Buyers Be Aware of the Use by Sellers of “As Is” Clauses or Warranty Disclaimers
When Purchasing Property in Arizona
When selling a property, the property’s condition is often a focal point in the negotiation. Buyers want certain assurances or warranties that the property is in good condition, while sellers want to limit their liability exposure. One way for a seller to limit their liability is to include a provision in the contract stating that the property is being sold “as is” while also noting that they “specifically disclaim all warranties.” This blog post will discuss what this means and how it can impact your sales transaction.
An “as is” clause and a warranty disclaimer are two ways to say that the seller doesn’t promise anything in writing. An “as is” clause may be used alone or in conjunction with a “where-is” phrase to create an “as is, where is” provision. These clauses let potential purchasers know that the seller is only willing to sell their property in its present condition. Warranty disclaimers also indicate that the sale will be conducted as it currently exists with no warranties.
The use of these types of contractual provisions should convey the message to purchasers that they are taking an additional risk with respect to the property’s quality and condition. An “as is” clause and warranty disclaimer force the buyer to conduct its own due diligence investigation instead of depending on the seller’s statements before deciding whether or not to buy a property. These clauses are intended to establish the presumption that when a buyer makes an offer on a property, they are satisfied with it, even though the buyer must still do all required due diligence.
When a warranty disclaimer is included in the contract, the seller may avoid offering any representations and warranties regarding the property. When an “as is” provision is included in a contract, buyers should be more watchful and aware of potential issues. On the other hand, such language does not allow sellers to conceal or fail to disclose known property flaws.
The Arizona Court of Appeals made it clear in S Development Co. v. Pima Capital Management Co. that a seller must communicate known faults with the property that are fundamental to the transaction, even if there is a burden-shifting “as is” clause or warranty disclaimers in the purchase and sale agreement.
Nonetheless, buyers should exercise caution when an “as is” clause appears in their sale agreement. Performing comprehensive due diligence is a necessary component of the purchase process, and it should include, at the very least, a title examination; examining the physical condition of the real property and its improvements (including environmental concerns); verifying and obtaining appropriate zoning, permits and permissions; investigating any utility problems; and assessing property operating expenses, taxes, and any assessments levied against the property.
Call our office immediately to set up a consultation if you encounter an “as is” clause or a warranty disclaimer while reading through a purchase and sale agreement.