In the world of real estate law, much is made of the legal disclaimer “caveat emptor,” the Latin phrase meaning “let the buyer beware.” In many jurisdictions, this legal standard place the responsibility on potential buyers for conducting their own due diligence for a real estate acquisition. Sellers rarely are responsible for problems that the buyer(s) encounters once the sale is complete so long as they did not fail to disclose a material fact or make a fraudulent misrepresentation.
In most standard real estate transactions, a due diligence period follows the signing of the purchase and sale agreement, which allows a reasonable amount of time for a buyer to research the property’s history, schedule experts to come to the site, inspect all aspects of the property and prepare written reports.
While it’s prudent for a buyer to be wary in any real estate transaction – certainly there may be hidden dangers on the path ahead – caution is not enough. Rather, a buyer should be conscious of key details of the property and its immediate surroundings, exercise sound judgement when hiring and questioning experts and review thoroughly the actual work product of said experts during the due-diligence period.
In most standard real estate transactions, a due diligence period follows the signing of the purchase and sale agreement, which allows a reasonable amount of time for a buyer to research the property’s history, schedule experts to come to the site, inspect all aspects of the property and prepare written reports.
Case in point: a client called a couple of years ago to complain that the driveway by which he and his tenants (and their customers) accessed his commercial property – said driveway being the primary ingress/egress for the past 60-plus years – was unceremoniously blocked one morning by a locked metal chain. The culprit? The new owner of the next-door property.
Their position? “Well, it’s our property now and we can do as we choose. Besides the preliminary title report did not list an easement, so you (adjacent property owner) have no right to access this driveway.” Further communication proved pointless after the single chain link was substituted with an 8-foot tall construction fence blocking both vehicular and pedestrian access at multiple access points. So off to the courthouse the parties headed.
After considering our arguments in favor of the existence of a prescriptive easement, the court granted our requested temporary restraining order, which initially removed the construction fence. Several weeks later, after hearing additional arguments from both parties, the court granted our motion for a preliminary injunction preventing the new owner from placing any barrier in the driveway easement area until the matter had been decided on its merits.
Pay attention to the details
Months later, when the parties produced all documents during discovery, our team was shocked to learn that certain due-diligence reports – prepared by licensed experts at the direction of the prospective owner – clearly called out the possibility that the driveway was shared and/or used by adjacent property owners.
In fact, the term “driveway” was identified in capital letters with a warning that it appeared (to the inspector drafting the report) to be shared by the adjacent property owners to reach the rear parking lot.
During the ensuing depositions, the new owner admitted that “her staff” had obtained a number of different reports and inspections but she had not read or even looked over a single document. Although she had walked the property site before purchasing it and noticed the driveway appeared to serve both properties, she testified her plan was simply to restrict the ingress/egress once the property became hers to control.
When it came time to depose the defendant’s project manager,who supposedly spearheaded the due-diligence process, it became clear he had also not read the reports and had not asked careful questions regarding the driveway.
The buyer’s cavalier approach to its own due diligence proved to be fatal. Ultimately, the court determined my clients had “established by clear and convincing evidence that they are entitled to a prescriptive easement over the westerly 10 feet of the (driveway)”. This cautionary tale reveals obvious, but often overlooked, instruction for potential buyers of real estate:
1. Pay attention to the key elements of the property and its immediate neighbors. In particular, observe and document whether neighboring property owners appear to use any portion of the property you intend to purchase, such as driveways and parking areas, and make sure you have an understanding of the property’s actual boundaries.
2. Do not rely on statements from real estate agents/brokers who are not verified. Do not assume that just because a title report does not reveal a particular issue, it must not exist, or that because your real estate agent may have a reasonable opinion that you can rely on this opinion without obtaining additional verification.
3. Expert reports are helpful only if they are actually read and followed. Above all, do not order inspections and reports for a new property purchase without reading and reacting to the information contained within the entire report(s). A consultant is responsible for pointing out issues during his inspection, but the buyer is responsible for reviewing and questioning key facts pertaining to the property purchase.
Also, understand that all of the due-diligence documents and reports produced during the purchase process can be used later if litigation ensues.
A buyer who proceeds with awareness, and is actively engaged in the due-diligence process, is much less likely to waste valuable time and resources fighting losing court battles.
Ellia M. Thompson is a partner in the Land Use Practice Group at Venable LLP, where she divides her time between land-use administrative law and real estate litigation.
