Strawn et al. v. Canuso et al.
140 N.J. 43, 657 A.2d 420 (1995)
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Rule of Law:
A professional seller of residential real estate, or a broker representing them, has a duty to disclose known, off-site physical conditions that are not readily observable by the buyer if those conditions materially affect the property's value or desirability.
Facts:
- From 1966 to 1978, the Buzby Landfill operated near Voorhees Township, New Jersey, and was used for the disposal of hazardous materials.
- John B. Canuso, Sr., John B. Canuso, Jr., and their companies (Canuso defendants) began constructing a residential housing development on land adjacent to the closed Buzby Landfill.
- The Canuso defendants were aware of the landfill and its potential hazards, possessing a 1980 EPA report that warned against building a housing development on the site.
- The defendants also met with a representative from the New Jersey Department of Environmental Protection and Energy (DEPE) who warned them of the problems associated with building near the landfill.
- Fox & Lazo, the real estate brokerage firm hired by Canuso, was also aware of the landfill, and one of its marketing directors unsuccessfully urged both firms to disclose its existence to buyers.
- The Canuso defendants and Fox & Lazo adopted a policy of nondisclosure, instructing sales personnel not to reveal the landfill's existence, even if asked directly.
- Between 1984 and 1987, over 150 families purchased homes in the development without being informed of the nearby hazardous waste site.
- Marketing materials for the development portrayed it as a peaceful, bucolic setting and did not mention the landfill's proximity.
Procedural Posture:
- Over 150 families (plaintiffs) filed a class-action lawsuit in a New Jersey trial court against John B. Canuso, Sr., John B. Canuso, Jr., their companies, and Fox & Lazo Inc. (defendants).
- The trial court denied the plaintiffs' motion for class certification.
- On the defendants' motions for summary judgment, the trial court dismissed the claims of seven plaintiff-families that were based solely on nondisclosure, ruling that sellers have no duty to disclose conditions of a third party's property.
- The seven plaintiff-families (appellants) were granted leave to appeal to the Appellate Division of the New Jersey Superior Court.
- The Appellate Division reversed the trial court, holding that the defendants (appellees) had a duty to disclose the landfill and that class certification should have been granted.
- The defendants (appellants) were granted leave to appeal to the Supreme Court of New Jersey.
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Issue:
Does a builder-developer of residential real estate and its real estate broker have a duty to disclose to potential buyers the existence of an off-site physical condition, such as a nearby hazardous waste landfill, that is unknown to the buyers and materially affects the value or desirability of the homes?
Opinions:
Majority - O'Hern, J.
Yes. A builder-developer of residential real estate or a broker representing it has a duty to disclose off-site physical conditions that are known to them, unknown and not readily observable by the buyer, and of sufficient materiality to affect the habitability, use, or enjoyment of the property. The court reasoned that the traditional doctrine of caveat emptor ('let the buyer beware') is an anachronism in the context of modern home-buying, especially in mass-produced developments. The court emphasized the unequal bargaining power and disparity in access to information between professional sellers and average home buyers. It extended the existing duty to disclose on-site defects, established in cases like Weintraub v. Krobatsch, to off-site conditions, stating there is 'no logical reason' to treat them differently when they materially affect the property's value. This duty is rooted in promoting fairness, justice, and sound public policy in real estate transactions.
Analysis:
This decision marks a significant erosion of the caveat emptor doctrine in New Jersey real estate law. It expands a professional seller's and broker's liability by establishing an affirmative duty to disclose material off-site conditions, moving beyond defects within the property's physical boundaries. This precedent requires sellers to consider the surrounding environment and its potential impact on value, placing a greater burden of disclosure on them to protect less sophisticated buyers. The ruling aligns real estate transactions more closely with modern consumer protection principles that have long governed the sale of other goods.
