REAL ESTATE GONE BAD: TRUE LEGAL STORIES FROM PRUDENTIAL CALIFORNIA REALTY

September 14th, 2012 at 7:11 pm

As you know, every few months we like to share true stories about disputes or litigation we have been dealing with. In today’s case, we represented the seller in the sale of his property. The property had many beautiful and unique features, including a large stable that allowed for the boarding of up to 10 horses. At the time of our listing, the seller had leased the stables to a woman who was operating a riding school at the property. According to our seller, the school had been there since before he bought the property and had operated continuously for as long as he knew of the property. When the property was shown to potential buyers, we made no representation about the business. We, of course, identified the large stables, but said nothing about what use could be made of them. On the other hand, whenever we showed the property to anyone, including the ultimate buyer, the riding school was in operation and we let all those buyers watch the lessons and believe that the business could continue after their purchase. In truth, everyone involved, including our agent, the buyer and the seller, believed (assumed) that the riding school was legal and nothing to the contrary was said to anyone.

Of course, after close of escrow, a government official visited the property and told the buyer that the zoning prohibited the operation of the business. It turns out that a neighbor had complained about the business three years earlier, and two and a half years before our transaction, and it took that long for the county to get around to the complaint. We tried to get a variance to allow the business’s continued operation, but the county said no. So, we were left with a lawsuit for misrepresentation and non-disclosure. Given that the alleged fraud related to a business, this case was very expensive to settle.

So, what is the lesson of this story? The main thing is that old lesson we learned as children: Do not assume anything. While I would not have wanted our agent to confirm the zoning of the property, or make any representations about the business, when the facts on the ground make a representation of this nature, that an operating business was legal, and we don’t know if that is true, we need to explain our lack of knowledge to the buyer. We cannot allow the “implied” representation of the condition’s existenceto be accepted by a buyer. Tell the buyer you don’t know if the business is legal, or if the structure is legal, and recommend that they check if they would like. That simple statement, which is obviously true, avoids the problem and, most importantly, avoids the expensive lawsuit.
As always, contact us with any questions you may have

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