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Specific Disclaimer of Reliance in Purchase Contract Bars Purchaser’s Claim That It Relied on Representations

Specific language in a contract for the purchase and sale of real property, in which the parties agree that the seller is not making any representations except as expressly set forth in the purchase agreement, and the purchaser specifically disclaims reliance on any such extra-contractual representations, precludes the purchaser from later filing a lawsuit claiming that it relied on such representations. 114 W. 14 Realty LLC v. Brandman, 2017 N.Y App. Div. LEXIS 1502, 2017 N.Y. Slip Op. 1514 (1st Dep’t Feb. 28, 2017).

The parties in this case entered into a negotiated purchase contract for a building containing residential units.  The contract provided that the purchaser was taking title to the property “as is” and contained a “merger” clause stating that no representations were being given except as expressly stated in the contract.  The contract further specifically provided that no representations were being given on several enumerated subjects, including the legal rents for the apartment units and their status under the Loft Law.  The contract additionally provided that no reliance could be placed on statements made by brokers.

Nonetheless, more than one year after closing on the purchase of the building, the purchaser sued defendants including the seller and several individuals affiliated with the seller.  The purchaser asserted that it had been defrauded by several alleged misrepresentations, made outside the purchase agreement, relating to the status of one apartment under the Loft Law and the rent that had been paid for that apartment.  In addition to fraud, the purchaser also asserted claims for breach of the implied covenant of good faith and fair dealing and for unjust enrichment.

The lower court sustained the purchaser’s pleading of its claims, accepting the argument that since the purchase contract had allegedly been procured by fraud, the no-representation clauses were ineffective. The appellate court reversed this decision and dismissed the entire action.  The appellate court held that “Plaintiff’s cause of action alleging fraud against all defendants is barred by the contract’s specific disclaimer language and by the related ‘as is’ and merger language contained in the contract.”  The court further observed that “[t]he rent-regulated status of an apartment in the building was not a matter peculiarly within the seller’s knowledge, so as to permit a claim of justifiable reliance on defendants’ alleged misrepresentations concerning that status despite the disclaimer language.  Even assuming that defendants’ alleged misrepresentations about the rent-regulated status of an apartment were not discoverable by plaintiff, plaintiff’s reliance upon those misrepresentations would not have been reasonable in light of the contract’s language specifically warning plaintiff that defendants made no representations about the rent-regulated status of the building’s units or defendants’ compliance with the Loft Law.”  The implied-covenant and unjust-enrichment claims were also dismissed as being “duplicative of plaintiff’s insufficient fraud claim.”

This case is a reminder that real estate contracts should be carefully written to make clear what representations, if any, the seller is making and to preclude later disputes as to whether the written contract was intended to incorporate any and all representations, thereby precluding post-closing litigation predicated upon alleged statements made by the seller or on its behalf outside the four corners of the contract.

Ganfer Shore Leeds & Zauderer, LLP represented the successful seller and its members in this case.