Louisiana Real Estate Sales and Waiver of Redhibition

A redhibitory defect is a condition or characteristic of the real estate sold that existed at the time of delivery of the real estate (“at the time” includes defects that appear within three days of the date of sale). A defect is a redhibitory defect when it renders the real estate useless or its use so inconvenient that it is presumed that the buyer would not have bought the real estate had he known of the defect, or when it diminishes its usefulness or value so that it is presumed that a buyer would still have purchased the real estate but at a lesser price. Examples of redhibitory defects include cracked slabs, an improperly installed roof, certain chronic, recurring odors, and certain repairs not in compliance with local ordinances, to name a few. Generally, no warranty is owed to a buyer if the defects in the real estate are known or made known to the buyer at the time of the sale or when the defects should have been discovered by a reasonably prudent buyer. What constitutes a redhibitory defect and what a buyer knows or reasonably should know will vary with the facts surrounding each real estate sale, including the buyer’s knowledge and expertise, the opportunity to inspect the real estate and any assurances or representations made by the seller of the real estate.

One method frequently used by sellers of real estate to limit or negate the warranties provided for under Louisiana law is the waiver of redhibition clause. In Louisiana, a seller of real estate who is in good faith is allowed to limit the warranties made in regard to redhibitory defects. Louisiana law provides that the parties to a real estate sale may agree to an exclusion or limitation of the warranty against redhibitory defects. The terms of the exclusion or limitation must be clear and unambiguous and must be brought to the attention of the buyer or adequately explained to the buyer. This exclusion or limitation is not effective when the seller of the real estate is in bad faith, that is, when the seller has represented that the real estate has a quality that the seller knew it did not have. The real estate purchase agreement should indicate that the sale will take place with waiver of redhibition, and the act of sale for the real estate must contain a valid waiver of redhibition clause in order to be effective.

Waiver of redhibition clauses generally contain language that indicates that the property is being sold “AS IS, WHERE IS”. Waiver of redhibition language is construed strictly against the seller of real estate, and inclusion of “AS IS, WHERE IS” language alone does not waive the warranty against redhibitory defects. An effective wavier of redhibition clause must, at a minimum, meet the following requirements: (1) It must be written in clear and unambiguous; (2) It must be contained in the act of sale or other document transferring the real estate; (3) It must be brought to the attention of the buyer or adequately explained to the buyer (usually also requiring the initials of the buyer to be placed at the end of the last paragraph of the waiver of redhibition clause).

An effective waiver of redhibition clause will also confirm that no representations of any kind have been made to the buyer of the real estate with respect to any specific characteristic of the real estate, and it will also contain a specific waiver of any warranties whatsoever, including fitness for any specific purpose, any specific characteristics of the real estate, or any zoning characteristics. They are usually three to four paragraphs long and written in complex, legal prose.

Generally, in the absence of an effective waiver of redhibition, a seller of real estate who does not know of the redhibitory defect (in good faith) is only obligated to repair, remedy or correct the defect. If the redhibitory defect cannot be corrected or the seller of the real estate fails to remedy the redhibitory defect, then the seller must return the price with interest from the date paid, reimburse for reasonable expenses resulting from the sale of the real estate as well as costs of maintaining or preserving the real estate. The seller of the real estate may be entitled to a credit for the use of the real estate by the buyer during the period of ownership. With a properly written and acknowledged waiver of redhibition clause, the buyer also waives any rights it may have in redhibition for rescission of the sale or to a reduction of the purchase price. The use of a waiver of redhibition clause in the act of sale of the real estate shifts the burden to the buyer to engage in all appropriate inspections of the real estate.

Conversely, a seller who knows of a redhibitory defect in the real estate sold but fails to disclose it or who represents that the real estate sold has a quality or characteristic that he knows the real estate does not have (in bad faith or fraud) must return the purchase price plus interest from the date of the sale of the real estate as well as costs of preserving and maintaining the real estate, and for damages and reasonable attorney’s fees incurred related to the matter. The seller of the real estate may be entitled to a credit for the use of the real estate by the buyer during the period of ownership. In cases of bad faith, the buyer may alternatively have the option to seek a reduction in the purchase price. The burden of estimating the damages and seeking the availability of the purchase price reduction in lieu of rescission of the sale is on the buyer. In the event that a buyer seeks to reduce the purchase price, the appropriate measure between the actual sales price and the price a reasonable buyer and seller would agreed to if the buyer was apprised of the defect at the time of purchase. Actual costs of said repairs is a key factor in this analysis.

In some instances, buyers who seek a rescission of the sale may be limited to a reduction in the purchase price, depending on the facts and circumstances surrounding the sale of the real estate. Note that when a buyer seeks to reduce the purchase price rather than rescind the sale, he is not required to provide the bad faith seller with an opportunity to remedy the redhibitory defect.

Understanding redhibitory defects, the use of the waiver of redhibition clauses and the availability of remedies related to these issues requires a fact specific analysis of the buyer and seller’s actions, the transactional documents and the condition of the real estate at the time of the sale. Understanding time limits for seeking an action in redhibition against a seller of real estate is also a fact specific question that is largely based on three questions: does a redhibitory defect exist, when did it exist, and, if it existed at the time of the sale, did the seller know of the redhibitory defect. Opportunities to inspect, buyer and seller behavior and other matter specific factors all play into the analysis of the redhibitory defect in sales of Louisiana real estate.

This article is a summary discussion of selected portions of the applicable law and jurisprudence concerning redhibitory defects in Louisiana real estate transactions, and should not be taken as an exhaustive treatment of the issue or relied upon by the reader as legal advice or a legal opinion. For questions concerning this article, please contact the author at (504) 596-2808 or gmueller@mcglinchey.com.