In a recent Illinois case, the Illinois Appellate Court held that an “as is” clause may not be asserted as a defense by a seller who has actual knowledge of a material defect.
The defendants owned a home in Bannockburn, Illinois. The basement of the house flooded during a heavy rainstorm in May 1996. Defendants repaired the damage and made renovations to the home.
The plaintiffs purchased the home for $1.7 million in late 1997. The purchase contract contained a detailed, negotiated “as is” clause:
Purchaser acknowledges and represents that Purchaser and his representatives have personally examined the Property and Personal Property on at least six occasions and [have] had the Property professionally inspected. Purchaser is fully aware of the condition of the Property and accepts the Property in its “As Is” and “[Where] Is” condition, without any warranty or representation on the part of the Seller and Purchaser is fully satisfied with the condition of the Property.
The defendants also provided to the plaintiffs the disclosure required by the Illinois Residential Real Property Disclosure Act, in which the defendants answered “No” to the statement “I am aware of flooding or recurring leakage problems in the crawl space or basement.”
In October 2001, the basement of the home severely flooded. As a result, the plaintiffs were required to make repairs costing $425,000. It was at this time the plaintiffs allege they first became aware of the 1997 flood, although defendants claim to have previously informed plaintiffs about the flooding. Upon so learning, plaintiffs filed suit to recover their repair costs.
Defendants took the position that the “as is” clause in the real estate contract precluded the plaintiffs from pursuing the action against the defendants, and moved for summary judgment. The trial court denied the defendants’ motion for summary judgment, holding it is against public policy to allow an “as is” clause to protect the defendants from damages resulting from their own fraudulent statements. The Appellate Court agreed, and further held that the “as is” clause should not even be admitted into evidence at trial, because the plaintiffs were entitled to rely on the defendants’ affirmative statement in the disclosure document that they were unaware of the flooding in the home.
Wise sellers will heed the warning of this case: Do not rely on an “as is” clause in a real estate contract to provide protection against misstatements of fact in a real estate contract or omissions of facts when preparing the disclosure document. Further, if there is a known defect in the property, disclose it in writing.