Seller Disclosure and the Duty to Investigate in Tennessee

When a defect turns up after closing, the first instinct is to ask who should have caught it. Tennessee's answer is built around actual knowledge rather than investigation. Sellers disclose what they know. Licensees disclose adverse facts they know. Buyers are expected to look. The question in a dispute is where a particular fact fell between those three.

What the seller owes

The Tennessee Residential Property Disclosure Act, Tenn. Code Ann. §§ 66-5-201 and following, applies to sales of residential property with one to four dwelling units, whether or not a broker is involved. The seller must give the buyer either a disclosure statement covering the condition of the property, including material defects known to the owner, or a disclaimer statement. The disclaimer statement is allowed only when the buyer waives the disclosure. The statement is to be delivered before the purchase contract is accepted. Late delivery does not, by itself, give the buyer a right to terminate (§ 66-5-203). The seller also has to disclose material changes in condition before closing, or certify that the condition is substantially the same.

Two features of the Act matter most. First, the owner is not required to undertake any independent investigation or inspection of the property (§ 66-5-202). Second, the seller is generally not liable for an error or omission that was not within the seller's actual knowledge, or for information the seller reasonably believed was correct. The exception is gross negligence in obtaining or passing along information from others (§ 66-5-204). The statute also states that the disclosure is not a warranty and is not a substitute for inspections (§ 66-5-201).

Specific items the Act calls out

The Act adds specific items a seller must disclose when known (§ 66-5-212):

• a known exterior injection well on the property;
• the results of any known percolation or soil absorption test;
• whether the house was moved from another foundation, if the seller knows; and
• the presence of a known sinkhole, whether or not it appears on the recorded plat.

The Act also states that there is no cause of action for failing to disclose that the property was the site of a homicide, felony, or suicide (§ 66-5-207).

What the licensee owes

A licensee who provides real estate services in a transaction owes every party to it the duty to disclose adverse facts of which the licensee has actual notice or knowledge (Tenn. Code Ann. § 62-13-403). Tennessee law also says licensees are not obligated to discover or disclose latent defects, or to advise on matters outside the scope of their license (§ 62-13-405). Under the disclosure Act, a licensee who informs the parties of their rights under the Act has no further duty under it. That does not protect a licensee from liability for intentional misrepresentation, fraud, or failing to disclose adverse facts the licensee actually knew about (§ 66-5-206).

The Court of Appeals applied that knowledge standard in Konop v. Henry, No. M2010-00037-COA-R3-CV (Tenn. Ct. App. Aug. 18, 2010). The affiliate broker's duty reached adverse facts the affiliate broker actually knew about or had notice of, not facts he arguably should have known. The managing broker, who provided no services in the transaction, owed the purchasers no disclosure duty under § 62-13-403. Who actually knew, and who actually worked the deal, matters.

What the buyer is expected to do

The statutory form itself tells the buyer that they are responsible for paying diligent attention to, and asking about, material defects that are evident by careful observation (§ 66-5-210). That expectation shows up in the cases. In Daniels v. Basch, No. M2004-01844-COA-R3-CV (Tenn. Ct. App. Oct. 27, 2005), the buyer had the material facts about a utility easement and could not establish reasonable reliance. A condition that is plain to see, or already in the buyer's hands, is hard to build a nondisclosure claim around.

Where "as is" stops working

An "as is" sale shifts the risk of unknown conditions to the buyer, but it does not license concealment. In Odom v. Oliver, 310 S.W.3d 344 (Tenn. Ct. App. 2009), the Court of Appeals repeated that an "as is" provision is not a shield where the seller knew of a defect and withheld the information. The clause can still matter to whether the buyer's reliance was reasonable, so it is a factor rather than a free pass for either side.

Timing and remedies

The Act's claim for actual damages must generally be brought within one year from the date the buyer received the disclosure statement or the date of closing or occupancy, whichever comes first (§ 66-5-208). The Act preserves other remedies for intentional or willful misrepresentation. It does not allow a claim based only on the failure to provide the form, but it keeps common-law misrepresentation and nondisclosure claims available. Several kinds of transfers are exempt from the Act altogether, including many foreclosure, estate, family, and court-ordered transfers. The property condition disclosure page covers those mechanics in more detail.

Each of these claims rises or falls on what each person actually knew, what the paperwork says, and when the claim is filed. For buyers, sellers, and licensees in a Middle Tennessee disclosure dispute, I can go through the disclosure paperwork and the dates with you.

Educational disclaimer: This article provides general Tennessee educational information only and is not legal advice for any specific property, transaction, or dispute.