Buyer beware: new Court decision may change residential due diligence in Michigan

26 Oct 2011

Kevin blogged last year about a Michigan Court decision that held that if someone owns property and has knowledge that it is contaminated, he must disclose this information in the lease or purchase agreement and describe the general nature and extent of the contamination.  Otherwise, there is a risk having your transaction voided by the courts.  This was based on Michigan statute requiring this disclosure.   There is also a requirement that if an owner or operator of property has a Baseline Environmental Assessment (BEA), that BEA must also be disclosed to transferees. 

Now, the Michigan Court of Appeals has handed down a new decision that further muddies the obligations of buyers and sellers.  This new case involved a developer gone bust, a replacement seller and its agent.  The litigation was between somewhat sophisticated buyers of a condo in a former industrial building and the seller’s agents. 

At trial, the jury found the agents liable for failing to disclose information that they had regarding the contamination of the property by the solvent TCE (as reported in a video from WWMT TV), after they had distributed sales information that the property had been cleaned up.  Interestingly, the Court held that the agents owed the buyers a duty of truthfulness because the buyers had made direct inquiries about the property’s condition and the MDEQ had advised that the sales brochures were not accurate.

Where it gets interesting is in the Court’s discussion of the jury apportioning 35% of the responsibility (and reducing the agent’s liability by that same percent) because the plaintiffs did not obtain an environmental inspection and they signed a purchase agreement that said that defendants knew nothing about the environmental conditions.

Frankly, environmental inspections on residential properties are almost unheard of!  This seems contrary to conventional wisdom that the buyer should be able to rely on what he or she is told by the seller.

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