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Contract Rescission: “As-Is” Clauses and Misrepresentation

Posted on: October 30, 2012

While there are some similarities between the buying and selling of residential real estate and the buying and selling of commercial real estate, the duty to disclose in residential real estate transactions does not similarly apply to commercial property sellers. When a residential seller makes a material misrepresentation and the buyer relies on that misrepresentation, the contract of sale may be rescinded. The same is not necessarily true for a commercial real estate transaction. The inclusion of an “as-is” clause may also relieve a property seller, of both commercial and residential property, from liability for defects with the property. These principals are demonstrated in the case of Thomas J. Duggan, LLC v. Peacock Point, LLC, 89 So. 3d 283 (Fla. 1st DCA 2012).

In Duggan, Thomas J. Duggan (the “Purchaser”) purchased a six-lot waterfront subdivision from Peacock Point, LLC (the “Seller”) through an auction conducted by John Roebuck & Associates of Florida, Inc. (the “Auctioneer”). The contract of sale included an “as-is” clause which disclaimed “any warranties or representations of any kind or character, expressed or implied, with respect to the property, including, without limitation … habitability, design, quality, merchantability, condition, environmental status, matters of survey or fitness for any particular purpose[.]” The contract of sale also stated that the “Buyer has conducted such investigations and inspections of the Property as it deemed necessary and/or appropriate and shall rely upon same.” The Auctioneer and the Seller represented to the Buyer that the lots were ready for immediate construction when, in fact, they were not because there was no certificate of completion.

The Buyer sued the Seller and the Auctioneer seeking rescission of the contract of sale based on the misrepresentation, the failure to make full disclosure, or mutual mistake of fact. The trial court found against the Buyer, and the Buyer appealed. The Court agreed with the trial court’s findings. First, the Buyer was a knowledgeable and sophisticated developer, and the issue concerned matters of public record, which were readily available to the Buyer. Secondly, there was no failure to disclose under these facts because commercial real estate transactions are not subject to the same duty to disclose in residential real estate transactions. Lastly, the “as is” clause placed the risk of mutual mistake squarely on the Buyer’s shoulders.

If you are seeking to enter into a contract of sale for the purchase or sale of commercial or residential real estate, call the real estate attorneys at Schecter Law today at (954) 779-7009 to best protect your interests.