Real Estate Reflections: Disclosure dilemmas: The uncertain impact of New York's Property Condition Disclosure Act

As of Mar. 20, 2024, sellers of one- to four-family homes are required to furnish a Property Condition Disclosure Statement (“PCDS”) to potential buyers prior to contract signing. This legislative change, outlined in Section 462 of Article 14 of the Real Property Law and commonly known as the Property Condition Disclosure Act (“PCDA”), aims to inform purchasers of the increasing risk of flood damage in New York State. And while modernizing the law to address the impact of climate change is a commendable goal, the new regulation promises to yield murky waters before the industry finds clarity.

Historically, New York has adhered to a “buyer beware” standard, rooted in the longstanding doctrine of “caveat emptor.” Under this doctrine, buyers are responsible for conducting their own due diligence through inspections and the review of public records. The parties then execute a sales contract which is only valid until the transfer of title. Once the deed transfers to the new owner, the sellers walk away from the property free and clear unless they actively concealed a known hazard. Before Mar. 20, sellers had the option to provide purchasers with a $500 credit at closing, effectively opting out of the Property Condition Disclosure Act. This relieved sellers from their obligation to furnish a PCDS, thereby shielding them from post-closing liability.

The new legislation, on its face, diverges from caveat emptor by placing the burden of disclosure on the seller and eliminating the option of providing a credit in lieu of disclosure. But then the law takes an odd turn. It specifically allows the parties to enter into an “as-is” agreement where the property must be delivered in its current condition, with reasonable wear and tear as an exception. This is the most common way for a seller to limit liability tied to a property’s condition.

In the current real estate climate, characterized by low inventory and high buyer demand, properties are receiving multiple offers, leading purchasers to waive contingencies to bolster their bids. Notably, the new Act is silent as to whether a purchaser may waive their right to receive a PCDS. As such, some attorneys advise sellers to abstain from completing the disclosure to prevent post-closing liability. Other attorneys opt to have their clients provide the disclosure, but then contractually declare the deal an “as-is” transaction, emphasizing that purchasers must rely solely on their own due diligence and limiting the seller’s liability to the contract timeline. Practitioners acknowledge that they cannot predict which of these protective measures will be enforceable, but there seems to be a consensus that only time will tell.

In sum, the Property Condition Disclosure Act has introduced ambiguity into real estate transactions. As with any new law, we are venturing into uncharted territory. As lawsuits arise, emerging precedents will ultimately shape the application of these requirements, adding complexity to an already intricate legal landscape.

Randie P. Paterno, Esq. is a real estate attorney with offices in Rye. Randie is licensed in New York, Connecticut, and New Jersey and lives in Rye Brook.