Town Voided Certificate of Occupancy Before Closing: Was Non-Disclosure Excused by “Caveat Emptor”?

This was originally posted on the SGR Blog.

Caveat emptor”—or “buyer beware”—historically was rule number one of real property purchase and sales. But did the rule still control as to the duty to discover or disclose that a certificate of occupancy had been voided?

David Chapman sought damages for, fraud arising from his purchase of a home from Adam and Jennifer Jacobs. Chapman alleged that the Jacobs represented that there was a certificate of occupancy for a pole barn situated on the property when, in fact, the Town of Farmington voided the certificate of occupancy when it discovered that the barn encroached on the adjoining property.

The record established that Chapman was aware of the encroachment prior to closing. But Chapman alleged that he was unaware that the Town had voided the certificate of occupancy and believed that any issue regarding the barn had been resolved through a boundary line agreement between the Jacobs and the adjoining landowner. After Chapman purchased the home, however, the Town informed him that he would have to relocate or remove the barn. 

Supreme Court granted the Jacobs’ motion for summary judgment dismissing the cause of action for fraud. The appeals court affirmed the dismissal.

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. False representation in a property condition disclosure statement mandated by Real Property Law § 462 (2) may constitute active concealment in the context of fraudulent nondisclosure. But to maintain such a cause of action, the buyer must show, in effect, that the seller thwarted the buyer’s efforts to fulfill the buyer’s responsibilities fixed by the doctrine of caveat emptor.

In this case, even assuming, arguendo, that the alleged representations in the property condition disclosure statement constituted active concealment, the Court concluded that the Jacobs met their initial burden on the motion by establishing that those representations did not thwart Chapman’s ability to conduct his own investigation into the property because the status of the certificate of occupancy was readily ascertainable from the public record. Chapman failed to raise a triable issue of fact in opposition to the Jacobs’ motion.

What’s more, an action for fraud requires justifiable reliance. Here, the Jacobs met their initial burden of establishing the absence of justifiable reliance on their alleged representations by submitting evidence that Chapman was aware, prior to closing, that the barn encroached on the adjoining property.

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