Texas Court Says AS-IS Clause Possibly Unenforceable

October 7, 2019

The Third District Court of Appeals in Austin recently held that an as-is clause in a purchase contract may be unenforceable. The Court found that there was a question of fact as to whether or not the seller fraudulently induced the purchaser to agree to the as-is clause by failing to disclose certain information about the property.

The case involved the sale of a residential property where the seller had owned the property for over 30 years and was well-aware of the condition and history of the property.  Seller provided a Seller’s Disclosure Notice that indicated there were no previous fires and no known encroachments on the property. In fact, there had been a fire in 2007 and the neighbor’s fence was encroaching on the property. The purchaser had an inspection performed, which identified several defects in the property, but the inspection did not reveal the previous fire or the encroachment of the neighbor’s fence. After the inspection, the purchaser proceeded to closing.

Two years later, the purchaser filed suit against the seller regarding the condition of the property. The purchaser argued that had the defects been disclosed, she would not have entered into the as-is purchase contract. The Court held that the purchaser had sufficient evidence to support her claim that she was fraudulently induced to enter into the as-is contract due to the seller’s failure to disclose the fire and the encroachment.

Therefore, while an as-is clause will generally negate a claim against the seller regarding the condition of the property, this Court seems to require a seller to disclose known defects about the property in order to take advantage of the protection of the as-is clause.  It is unknown if this rationale would translate to a commercial contract situation where the buyer is deemed to be more sophisticated.

Ivy v. Garcia, 2019 Tex. App. LEXIS 6962 (3rd Dist. 2019)