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No Duty to Disclose Claim of Easement to Prospective Purchaser of Adjacent Property

The Hoffman v. 162 North Wolfe case involved claimed prescriptive easements over commercial property in Sunnyvale. In March 2010, Hoffmans purchased property at 170 North Wolfe (“170”). At the time of the purchase, Hoffmans were tenants of 170 and were thus familiar with that property and the adjacent property at 162 North Wolfe (“162”). After close of escrow, the owner of the adjacent property, 162 LLC, notified Hoffmans that they claimed a landscape easement and prescriptive easement rights of ingress and egress over 170. Thereafter, 162 LLC sued Hoffmans to quiet title to the landscape easement and prescriptive easement rights.

 

In an interesting twist, Hoffmans cross-complained against 162 LLC for fraud, alleging (among other things) that 162 LLC should have disclosed their claims or interest with respect to the disputed area and that its members had falsely told them that they had no claims. Hoffmans claimed that eight months before close of escrow they complained to Jonathon Owens, one of 162 LLC’s members, that vehicles servicing 162 were crossing over onto 170, and that Owens said he “would take care of it.” Notwithstanding this alleged conversation, the vehicles continued to cross onto 170 but the Hoffmans failed to raise the issue again.

 

The Santa Clara County trial court granted summary adjudication of Hoffmans’ on grounds that, without a preexisting relationship, 162 LLC had no duty to affirmatively disclose anything to Hoffmans. On both causes of action, the trial court found that the Hoffmans hadn’t justifiably relied on 162 LLC’s actions or inactions. The Court of Appeal for the 6th District upheld the trial court’s ruling.

 

On the concealment (fraudulent non-disclosure) cause of action, the Court of Appeal rejected Hoffmans’ claim that the parties’ mutual interest in purchasing 170 constituted a “preexisting relationship” sufficient to warrant a duty of disclosure. The Court found “no evidence in the record that 162 LLC or its members had any relationship with the Hoffmans.”

 

The Court went on to find that even if 162 LLC had owed Hoffmans a duty to disclose their easement claims prior to close of escrow, the Hoffmans’ fraud claims failed because they could not establish reliance. In order to satisfy the reliance element of actionable fraud, the purported reliance must be reasonable or justified. The Court first found that Steven Hoffman’s status, sophistication and experience was relevant to the determination of reasonable reliance. Hoffman was an “experienced real estate agent who had owned several businesses and owned several pieces of real property.” The Court explained that it was unreasonable as a matter of law for someone of Hoffman’s sophistication and experience to take no action, and fail to even make any further inquiry, while observing the tenants of 162 drive over the disputed area for eight months which was a “common occurrence” as the Hoffmans admitted at deposition.

 

On the fraud claim, while the Court appeared quite dubious of the Hoffmans’ argument that Owens’ statement that he “would take care of it” constituted an actionable promise, since it might be too vague to be enforceable even if it constituted a promise, the Hoffmans could not in any event establish reasonable reliance as a matter of law based on the analysis above.

 

This case is perhaps most interesting for what it did not do – the Court resisted the attempt to extend disclosure rules to third parties without any preexisting relationship. Requiring the owners of neighboring properties to essentially become part of their neighbor’s real estate transaction would have had a long-reaching, and potentially devastating, impact on almost every real estate transaction in California.

 

Hoffman v. 162 North Wolfe (2014) 228 Cal.App.4th 1178.

(06/15)