Under today’s law, you -- as a New York home seller -- could be found liable to a buyer for having failed to disclose certain property conditions, or defects, in the course of the sale. This is a change from prior New York law under which a seller could remain silent about home defects without risking liability. Let’s take a look at the old law, and then review the recent changes that expanded the seller’s duty to disclose, as well as your potential liability for failure to disclose.
The Old Law Was “Caveat Emptor” or “Let the Buyer Beware”
Historically, New York home sellers had little duty to disclose. New York courts usually refused buyers’ claims for damages for home defects under the doctrine of “caveat emptor,” or “let the buyer beware.” The buyer was expected to inspect the property and review the public records to determine whether or not there were any issues that might require repair or remediation or make the property a less desirable purchase. If the investigation uncovered a defect, the buyer’s only remedy was to request the problem be fixed before closing, or walk away from the purchase — if the purchase contract allowed it.
Exceptions to Caveat Emptor Rule Affect Seller’s Duty to Disclose
Over time, the New York courts created several exceptions to the general rule of “caveat emptor,” thus increasing a seller’s risk of liability to the buyer for defects. A seller who actively concealed a defect could be found liable to the buyer for damages caused by the defect. A seller with a special relationship of trust to the buyer, such as trustee-beneficiary, guardian-ward, agent-principal, or attorney-client, could be liable for undisclosed defects. In another, significant exception to the general rule of “caveat emptor,” a seller could be held responsible for a defect that the seller knows about, but failed to disclose, but only if the buyer was unlikely to discover the defect upon reasonable inspection. See Stambovsky v. Ackley, 572 N.Y.S.2d 672 (1st Dept 1991).
Disclosure Requirements under the Property Condition Disclosure Act
To add to the courts’ findings, the New York legislature created the Property Condition Disclosure Act (the PCDA) (N.Y. Real Prop. Law §§ 460-467). (It went into effect on March 1, 2002.) Now, in addition to facing potential liability for failing to disclose under the exceptions to “caveat emptor,” you must make certain disclosures under the law. The PCDA requires you to complete a standardized disclosure statement and deliver it to the buyer before the buyer signs the final purchase contract.
Let’s take a closer look at what the disclosure requirements of PCDA mean for New York home sellers.
Who Must Make Disclosures
The PCDA applies to “residential real property,” which the law defines as a one- to four-family dwelling that is either actually used as a home or residence by one or more people, or intended to be used as a home or residence by one or more people.
The term does not include condominium units, cooperative apartments, vacant land on which the owner intends to build a residence, or property in a homeowner's association that is not owned by the seller. (N.Y. Real Prop. Law §461(5).)
The law applies to all contracts for the purchase of “residential real property,” including long-term installment contracts and leases with either an obligation or an option to purchase the property. (N.Y. Real Prop. Law §461(4).)
Types of Disclosures New York Sellers Must Make
The PCDA requires you to complete a standard form disclosure statement, a copy of which is available on the New York Department of State website. The language of the disclosure statement comes directly from the law, and contains 48 questions about the property. The questions are organized by topic, and the topics are:
- general information: age, ownership, utility surcharges and possession of the property
- environmental: whether the property is located within a flood plain, wetlands, or agricultural district, near a landfill; whether the property contains asbestos, lead pipes, or fuel storage tanks; whether a radon test has been performed on the property;, or whether petroleum products or hazardous or toxic substances are known to have been spilled, leaked, or otherwise released on or from the property
- structural: water, fire, smoke, or insect damage and the condition of the roof, and
- mechanical systems and services: utilities, water source and quality, sewers, drainage, flooding.
The disclosure statement also asks you to check off any systems or property components that have known defects from a list that includes plumbing, air conditioning, heating, hot water, security and other detection systems, foundation, walls, sump pumps, floors, chimneys, patios, decks, or driveways. If any of these systems or components are defective, you should describe the defect in detail in the spaces provided on the form. (N.Y. Real Prop. Law §462).
Are You Exempt From the Disclosure Law?
You are not required to complete and deliver the disclosure statement for certain types of property transfers that are exempt from the PCDA. The following property transfers are exempt:
- transfer ordered by the court in a lawsuit such as a probate, mortgage foreclosure, bankruptcy, legal partition, or divorce
- transfer to your lender to satisfy your mortgage or prevent a foreclosure
- transfer made to distribute the property of a decedent’s estate or trust, or made during the administration of a guardianship or conservatorship
- transfer to another co-owner of the property, or to your spouse or a relative from a common ancestor, such as a parent, grandparent, child or grandchild
- transfer that has not been ordered by a court, but is part of the settlement of a divorce, annulment, or legal separation
- transfer to a the state of New York, or any other unit of local government, whether part of a condemnation, or not, and
- transfer of newly constructed property that has never been inhabited.
The Seller Need Not Investigate or Hire an Inspector
Under the PCDA, you do not have to make any investigation or inspection of the property or check the public records for information about the property before completing the disclosure statement. You are required to disclose only known defects, without making any special investigation or inspection.
The language of the disclosure statement reminds the buyer that it is not a warranty or guaranty from the seller regarding the condition of the property, and is not intended to substitute for any of the inspections, testing, or other research generally recommended to buyers.
Procedure for Completing and Delivering the Disclosure Statement
The real estate broker, agent, or sales person, representing you in your home sale — usually called the listing broker — is required to remind you of your disclosure duties under the PCDA, and will likely provide you with a copy of the standardized form disclosure statement. The listing broker is also required to share this information with any unrepresented buyer. Any listing broker who fails to inform you, or the buyer, about the PCDA may be liable to either for this violation.
You must complete the disclosure statement by answering the questions and explaining any known defects in detail in the space provided on the form, or on a separate sheet of paper that you may attach. Then, you sign the certification located near the bottom of the last page. Your signature means that your answers, and any explanations on or attached to the form, are true and complete to your actual knowledge as of that date.
The completed and signed disclosure statement should be delivered to the buyer before the buyer signs the final purchase contract. Typically, the listing broker will give the completed disclosure statement to the buyer or the buyer’s agent. If there is no listing broker, you may deliver the disclosure statement directly to the buyer or the buyer’s agent. The buyer then signs an acknowledgment of receipt and understanding, which is located at the bottom of the form. A copy of the completed form should be attached to the final, signed purchase contract.
Disclosure Statement Revisions and Updates
You must deliver a revised disclosure statement to the buyer if you become aware of an inaccuracy in original statement, or if you discover a defect in the property after delivery of the original. However, you have no duty to revise or update the disclosure statement after the closing, nor after possession of the property is transferred to the buyer if that occurs on a date other than the closing date. (N.Y. Real Prop. Law §464).
If You Don’t Make the Required Disclosures: Risks and Penalties
If you timely deliver a disclosure statement, with or without a revision or update, you may be liable to the buyer for a “willful failure to perform” the requirements of the law. (N.Y. Real Prop. Law §465(2)). New York courts have interpreted “willful failure to perform” under the PCDA narrowly. If you make a misstatement in the disclosure statement, it is likely that you will be liable to the buyer only if the misstatement actually prevents the buyer from learning about the defect through the usual inspections, or the defect could not reasonably be discovered through an inspection. In one case, for example, the court ruled that the seller was not liable because the buyer had hired an engineer to inspect the property, so the disclosure statement did not thwart the buyer’s ability to assess its condition. See. Renkas v. Sweers, 814 N. Y. S. 2d 892 (Sup. Ct., Monroe Co. 2005).
If you are liable to the buyer for a “willful failure to perform” the requirements of the PCDA, you may be required to pay the buyer’s actual damages causes by the defect.
If you fail to timely complete and deliver the disclosure statement, you will owe the buyer a $500 credit toward the purchase price at the closing. (N.Y. Real Prop. Law §465(1)). Some New York seller’s attorneys interpret this relatively low penalty as an opportunity for their clients to opt out of the PCDA by paying the $500 in lieu of providing the form, and see this as avoiding the risk of potential liability for misstatements on the form.
However, paying the $500 statutory remedy does not protect you from liability under the case law exceptions to “caveat emptor,” described above. So, you should consult an attorney before making any decision not to complete the form, or not to otherwise disclose a material defect in the property. If you decide to give the $500 credit in lieu of the disclosure statement, ask the buyer to acknowledge in writing that the credit was accepted in lieu of the statement.
Federal Law Requiring Lead Disclosure
Federal law requires disclosure of potential lead paint hazards, as described in “Required Disclosures When Selling U.S. Real Estate.”
Before putting your home on the market, it's wise to consult an experience real estate attorney for further information about state and federal real property sale disclosure requirements.