June 18, 2015
Our firm is frequently called by buyers about claims relating to defects in real property, commercial and residential, after the closing. They are disappointed that some aspect of the property or another is defective, and demand repairs paid by the seller. Cracks in a concrete slab, mold, water leaks in plumbing, roofs and basements, and present or past termite infestation and damage are just a few of the common complaints.
The law on this topic is well-developed in Ohio. Under Layman v. Binns and Traverse v. Long, the Ohio Supreme Court has clearly adopted the doctrine of caveat emptor, or “buyer beware.” The Court has pronounced that buyers have no cause of action against a seller unless either (a) the defect was not discoverable upon a reasonable inspection and the seller knew about the defect or (b) the seller took steps to actively conceal or lie about the defect.
So, the Layman standard sets up a difficult factual challenge: a plaintiff must show that the damages were not reasonably discoverable by him on inspection, but on the other hand, as of the time of the litigation, the problems are so great that (a) the seller certainly knew about them and (b) they deserve significant recompense by the Court. This is a vexing problem for every property defects plaintiff, commercial or residential.
The Layman case was decided in 1988, and then only a few years later the Ohio legislature affirmatively mandated for single family homes the use of the Ohio Residential Property Disclosure Form. The current version of that form is here.
Because either affirmatively covering up a defect or making an affirmative misrepresentation can be the basis for liability under Layman, a misrepresentation on the Residential Property Disclosure Form can form the basis for liability under Ohio law. Indeed, in our experience on property defects cases for residential properties, a mis-statement on a Residential Property Disclosure Form is the most common basis for these liability claims.
When pursuing a property defects claim, the plaintiff has several legal causes of action (i.e., bases under the law for suit). These include breach of contact, misrepresentation and fraud. Of these, only the fraud claim can be the grounds for recovery of attorneys fees and punitive damages, and our experience is that — even under that cause of action — state court judges in Ohio are extremely reluctant to arrive at liability including punitive damages and attorneys fees. As such, a Plaintiff should enter into the litigation understanding that a “win” involving reimbursement of his fees invested in the case are unlikely.
In the commercial setting, where actual damages arising from the defect may be in the hundreds of thousands and millions of dollars, litigation may yield an economically positive outcome. However, in the residential setting, buyers must carefully consider the cost-benefit of pursuing this litigation. Conversely, a seller defending against such a claim may want to consider what he must invest in that defense, versus an early settlement.
Given that our firm’s objective for each matter assigned to us is to “make a difference” for the client, we carefully work with clients in property defects litigation to develop a strategy that is most likely to result in a net positive outcome for the client.