Off-Site Conditions and Disclosure Duties: Drawing the Line at the Property Line

I. INTRODUCTION A. The Duty To Disclose Defects In a majority of jurisdictions, a seller of real property has an affirmative obligation to make certain disclosures to the buyer concerning the condition of the property being sold.1 This is a reversal of the old rule of caveat emptor, "let the buyer beware," that governed sales of real property until the middle of the twentieth century.2 Under the doctrine of caveat emptor, as long as the seller did not affirmatively misrepresent the condition of the property or conceal a defect, he could without liability remain silent and fail to disclose the existence of defects to the buyer.3 The doctrine of caveat emptor was abandoned for reasons of fairness and efficiency. As one court noted, modern notions of good faith and fair dealing are inconsistent with a seller escaping liability for the existence of a latent defect of which he knows and declines to disclose to a diligent buyer.4 Accordingly, most states now impose a duty on sellers to disclose certain defects to buyers. Generally, a defect must be disclosed if it is known to the seller, not observable to the prospective buyer, and materially affects the value of the property.5 B. The Problem of Off-Site Conditions An unresolved issue regarding the scope of the seller's obligation to disclose conditions affecting the property concerns the location of the alleged defect. The initial cases overturning caveat emptor, and by far the majority of cases imposing a disclosure duty, have involved defects located within the boundaries of the property being sold. Such defects are referred to as "on-site conditions" and include, for example, a leaky roof,6 a cracked foundation,7 cockroach infestation,8 defective sewage disposal,9 and asbestos on the property.10 However, some disappointed buyers have sued sellers for failure to disclose defects when the alleged defect was external to the property itself. Such defects are called "off-site conditions." Examples of off-site conditions include noisy neighbors,11 a nearby highway,12 an adjacent wastewater treatment plant,13 construction of an apartment complex in the area,14 a neighbor's plans to build a tennis court,15 and a toxic waste contamination problem on a neighboring property.16 C. Summary of Article Courts use various approaches when the alleged defect is an offsite condition. Part II outlines these differing methods. Some jurisdictions use the same test as they would if the defect were on the property itself.17 Other jurisdictions have formulated specific rules applicable to off-site conditions.18 Similarly, jurisdictions have adopted different legislative approaches to off-site conditions which are explored in Part III. Some statutes require disclosure of certain off-site conditions,19 while others appear to limit the disclosure duty to on-site defects.20 Part IV briefly mentions the treatment of two problematic off-site conditions-stigma defects and the presence of a sex offender in the neighborhood. After exploring the various judicial and statutory approaches, Part V argues that nonprofessional sellers21 of real estate should have no duty to disclose off-site conditions. Such a bright-line rule of no disclosure would provide predictability and promote judicial efficiency without compromising fairness.22 II. JUDICIAL APPROACHES TO DISCLOSURE OF OFF-SITE CONDITIONS A. Off-Site Defects Treated the Same as On-Site Defects A number of courts have utilized an approach that makes no distinction between disclosure duties for on-site and off-site conditions. The same test is used for a seller's duty to disclose defects, irrespective of the physical location of that defect. 1. Parameters of the common law disclosure duty Most states that impose a common law duty on sellers to disclose defects look to similar factors to determine what defects must be disclosed. Disclosure is required for defects that are (1) known to the seller, (2) unknown and not readily observable by the buyer, and (3) material. …