REAL ESTATE TRANSACTIONS & FINANCE
Fall 2015
Condition of the Land and Premises
Reading Assignment: NWBF pp. 183-208
1.
On April 20, Smith offered to buy farmland from Jones for $250,000. Based upon the legal
description contained in the deed she received when she acquired the land, Jones believed that the
land consisted of 81.1 acres. Smith’s written offer described the land as “Anderson Rd., Dearborn
County, 81.1 acres owned by Jones.” Jones counteroffered a price of $252,500. During their
negotiations, Smith and Jones walked around the boundaries of the land. At no time in their
negotiations was there any specific discussion about the number of acres in the parcel. Smith
accepted Jones’s counteroffer, and the contract was signed.
During the gap period, a survey revealed that while the legal boundaries were consistent with the
“four corners” of the parcel as the parties had walked them during their negotiations, the parcel in
fact contained 88 acres, not 81.1.
After receiving the survey, Jones purported to rescind the contract based upon this discovery, and
offered either: (i) to sell the entire parcel for a total price of $274,000 (an increase of $21,500), or
(ii) to sell the westernmost 81.1 acres for the original $252,500 price. Smith rejected Jones’s
purported rescission and filed suit for specific performance of the contract.
(a)
Should the court grant specific performance to Smith? Why or why not?
(b)
Would your analysis change if the contract had said “81.1 acres (more or less) owned
by Jones”? Why or why not?
(c)
Suppose that Smith had obtained a survey, which revealed that the parcel was 6.9
acres larger than the recital in the contract. Can Smith keep this information secret,
or must Smith disclose this to Jones?
2.
Pamela purchased an office building from Steve, the current owner who bought the building
back in 1980 (the building was constructed in 1965). Based on area land values and the cash flow
from current leases, Pamela offered $7.5 million for the building, and Steve accepted. The parties
signed a contract that provided that Pamela could have the building inspected to confirm that it was
“structurally sound” and to insure that its systems (i.e., electric, heating, cooling, elevators,
plumbing, alarms, etc.) were in good working order. When the inspections did not disclose any
problems, the transaction closed on schedule. One year later, Pamela decided to renovate the
building. As soon as the renovation work began, Pamela discovered that the entire building interior
structure contained asbestos (which had been applied as a fire retardant at the time of the original
construction). Now that the asbestos had been exposed by the renovations, it had to be removed.
The cost of the removal and the delays in renovation due to the asbestos removal cost Pamela
$900,000. Can Pamela recover anything from Steve on account of the cost of asbestos removal?
Why or why not?
3.
Suppose that in Problem 2, Pamela had discovered the presence of the asbestos before the
closing (but the asbestos had not been exposed or disturbed, so it does not have to be immediately
removed). Based upon the presence of the asbestos, Pamela purports to rescind the contract. Can
Steve enforce the contract? Why or why not?
4.
Assume that you were representing Steve in the negotiation of the contract for the transaction
described in Problem 2. Based upon the date the building was originally constructed, you are fairly
certain that the building’s interior structure contains asbestos fire retardants that will have to be
removed if the building is renovated. What advice do you give to Steve about whether he should
disclose this information? What if he is asked a direct question about whether the building contains
asbestos? How would your answer change, if at all, if Steve knows that Pamela is planning an
immediate renovation of the building? Under these circumstances, would you (as Steve’s lawyer)
owe any duty to Pamela?
5.
In 2010, Jones bought a home from Davis. Before selling the home, Davis had provided
Jones with a Residential Real Estate Sales Disclosure form that disclosed no termite problems. After
taking possession, Jones discovered termite damage in one wall, and sued Davis for
misrepresentation, ultimately reaching a mediated settlement. In this process, Jones had the termite
damage treated by Orkin.
In 2015, Jones decided to sell the home, contacting Miller (a local broker) to list the home. Lewis
saw the listing, toured the home, and ultimately submitted an offer. Lewis received a copy of a
disclosure form, signed by Jones. The form included a question that stated: “Are you aware of any
termite problems with the home?” Jones answered this question: “No.” The form did not disclose
the previous termite damage to the home or the ensuing lawsuit with Davis.
Lewis completed the purchase. Six months later, Lewis discovered termite damage in the same wall,
which had not been satisfactorily resolved by Orkin’s 2010 treatment. Lewis then filed a lawsuit
against Jones for misrepresentation for failure to disclose the previous termite damage and the
lawsuit with Davis. Should Lewis prevail? Why or why not? What additional information, if any,
would you want to discover? See, e.g., Ind. Code § 32-21-5-11.
6.
Smith is selling a home. Smith’s next-door neighbor has an 18-year old son who is a
member of the Young Aryan Nation and has been arrested on several occasions for involvement in
acts of racially-motivated violence. One block away, another of Smith’s neighbors is a registered
sex offender who was released two years ago following a lengthy prison term for sexual assault
involving a child. Must Smith disclose this information to prospective purchasers? Would it matter
if a particular prospective purchaser was an Orthodox Jew? A single mother with three daughters?
7.
As noted in footnote 1 of the Speight case (which appears on page 199), Missouri courts limit
the implied warranty of workmanlike construction to the original buyer of the home. If a defective
home is two years old, should it matter whether the plaintiff is the original buyer or someone to
whom the original buyer sold after only six months? What advice would you give to someone
buying a relatively new home from its original buyer (not the builder)?
8.
Suppose that the contract in Speight had contained the following language: “Builder
expressly warrants the home, as to materials and workmanship, for a period of 2 years, in lieu of any
other warranty, express or implied.” Would this have barred the plaintiff’s action? Why or why
not?
9.
Go back and look at the “Seller Disclosure and Buyer’s Inspection” and the alternative
warranty provisions (“Seller Warranties” and “No Warranties by Seller”) in the form contract on
pages 28-29. If you were representing a Seller, what changes would you think necessary to the form
to protect your client adequately? What if you were representing a Buyer?