When purchasing real estate, buyers typically hire a qualified inspector to review the property and advise of visible defects. When engaging an inspector, a buyer signs an agreement with the inspector. Understandably, these agreements typically include disclaimers which limit the inspector’s liability for conditions which are not visible during the inspection. Such hidden conditions may be blocked behind a seller’s belongings or concealed within the structure. The specific circumstances, the contracts, and industry standards will determine the scope of the inspection and what the inspector can and should detect. Property inspections are not warranties. They are typically not an analysis of whether improvements are made to code or with proper permits and approvals. Buyers should understand the limitations of property inspection reports and their options for supplemental inspections.
Exculpatory Clauses Violate Public Policy
Property inspection disclaimers may go further, and attempt waive the buyer’s remedies in the event the inspector makes a mistake. Such clause is called an “exculpatory clause.” Exculpatory clauses may result in a buyer having no meaningful financial recourse for mistakes made during inspections. New Jersey Courts have refused to uphold exculpatory clauses which violate public policy. For example, home inspectors are professional service providers, and they may be held to certain industry standards. This public policy cannot be avoided by including generalized, one-sided statements in a home inspection agreement. Home inspectors are required to maintain a minimum level of insurance, and such recourse should be available to home buyers who rely upon home inspectors when purchasing a home. For example, the Appellate Division overturned a home inspection agreement which limited the buyer’s damages to $500 or 50% of the fees being paid for the inspection.
Some Limitations on Home Inspector Liability are Allowed
However, a property inspector may limit its liability for certain errors or omissions. In order to limit liability, the inspector’s agreement with the buyer must clearly and plainly describe the limitation and be signed by the buyer. Such a limitation must not otherwise violate law. Therefore, with a properly written disclaimer and limitation, a buyer’s recourse may be limited for errors and omissions in the report which are discovered post-closing. The limitation on liability must then be carefully interpreted against the circumstances to determine a buyer’s recourse, if any, with respect to the inspector. Property inspectors seeking to limit their liability should have their contract reviewed by an attorney who understands applicable law.
Mistakes Due to Seller’s Representations
When new defects are discovered after closing, the first question most buyers ask is: “Did the Seller know about yet fail to disclose the defect?” Often, these issues have little to do with the home inspector. Sellers may not have known of the issue, or may have unintentionally mischaracterized the issue. The representation may have come verbally through a realtor, which further complicates the matter. Rarely do we see written, intentional misrepresentations. However, if any party knowingly mispresents a fact with the intent that the buyer will rely upon the misrepresentation, and the buyer is harmed by that reliance, fraud has occurred. In such case, the buyer may have recourse after closing for the fraudulent misrepresentation. Depending upon the circumstances, other claims may be available to the buyer.
Only Rely on Written Statements Properly Made
The buyer of any property, whether residential, commercial, industrial, or agriculture, should only rely on written representations made by an appropriate party who has personal knowledge and/or proper expertise. Important representations which are only verbally discussed should be memorialized in writing and confirmed. If any person involved in a real estate transaction is not willing to put his or her representation about a property in writing, then the representation is nearly worthless.
Addressing Post-Closing Defects
Sometimes, post-closing defects are unfortunately found, and at no fault to the seller or home inspector. Infrequently, such post-closing discoveries may be the result of fraud or negligence or similar legal claims. Post-closing defects should be carefully reviewed by an independent attorney experienced in litigation, real estate, contracts, negligence, fraud, and construction disputes. Nicole L. Voigt is experienced in handling such matters.