We delve into a more legal, technical and lengthy post this week for a good reason — a recent decision from a Virginia trial court (PDF of decision) points to a new avenue for claims by buyers of real estate in Virginia.

Virginia generally looks to the sales contract to evaluate liability. Sales contracts often have very limited warranty and disclosure obligations placing the buyer into the position of “caveat emptor,” or let the buyer beware. Fraud claims have traditionally operated as a separate path to liability; however, fraud claims are notoriously difficult to allege prove. They require the buyer to allege claims with extreme specificity and prove them to the elevated standard of “clear and convincing evidence” rather than a simple preponderance. Fraud claims also exclude liability for statements of opinion or future performance.

A decision from Charlottesville, just reported this week by Virginia Lawyer’s Weekly (VLW subscription only) allowed a new potential claim to survive the initial pleading stage. A buyer of a residence suffered flooding caused by a clogged drain of a neighboring property. The buyer learned that the drain had clogged and caused flooding of the residence several times before the purchase. The purchase contract contained a home inspection contingency, but the inspection did not reveal the problem. The sellers and agent did not disclose the problem.

The buyer sued the real estate agent who was also a partial owner and thus seller of the property. The buyer included claims for fraud, constructive fraud and also for a violation of the agent’s statutory duty to disclose known property defects contained in Virginia Code § 54.1-2131(B). On motions, the court dismissed the fraud and constructive fraud claims finding there was no showing of active concealment of the flooding as opposed to mere lack of disclosure. The court permitted a count based on “Breach of Statutory Duty to Disclose Material Adverse Facts” based on the code section.

This case may present a novel situation in that the agent was also a partial owner and thus seller of the property. The statute does not create a specific cause of action. A prior 2004 case from Loudoun County (VLW subscription only) had ruled the statute does not allow a separate cause of action. Agents and sellers should beware of this case as it may provide a complete end run around the contract and traditional concepts of caveat emptor.

Originally posted at the Washington Business Journal, reprinted with permission.