Determining the Implications of “As-Is” in Real Property Contracts

It is common to see items such as cars and trucks, and even real estate, advertised with the words “As-Is” in the listing.  And it is not uncommon for the contracts that memorialize the agreements for the sale and purchase of these items to also include “As-Is” language.

Generally, “As-Is” means that the buyer of real property is purchasing the property “as it is in its present state or condition.” Jaffe v. Bolton, 817 S.W.2d 19, 25 (Tenn. Ct. App. 1991).  This implies the property is taken with whatever faults it may possess and that the seller is released from any obligation to reimburse the purchaser for losses that result from the condition of the property.  Generally, “As-Is” real estate contracts still have an inspection period that occurs before closing and a provision that addresses any adverse conditions that are found during the inspection period.

No matter how unfair or harsh it may seem, Tennessee courts enforce “As-Is” clauses unless there is fraud or mistake.  Odom v. Oliver, 310 S.W.3d 344, 350 (Tenn. Ct. App. 2009).  When a buyer is suing on the grounds of fraud, the claim is typically called fraudulent misrepresentation.  Fraudulent misrepresentation occurs when a seller knowingly makes a representation about the property that was important to the buyer, the buyer relied on the misrepresentation and incurred damages because of that reliance.   In other words, “As-is” does not always relieve a seller from liability when the property has known defects that are not disclosed.[1]

For “mutual innocent mistake,” Tennessee courts hold that rescission can be an appropriate remedy.  Atkins v. Kirkpatrick, 823 S.W.2d 547, 553 (Tenn. Ct. App. 1991).  However, when both parties are mistaken to an adverse fact, “As-Is” shifts the burden of loss to the purchaser.  In Atkins, for example, the Tennessee Court of Appeals held that rescission of the land contract was not justified.  The sellers and buyers in Atkins believed the parcel at issue was suitable for building, but found after closing that it was not.  The “As-Is” clause shifted the burden of loss to the purchasers.

It is important to note that there may be a provision that shifts the burden of loss to the purchasers without using the words “As-Is.”  Because the consequences of these provisions are often hidden in legalese, it is important to be vigilant when purchasing real property.

 

 

[1] Also important is that Tennessee law requires sellers to make certain disclosures or disclaimers.