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Vol. 2008-4-a | April, 2008

Construction Defects

When construction defects, known to the seller of real property, are not disclosed to the buyers, as mandated by the Ohio Disclosure laws, they may become the subject of heated litigation. The Court’s opinion in one recent case provided a concise analysis and explanation of Ohio’s laws applicable to construction defects:

{¶10} The Ohio real property disclosure statute, R.C. 5302.30, requires the disclosure of certain material defects regardless of whether the defect is discoverable or observable. See Rose v. Zaring Homes (1997), 122 Ohio App.3d 739, fn. 3. But, R.C. 5302.30(F)(1) states that a seller is not liable in damages for “any error in, inaccuracy of, or omission of any item of information required to be disclosed in the property disclosure form if the error, inaccuracy, or omission was not within the transferor’s actual knowledge.” Only those defects of which the seller has actual knowledge are required to be reported on the Disclosure Form.

{¶16} However, the statute does not displace (sellers’) common-law duties to buyers. Sellers have a common law “duty to disclose material facts that are latent.” Layman v. Binns (1988), 35 Ohio St.3d 176, 178. A patent defect is a defect that, upon inspection, an ordinary prudent person would discover. Clark v. Allen, 154 Ohio App.3d 200, 205-206, 2003-Ohio-4617. All other defects are considered latent defects. See id. The failure to disclose facts where there is a duty to disclose has been held to be fraud. Klott v. Associates Real Estate (1974), 41 Ohio App.2d 118, 121; Jacobs v. Raceveskis (1995), 105 Ohio App.3d 1, 4. Nondisclosure rises to the level of fraud when the seller intentionally fails to disclose a material fact with the intent of misleading the buyer and the buyer justifiably relies on the failure to disclose. Gentile v. Ristas, 160 Ohio App.3d 765, 2005-Ohio-197, ¶53. (Emphasis supplied.) For latent defects, of course the seller is only required to disclose those defects of which the seller has actual knowledge at the time of the transaction. See, e.g., Good v. McElhaney (Sept. 30, 1998), Athens App. No. 97 CA 41, 1998 WL 682328 at *5. Thus, in order to prove fraudulent nondisclosure, appellant must also show actual knowledge on the part of appellees.

{¶17} In order to prevail on a claim of fraudulent concealment, appellant must establish the following elements: “(1) concealment of a fact, (2) which is material to the transaction at hand, (3) made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred, (4) with the intent of misleading another into relying on it, (5) justifiable reliance upon the concealment, and (6) a resulting injury proximately caused by the reliance.” Fifth Third Bank v. Cope, 162 Ohio App.3d 838, 2005-Ohio-4646, ¶25, citing Cardi v. Gump (1997), 121 Ohio App.3d 16, 22. The knowledge standard with respect to fraudulent concealment requires that appellant show only that appellees acted in reckless disregard for the truth, rather than with actual knowledge of its falsity. Reardon v. Hale, 2007-Ohio-4351. [CA WARREN, Aug. 27. 2007]

Judgment is more than skill. It sets forth on intellectual seas beyond the shores of hard, indisputable factual information.
Kingman Brewster

AUTHOR / EDITOR: J. NORMAN STARK is an Attorney-at-Law, a Registered Architect, (AIA, NCARB) Registered Landscape Architect, Interior Designer, Planner and Senior Appraiser (ASA), admitted to practice law before the Bar of Ohio, the US District Courts, Ohio and Illinois (Central Dist.), the US Court of Appeals, and the United States Supreme Court. He is a Mediator, Arbitrator and Litigator with experience in Business, Construction Law, and Public Works, and with additional experience in Real Estate, Construction Attorney (Legal Project and Crisis Management), and as an Expert Witness (Forensic Architect). His office is in Cleveland, Ohio.