In my years of representing real estate brokers, I was taught to—and therefore always did—advise brokers of their duty of disclosure of material facts. Material facts include anything that might impact the buyer’s or tenant’s decision to buy or not to buy, to lease or not to lease, or which would impact the party’s decision on what terms to make an offer. I counsel them to the effect that it is always better to disclose what you know, and that a property owner would likewise have that same duty in dealing with a prospective buyer or tenant. On occasion, I was asked to draft a so-called "bullet proof" disclaimer, so that a broker, sensing or knowing of problems, could side-step the duty of disclosure with impunity. I generally (make that always) declined, warning that if a broker is even accused of (make that sued for) negligent or fraudulent misrepresentation, the pain, time, and expense of even a successful defense would outweigh whatever benefit might be achieved short term in that transaction.

I had an occasion to work with brokers who represented the seller of an industrial property in 1984 that ultimately led to litigation and a reported decision which I will visit shortly. Back then, we were just learning about environmental issues such as asbestos and asbestos containing materials. We came to understand the need for brokers to inquire and confirm in the listing agreement that an owner had no knowledge of any environmental issues or the presence of asbestos or asbestos containing materials in a listed property, also affirming the owner’s duty to disclose same to both the listing broker and to the prospective buyer or tenant. That position pretty much charted the course for me and the guidance I have offered over the last four decades. Language added to the Illinois State Broker License Act protected a broker from liability for failing to disclose what he did not know, or from transmitting information that he received from a customer or client that he did not know to be false. Rarely did my clients or I ever have to rely on those provisions that had been added to the statute, mostly because these brokers simply did the right thing and made full disclosure. They likewise encouraged their seller and landlord clients to make full disclosure as well.

I always wondered though, if there was a form of "As Is Where Is" language or the proverbial disclaimer that if contained in a purchase and sale agreement or lease, would allow a property owner to remain silent and fail to disclose known defects, all within impunity. The very recently released Texas opinion in Pogue v. Williamson, 2020 WL 1173708 (Court of Appeals, Houston, First District, 2020) presented such a case. The facts were compelling on both sides, and this caused the Court to take a long and hard look at the equities. The seller was selling a property that was long since vacated and sold it to the buyer on an installment sale basis. Only when the buyer failed to make monthly payments did the seller attempt to perfect its right to recover the property. This led to a counterclaim in which the contract buyer asserted fraud, seller's failure to disclose water damage, water penetration, and the presence of mold. Note, this was a fraud claim asserted as a counterclaim, and not as the initial claim. In a lengthy, closely reasoned, and with arguments laced with authority, the Court held that in fact with an "As Is Where Is" clause, the seller's benefited from a contractual provision by which the buyer had agreed to not to rely on any facts stated or anything not stated by the seller, in selling the property to the buyer. Apparently, the Court reasoned that parties negotiating at arms-length could contractually waive future claims for fraudulent misrepresentation.

It is not my place to criticize such a carefully written opinion, one which apparently relies on other Texas cases supporting parties’ contractual rights and waiver of future tort claims. Nonetheless, even as I review the many authorities cited in the Pogue case, it causes me great concern, even in fact, pain.

Returning to the 1984 case, my client represented the seller, and the seller made no mention of its knowledge of asbestos containing pipe wrap insulation in the property. Neither the broker nor the seller made any disclosure of that fact to a buyer. Only after closing, and after renovation of the property was commenced did this buyer learn of the asbestos contained in the property, thereby causing additional costs in its removal, and a more expensive renovation of the property. The buyer’s fraud claim was dismissed by the trial court but reversed on appeal (now in the 1990's) with the warning and holding that with the discovery of a report in the seller's files indicating knowledge of asbestos containing materials, the seller had a duty, first to check its complete files, and second to disclose what those files contained. It seems that this case is still the more sensible holding. While the brokers I represented had no first-hand knowledge of the reports held in the seller's files, and while the brokers had indeed made a diligent inquiry and requested all such information, it was not surprising that the broker was neither named in the complaint, nor found to have any liability.

Going forward, I believe the advice I have given over these many years is still the wiser course. While there may in fact be language that can be inserted in a purchase and sale agreement or a lease which would, eventually, and after great court scrutiny, exempt a property owner from disclosing latent defects in property, it is this writer’s opinion, brokers, indeed no seller or landlord, should rely on such protection, regardless of how carefully the language is crafted.

It seems to me, the mere cost of litigation, the threat of liability, and the expense of defense ought to outweigh any short-term gains that might be achieved by an owner or a seller failing to disclose latent defects which it knows exist in the property. Mom said it best, better safe than sorry.