Recent amendments to New York’s Property Condition Disclosure Act (the “Act”) went into effect March 20, 2024, as we indicated in our last client alert, available HERE.
The Act requires a seller of residential real property to provide a “Property Condition Disclosure Statement” to their buyer or buyer’s agents prior to signing a contract of sale.
However, the Act has historically permitted sellers, as an alternative, to provide a closing credit of $500 in lieu of the disclosure statement, an alternative option customarily selected by New York City sellers. Recent amendments to the Act remove this alternative credit option, raising questions for industry stakeholders about how the statement works and how it will impact real estate sales in New York City.
In this client alert we will detail the obligation to provide a Property Condition Disclosure Statement, what a seller is responsible to disclose, and liability for failure to disclose.
How Does The Statement Work?
The Act states that every seller of residential real property must complete and sign the statement and have the statement delivered to the buyer or buyer’s agent prior to signing a binding contract of sale. A copy of the statement countersigned by the buyer must be attached to the real estate contract. If the seller, prior to closing or occupancy by the buyer, acquires knowledge that renders a disclosure in the statement materially inaccurate, the seller is required to deliver a revised statement to the buyer as soon as practicable.
For the purposes of the Act, “residential real property” means real property improved by a one-to-four-family dwelling. It does not apply to commercial properties, unimproved land, condominium units, or cooperative apartments.
You can review and download a copy of the statement promulgated by the Division of Licensing Services HERE.
Note that while the Act does require certain disclosures, as discussed further below, it expressly does not prevent the parties from entering into agreements of any kind or nature with respect to the condition of the property, including agreements, as is customarily done in New York City, for the sale of property “as is.”
What Is The Seller Responsible To Disclose?
The form includes various property conditions, including chain of title, flood history, and environmental hazards, and the seller must disclose information about any conditions they actually know of.
In general, the seller’s liability regarding the disclosures is limited to knowingly false or incomplete statements. According to the text of the statement required by the Act and included on the form promulgated by the Division of Licensing Services, the disclosure is “not a warranty of any kind by the seller or by any agent representing the seller in this transaction” but a mere representation based upon the seller’s actual knowledge at the time of signing the document. The statement encourages buyers to obtain their own independent professional inspections and environmental tests and to check public records pertaining to the property, as the seller is not required to undertake or provide for any investigation or inspection or to check any public records as part of their disclosure. In fact, the form provides sellers an option to check “unknown” on each condition.
What Happens If A Seller Fails To Disclose?
A knowingly false or incomplete statement by the seller may subject the seller to claims by the buyer before or after closing. In cases where a seller fails to disclose a condition of the property of which they were aware, purchasers may be awarded monetary damages. However, many claims are dismissed on summary judgment because there is no evidence a seller was aware of the condition that is the subject of the complaint.
Sellers can limit their liability regarding the disclosures and the condition of the property in general by including certain terms in their contract of sale. In Simone v. Homecheck Real Estate Servs., Inc., 42 A.D.3d 518, buyers who discovered defects in the property they purchased after closing had their claim for damages dismissed in part upon appeal because the language of the contract expressly limited the seller’s liability.
The sellers in Simone provided a disclosure statement to their buyers in which they indicated, among other things, that there were no material defects, flooding, seepage, or water damage. After closing on the sale, the buyers discovered leaks and water damage on the property and sued the seller for fraudulent misrepresentation and breach of contract.
The appeals court found that the claim for fraud could proceed but that the claim for breach of contract should be dismissed. The court explained, “New York adheres to the doctrine of caveat emptor and imposes no liability on a seller for failing to disclose information regarding the premises when the parties deal at arm’s length unless there is some conduct on the part of the seller which constitutes active concealment.”
Regarding the claim for fraudulent misrepresentation, the court indicated that the alleged false representation in the disclosure statement may be proof of active concealment and, therefore, confirmed the lower court’s denial of the seller’s motion to dismiss that claim. The sellers in Simone may have been liable to the buyers for failing to disclose material defects if there was evidence they knew of the conditions at the time of the statement (the parties ultimately reached an out-of-court settlement after the appellate decision).
Regarding the claim for breach of contract, however, the court indicated that such a claim based on a warranty or representation cannot be maintained if the contract specifically disclaims the existence of warranties or representations. In this case, the contract of sale, as do many contracts for the sale of real estate in New York City, specifically provided that the premises had been inspected by the buyer and was being sold “as is” without warranty as to condition, express or implied. The appeals court, therefore, overturned the lower court’s denial of the seller’s motion to dismiss that claim.
Buyers and sellers alike should consult their attorneys about the disclosure obligations and their related risks in any potential real estate transaction to ensure they are protected.
The foregoing is not intended to be comprehensive nor constitute legal advice. If you would like to discuss your specific circumstances or would like more information, feel free to contact us at (212) 625-8505.