Understanding Texas Real Estate ‘As-Is’ Clauses: Buyer Beware with Exceptions

In Texas real estate transactions, “as-is” clauses are a common source of dispute. These clauses, often invoked by sellers, shift responsibility for assessing the property’s condition to the buyer. However, the enforceability of these clauses depends on the circumstances surrounding the sale. Buyers and sellers alike must understand the legal framework governing “as-is” clauses, including exceptions that limit their applicability.

This article provides an in-depth look at the legal implications of Texas real estate “as-is” clauses, their enforceability, and the exceptions that may apply in certain transactions.

The Texas Supreme Court clarified the meaning of “as-is” clauses in Prudential Insurance Co. of America v. Jefferson Associates, Ltd.:

By agreeing to purchase something ‘as is’, a buyer agrees to make his own appraisal of the bargain and to accept the risk that he may be wrong. The seller gives no assurances, express or implied, concerning the value or condition of the thing sold.

This statement highlights the intent behind “as-is” clauses: buyers agree to accept the property in its current state and assume the risk of any defects. However, the Court also noted important limitations:

By our holding today we do not suggest that an “as is” agreement can have this determinative effect in every circumstance. A buyer is not bound by an agreement to purchase something “as is” that he is induced to make because of a fraudulent representation or concealment of information by the seller. A seller cannot have it both ways: he cannot assure the buyer of the condition of a thing to obtain the buyer’s agreement to purchase “as is”, and then disavow the assurance which procured the “as is” agreement. Also, a buyer is not bound by an “as is” agreement if he is entitled to inspect the condition of what is being sold but is impaired by the seller’s conduct. A seller cannot obstruct an inspection for defects in his property and still insist that the buyer take it “as is”. In circumstances such as these an “as is” agreement does not bar recovery against the seller.

The enforceability of an “as-is” clause is not absolute. As established in Hammond v. Hanser:

In assessing the enforceability of an as-is clause, courts consider the totality of the circumstances surrounding the agreement. An as-is clause generally is enforceable if it was a significant part of the basis of the bargain, rather than an incidental or boilerplate provision, and if it was entered into by parties of relatively equal bargaining position. . . . Nevertheless, two scenarios may render a valid as-is clause unenforceable: (1) when sellers secure an agreement to an as-is clause through false assurances about the value or condition of the thing being sold or by the concealment of information as to its value or condition or (2) when sellers impair or obstruct the buyer’s right to inspect the property. Buyers challenging the enforceability of an as-is clause bear the burden of presenting evidence as to at least one of these exceptions.

If an “as-is” clause is upheld, it acts as a disclaimer of reliance on the seller’s representations and negates causation, which are essential elements for claims such as fraud and violations of the Texas Deceptive Trade Practices Act (DTPA).

The Texas Real Estate Commission (TREC) form, widely used in Texas property transactions, includes a standardized “as-is” clause:

“As Is” means the present condition of the Property with any and all defects and without warranty except for the warranties of title and the warranties in this contract. Buyer’s agreement to accept the Property As Is under Paragraph 7D(1) or (2) does not preclude Buyer from inspecting the Property under Paragraph 7A, from negotiating repairs or treatments in a subsequent amendment, or from terminating this contract during the Option Period, if any.

The form requires buyers to check one of two boxes:

1. Buyer accepts the Property As Is.
2. Buyer accepts the Property As Is provided Seller, at Seller’s expense, shall complete the following specific repairs and treatments: [space provided for details].

In Hammond v. Hanser, the court determined that this clause is generally enforceable due to its negotiable nature. Unlike boilerplate provisions, the mandatory selection process in the TREC form ensures that the clause is a deliberate part of the agreement.

Fraudulent Inducement

An “as-is” clause cannot shield a seller from liability if it was secured through fraudulent inducement. Fraudulent inducement occurs when:

1. The seller makes a material misrepresentation.
2. The seller knew or should have known the statement was false.
3. The seller intended for the buyer to rely on the misrepresentation.
4. The buyer relied on the misrepresentation.
5. The buyer suffered harm as a result.

For instance, a seller who conceals a significant defect while convincing the buyer to waive their inspection rights cannot rely on an “as-is” clause to avoid liability.

Impaired Inspections

Buyers retain the right to inspect the property, and sellers cannot interfere with this process. If a seller impairs or obstructs the buyer’s inspection rights, the “as-is” clause may become unenforceable. Conversely, if the buyer voluntarily waives their inspection rights, they cannot later claim obstruction.

Under Texas Property Code Section 5.008, sellers must provide a Seller’s Disclosure Notice outlining their knowledge of the property’s condition. This notice is often central to disputes over “as-is” clauses, as buyers may argue that inaccuracies in the disclosure amount to fraudulent inducement.

To challenge an “as-is” clause based on the disclosure, buyers must prove the seller knowingly misrepresented the defect. Evidence can include:

• Direct proof, such as emails or reports from contractors.
• Circumstantial evidence, such as signs of deliberate concealment.

Buyers: Protect Yourself Through Due Diligence

Buyers should take proactive steps to protect their interests:

• Inspect Thoroughly: Never skip a professional inspection.
• Review Disclosures Carefully: Look for omissions or inconsistencies.
• Seek Legal Advice: Consult an attorney to assess risks and negotiate terms.

Sellers: Be Transparent and Compliant

Sellers should provide accurate and complete disclosures to avoid legal disputes. Attempting to hide defects or obstruct inspections can undermine the enforceability of an “as-is” clause and lead to costly litigation.

“As-is” clauses are a powerful tool in Texas real estate transactions, but their enforceability is not guaranteed. Exceptions such as fraud, misrepresentation, and impaired inspections provide critical protections for buyers. At the same time, sellers must be diligent in adhering to disclosure requirements and maintaining transparency.

Whether you’re buying or selling property, navigating the legal nuances of “as-is” clauses requires careful planning and expert guidance. At Amini & Conant, our experienced attorneys can help you understand your rights and protect your interests in real estate transactions. Contact us today to learn more.

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