, and yet agree to signing the non-disclosure contract, then the seller is relieved of many – but not all –  of the obligations. Buyers should, in other words, learn about the property.

How the process works

Sellers are generally advised to inform buyers of latent or existing defects to the property. Numerous legal challenges on this point are worth considering. For example, a Florida court, in 2003, ruled, “the fact that this house was sold “as is” does not make summary judgement appropriate. The duty to disclose known defects…continues to exist for a home sold “as is”. Sellers need to assume reasonable proportion in what they disclose to buyers.

Burden-shifting, the idea that responsibility shifts from seller to buyer, does not exonerate sellers from disclosing known defects to the buyer. The “as is” clause does not cover such circumstances. Sellers must use reasonable proportion in how they sell the property, but must also not deceive, misrepresent, or fraudulently cover-up latent or known defects in the property. Any attempt to do so is considered a flagrant breach of the purchase agreement.

Sellers are required to sign the Sellers Real Property Disclosure Form at least ten days prior to conveying the property to the purchaser. The purpose of the “as is” agreement is to indemnify the seller against repair costs – something which is non-negotiable. However, even with this in place, the seller must represent the property “as is” in order for the “as is” clause to mean anything at all.

Final Thoughts

Both sellers and buyers ought to profit from the “as is” clause of purchase agreements. Too often this is not what happens on the ground – either due to unsuspecting buyers or unscrupulous sellers. Kamyar “Kami” Zargari, as the broker of Triumph Property Management, works in your interest when guiding you through this process, as with all property processes. It’s only through this experience that these unwanted complications can be avoided.

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