Buyers Could Sue Owner for Not Disclosing Tenant's Rent Delinquencies

April 30, 2002

During negotiations to sell a building, the owner gave the buyers information on the building's eight tenants, including the rent due under each lease. But the owner didn't disclose that one tenant had an amended rent schedule because of its financial problems. At the closing, the owner said there were no lease defaults as of that date even though the tenant owed $13,910 in back rent. When the buyers found out about the back rent the tenant owed, they sued the owner for not disclosing the tenant's delinquencies.

During negotiations to sell a building, the owner gave the buyers information on the building's eight tenants, including the rent due under each lease. But the owner didn't disclose that one tenant had an amended rent schedule because of its financial problems. At the closing, the owner said there were no lease defaults as of that date even though the tenant owed $13,910 in back rent. When the buyers found out about the back rent the tenant owed, they sued the owner for not disclosing the tenant's delinquencies. The owner claimed that he wasn't obligated to tell the buyers about the tenant's rent delinquencies and asked the court to dismiss the case.

A Wisconsin appeals court ruled that the buyers could sue the owner for not disclosing the tenant's rent delinquencies. The court said the contract required the owner to disclose any “condition or occurrences which would significantly reduce the value of the [p]roperty.” Also, the court agreed with the buyers that a reasonable person would view the following as factors that would significantly reduce the building's value: the tenant's prior rent history and current rent delinquencies, the likelihood that the buyers would have to spend money evicting the tenant and finding a replacement, and the possibility of a vacant space generating no income [Kailin v. Armstrong].

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