Delaware Real Estate Law Update: Revised Seller’s Disclosure Forms Create New Burdens for Builders and Other Sellers

April 6, 2011

Publication| Real Estate Services

Effective January 1, 2011, the forms of Seller’s Disclosure of Real Property Condition Report and Seller’s Disclosure of Real Property Condition Report – New Construction Only include several new disclosures that are now required under Delaware law to be provided to a prospective buyer of residential property prior to the time that the buyer makes an offer to purchase the property. For home builders, the most important changes are, first, to include an express warranty and new disclosure requirements on certain matters, and second, to require under certain circumstances that the builder provide the general, broad disclosure form and not the shorter, new construction form. If the property is new construction and is in a condominium or other common ownership community, the seller must now warrant that the property is either exempt from providing the buyer with a public offering statement as required under the Delaware Uniform Common Interest Ownership Act or that the seller has provided the buyer with that public offering statement. This warranty is remarkable because the statutory basis for the seller’s disclosure form requires disclosures of “material defects” and states that the disclosure is a “good faith effort” to disclose and is not a warranty. Interestingly, this same warranty is contained in the general disclosure form for all sellers, though without explanation of the circumstances under which a non-builder seller would have to make such warranty, which relates to certain statutory requirements applicable to developers and builders. Moreover, the seller of new construction must also affirm that the seller has attached copies of all documents in the chain of title that create any financial obligation for the buyer and a written summary of all financial obligations created by documents in the chain of title.

The revised forms do not articulate the basis on which the Delaware Real Estate Commission, which creates these forms, can require a warranty to be made in the forms, nor do they articulate the basis for the Delaware Real Estate Commission’s inclusion of many of the more detailed requirements contained in the new forms. In addition to the new warranty and chain of title requirements, if a certificate of occupancy has already been issued for a property, or is issued after the seller’s disclosure form is completed but before a seller and a buyer enter into an agreement of sale, the seller is now required to complete the broader seller’s disclosure form rather than the seller’s disclosure form for new construction.

Both forms also require more detailed descriptions and explanations of several items than were required by the previous forms. Significant changes for newly constructed residential properties include new disclosures regarding fees and assessments, sewer or water connection charges to be paid by the buyer, and whether the property is subject to any affordable or workforce housing agreement. Other significant changes for all other residential properties include new disclosures regarding mold, drywall, the number of heating zones, insurance claims on the property in the past five years, flood insurance, and the name of the property’s management company.

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