The 'As Is, Where Is' Clause Revisited: Practical situations where the clause has arisen and how it may be enforced in such situations

Previously1, we discussed the "as is, where is" clause, a contractual term most typically found in an option to purchase real property ("Option"). The effect of incorporating this clause into the Option is that the seller gives no warranty as to the fitness of the property for the purpose of the buyer.

Consequently, the buyer bears the responsibility to conduct proper checks and inspect the property thoroughly beforehand, for the buyer shall be regarded as having inspected and accepted the property in its actual state and condition once the Option is accepted and exercised.

This article seeks to delineate the respective rights and obligations of the contracting parties who enter into such agreements, by looking at practical situations in which the "as is, where is" clause arises.

Caveat emptor rule - Common law principles concerning defects

The caveat emptor rule stems from an old doctrine predicated on principles of land law. It has guided the English courts since medieval time, an age where the law was "primarily concerned to protect real rights."2 Its literal meaning is "let the buyer beware" and its underlying concept is that all the burden should be placed on the buyer to ensure that no stone is left unturned when he inspects the property to check for any defects.

The common law principles that developed in alignment with this doctrine is that the seller, even if he is aware of any such matters, is under no obligation to disclose to the buyer any patent defects (regardless of title or of quality) and latent defects of quality or other matters (as opposed to defects of title) which may affect the value of the property sold. Moreover, this rule is relevant even when the "as is where is" clause is absent in the contract.

If the caveat emptor rule is to be accepted a rule, then it necessarily follows that the seller would not owe the buyer a duty to disclose any defects in the property. However, it is well established that the law draws a distinction between defects of quality and defects of title3, and between patent and latent defects.

Patent defects are defects which are discoverable by inspection and ordinary vigilance on the part of the buyer. Conversely, latent defects are defects that would not be revealed by any inquiry which a buyer is in a position to make before entering into the contract for purchase4.

The differences between a defective title and a defect of quality are set out in the leading case of Huang Ching Hwee v Heng Kay Pah below.

Huang Ching Hwee v Heng Kay Pah and another [1992] SGCA 79

The appellant was a property owner who granted an option to purchase to the respondents. After exercising the option, the respondents discovered that the appellant had carried out certain demolition works and substantial additions and alterations to the property without the necessary planning permission. The respondents wanted to rescind the contract and...