What are your options as a buyer in the event of liability waivers in the purchase agreement?

When you deal in real estate in Denmark as a buyer, you will often find purchase agreements in which the seller excludes, or attempts to exclude, their liability for any faults or omissions in the property/building. For example, there may be liability waivers regarding the size of the living space, land conditions, or recessed ceilings in owner-occupied apartments.

In practice, a distinction is made between general and specific liability waivers. Liability waivers of a general nature will rarely be valid.

On 23 June 2020, the Supreme Court handed down a judgement (U.2020.2945.H), in which the seller in a purchase agreement had added a general liability waiver concerning the property’s living space. The liability waiver stated:

‘BBR ownership notice: The buyer is aware of and accepts that the area of the property is obtained from the Central Register of Buildings and Dwellings (BBR). The buyer is urged to undertake their own measurement of the property. Any deviations in square metres from that stated in the BBR register is not the responsibility of the seller or the real estate agent.’

The Supreme Court ruled that this was a general liability waiver, which was not valid and therefore infringed upon the liability waiver. The buyer was therefore entitled to demand a reduction in the purchase price, as the living space was smaller than anticipated.

In calculating the proportionate reduction in the purchase sum, the Supreme Court stated in its ruling that:

‘…in determining whether a buyer, when faced with shortcomings, can demand a proportionate reduction in the purchase sum, the decision is based upon whether knowledge of the matter would have resulted in the purchase price being lower. An assessment of this must take into account the size of the depreciation in value at the time of the transaction – absolutely and in relation to the purchase sum – together with the nature of the matter in question.’

The Supreme Court held, that the buyer was entitled to a reduction in the purchase price of 150.000 kr.

Specific liability waiver

If, on the other hand, the seller has added a specific liability waiver to the purchase agreement, which is sufficiently specific and which concerns a specific condition (limited scope), the buyer is not entitled to any additional remedies for breach of the specific conditions that are mentioned in the liability waiver.

In practice, this means that a liability waiver is considered as sufficiently specific when specific faults are pinpointed in the property.

As an example, in U.2004.769/2H, the seller had been responsible for construction of the house in 1967 and sold it in 1991 with information in the purchase agreement describing cracks that had appeared during the first years after construction in the flooring on the ground floor due to settling, and that there were a small number of cracks in the foundation.

It was evident from the purchase agreement that the buyer overtook the house in ’as-is condition’, that the buyer would have to bear all costs incurred as a result of the cracks, and that the price was fixed, taking into account the aforementioned shortcomings. It was subsequently discovered that not only had the foundations not been dug to a sustainable depth, but that the soil was not adequately compacted.

The buyer then withdrew their offer, but the Supreme Court ruled that the seller was not in breach of their loyal duty to inform. The court also ruled that those matters that had come to light over the course of the case did not exceed what the buyer could reasonably be expected to accept as a result of the liability waiver.

It is not possible for a seller to invoke a specific liability waiver when the seller has withheld essential information from the buyer.

See, for example, the case of U.2009.1636.V, when the seller had added a specific liability waiver regarding the water quality of the drinking water at the property but had also withheld information that the seller could not drink the water before it had been run through a coffee machine to remove the metallic taste.

Note that in all cases, the extent to which a liability waiver is considered valid is determined through an individual assessment. This assessment of the validity of the liability waiver will include the wording of the waiver, the buyer’s opportunity to evaluate the scope/consequence of the waiver, any duty of examination on the part of the buyer, together with any duty to inform/bad faith on the part of the seller.

The extent to which a buyer can invoke the invalidity of a liability waiver also depends on whether the rules on obsolescence, inaction, and timely complaint are observed.