If you are buying or renting real estate in New York, it is important to do your due diligence before signing a contract or lease. New York adheres to the traditional rule of “caveat emptor,” which means the seller in an arms-length real estate transaction is not obligated to disclose any information regarding the property. The buyer is responsible for inspecting the property and acquiring whatever information may be necessary. A seller, or a seller's agent, is only liable when there is evidence of “active concealment” of some possible defect in the property.
Landlord's Agent Not Liable for Failing to Inquire About Rental Permit
These rules apply not just to the physical condition of the property, but also its legal status. Here is an illustration from a recent New York appeals court decision. The subject of this case is a residential property in the Town of Southampton on the eastern shore of Long Island. The property owner hired an agent to seek a tenant for the property during the summer of 2013. The plaintiffs were the tenants. They signed a lease covering a little over three months.
But according to the plaintiffs, after signing the lease, they learned the property owner had failed to acquire a proper rental permit for the property. The Southampton Town Code requires a rental permit before any tenant may occupy or use any “dwelling unit as a rental property.” The plaintiffs subsequently sued the property owner and his real estate agent for, among other things, negligence and breach of fiduciary duty.
Suffolk County Supreme Court dismissed the claims against the real estate agent. On appeal, the Appellate Department, Second Department, concurred. The Second Department addressed two specific claims against the agent: First, that the agent “negligently listed the premises for residential rental when the premises lacked a valid rental permit,” and second, that they violated a duty under New York to “deal with the plaintiffs honestly, fairly, and in good faith, and to disclose all facts known to them that materially affected the value and desirability of the premises.”
Regarding the first argument, the Appellate Division said New York law does not require a real estate agent “to investigate whether the premises had a valid rental permit.” Here, the doctrine of caveat emptor expressly applied; unless there was evidence the agent actively concealed the lack of a rental permit, which the plaintiffs did not allege, the agent was not liable. As for the second argument—violating a duty to deal in good faith—the Appellate Division noted the agent only owed such a duty to the property owner, not the tenants.