Effect of an “As-Is” Clause in a Real Estate Contract

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26th Feb 2015

In Arkansas, the courts have held that an “as-is” clause generally relieves a seller from liability for defects in the condition of the property.  This does not, however, mean that a seller is absolutely protected from litigation simply because he has an “as-is” clause in his contract.  Unless a defect is patent (i.e. obvious from a simple visual inspection) an “as-is” clause does not bar an action by the buyer against the seller based on claims of fraud or misrepresentation — the most common bases for litigation concerning real estate transactions.  (Wilmans v. Dudley, No. CA 00-13, 2000 WL 1683444, at *3 (Ark. Ct. App. Nov. 8, 2000).)  

So, the mere fact that a buyer takes the property “as is” does not, per se, relieve the seller of the obligation to disclose repairs or defects.  (Williams v. Hertzog, No. CA06-560, 2007 WL 1080396, at *6 (Ark. Ct. App. Apr. 11, 2007).) According to Arkansas case law, “whether the seller is obligated to make such disclosures depends on the terms of the buyer’s-disclaimer provision, the representations made to the buyer, and the buyer’s own diligence in ascertaining the true condition of the home.” (Williams v. Hertzog, No. CA06-560, 2007 WL 1080396, at *6 (Ark. Ct. App. Apr. 11, 2007).)  Thus, where the property is taken “as is” and the buyer’s-disclaimer provision expressly provides that the buyer agrees not to rely on any written disclosures by the seller or upon any warranties or representations by the seller or his agent, it is still possible for the seller to prevail in a lawsuit even if the seller made a misrepresentation.  (Ibid., citing Barringer v. Hall, 89 Ark.App. 293, 202 S.W.3d 568 (2005).)  The key word here is “possible”, because this result is by no means certain.  The analysis is very fact intensive.  The trier of fact looks at, among other things: whether there were disclaimers in the contract, whether there was an “as-is” clause, whether the misrepresentation was intentional or innocent, whether it concerned a patent or latent defect, whether the buyer relied on the misrepresentation, and, if it finds reliance, whether that reliance was justifiable.  The cases have gone both ways depending on how these facts pan out.  Moreover, on appeal, the cases have gone both ways again, with the additional factor of the level of review applied by the court being critical to the decision.

It is important to keep in mind that if you’re using an Arkansas REALTORS® Association form, paragraph twenty-nine specifically states that “Buyer may rely upon any written disclosures provided by Seller.”  This effectively negates the as-is provision with regard to misrepresentations made by a seller in the written disclosures. The court has held that “in order for a seller’s liability to be relieved under a buyer’s-disclaimer provision, the seller must first inform the buyer as to the true condition of the house-not merely the condition of the house as it is disclosed to the buyer.  (Williams v. Hertzog, No. CA06-560, 2007 WL 1080396, at *6 (Ark. Ct. App. Apr. 11, 2007) (emphasis in original).)  The court reasons that “a buyer cannot purchase a house “as-is” when the true condition of the house is fraudulently misrepresented in the seller’s disclosure form; the true condition of a house cannot be both hidden and disclosed.”  (Id. at *7.)  Thus, when using this form, if a misrepresentation is made in the written disclosures, and the buyer justifiably relies on that misrepresentation, then the as-is provision will not likely save the seller in litigation.

But what if no misrepresentation was made?  Well, then an “as-is” clause does help to protect the seller.  For one thing, the implied warranty of habitability is waived when the buyer purchases the property “as is.”  (O’Mara v. Dykema, 328 Ark. 310, 319, 942 S.W.2d 854, 859 (1997), citing Bankston v. McKenzie, 287 Ark. 350, 698 S.W.2d 799 (1985).)

So, will an “as-is” clause relieve a seller from liability for defects in the condition of the property?  It might, but I wouldn’t count on it.  Every case is different, and every case is very fact dependent.  If you are having problems with a real estate transaction, you need in depth legal advice.  Call us.  Don’t simply rely on this brief synopsis of certain aspects of the law.  This post is simply intended to give you some idea of what the law expects from parties to a real estate transaction and, hopefully, some idea of the best way to handle one.

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