January 1, 1900

by Thomas F. Carroll, III

In a recent opinion handed down by the Appellate Division, it has been held that builders must once again adhere to the Consumer Fraud Act's provisions governing the need to disclose off-site conditions. In the opinion, Nobrega v. Edison Glen Associates, issued January 21, 2000, the court casts aside the protections that had been offered by the New Residential Construction Off-Site Conditions Disclosure Act (Disclosure Act), thereby leaving real estate sellers subject to suits asserting that they failed to disclose off-site conditions.

The Disclosure Act and Strawn

The Disclosure Act, N.J.S.A. 46:3C-1 to -12, became effective in September of 1995. The Disclosure Act was enacted in response to a New Jersey Supreme Court decision known as Strawn v. Canuso, 140 N.J. 43 (1995). The Strawn case presented sellers with enormous difficulties. In Strawn, the Supreme Court held that sellers may be held liable not only for affirmative misrepresentations, but also "for nondisclosure of off-site physical conditions known to it and unknown and not readily observable by the buyer if existence of those conditions is of sufficient materiality to affect the habitability, use, or enjoyment of the property and, therefore, render the property substantially less desirable or valuable to the objectively reasonable buyer."

The Strawn language provided numerous uncertainties to sellers wishing to adhere to the standard. For example, what types of "physical" conditions had to be disclosed? How near must they be to fall within the duty to disclose? What is a condition that is "not readily observable by the buyer"? In short, the duty was incredibly vague, and no seller could ever be sure that the standard was met.

The Legislature enacted the Disclosure Act to remove this uncertainty. The Disclosure Act essentially requires owners of property with certain types of conditions, as well as agencies, to provide municipal clerks with information concerning such sites. To choose one example, the DEP must advise municipal clerks of the location of "Superfund" sites. The Disclosure Act further requires municipalities to maintain lists of such sites, and sellers were obligated to provide buyers with a notice advising them to review the municipal lists of the off-site conditions specified by the Legislature. Providing such notice was to immunize the seller from claims alleging that off-site conditions were not disclosed.

The Nobrega Case

The Disclosure Act appeared to provide a sensible, unambiguous solution to the problem that had been created by the Strawn case. However, for all intents and purposes, the Nobrega case removes the protections offered by the Disclosure Act. Specifically, the Nobrega court held that Section 2 of the Consumer Fraud Act, N.J.S.A. 56:8-2, still applies to new home sales. Section 2 provides, in part, that sellers of real estate shall be liable for the "knowing concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of ... real estate..."

Thus, we are once again confronted with the vexing questions the Disclosure Act was designed to eliminate. For example, what is a "knowing concealment?" What is a "material fact" that is concealed with "intent that others rely upon" it? What types of conditions have to be disclosed? How near must they be to fall within the duty?

These questions must be considered on a development-by-development basis. Generally, it will still be advisable to provide the notice called for by the Disclosure Act, even though the Act has been watered down by the Nobrega case. The possible ramifications of failing to disclose any given, known off-site condition must also be analyzed.

What's Next

As this issue went to press, the likelihood of Supreme Court review of Nobrega remained unclear. However, the case basically removed the protections offered by the Disclosure Act, which was made all the more mystifying when it is considered that the court could have provided the plaintiff-buyers with relief simply by holding that the retroactivity provisions of the Act should not be applied. Instead, the court chose to gut the Act and all sellers would be well-advised to fully familiarize themselves with the decision, Section 2 of the Consumer Fraud Act, and the manner in which the law should be applied to any given development.

Thomas F. Carroll, III also a partner of Hill Wallack, is a member of the firm's Land Use Division. He also serves on the NJBA's Land Use and Planning Committee and its Site Improvement and Infrastructure Standards Committee. A Member of the Board of Directors of the NJ State Bar Association's Land Use Section, he concentrates his practice in the development application process and the litigation required in the course of land development.