Failure To Exercise Reasonable Diligence in Real Estate Transaction Undermines Allegation of Justifiable Reliance
Print Article- Posted on: Oct 20 2025
By: Jeffrey M. Haber
As readers of this Blog know, a “cause of action to recover damages for fraudulent misrepresentation requires a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.”[1]
When addressing the element of justifiable reliance,[2] the “general rule” is that “if the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.”[3]Where, however, matters are within the “peculiar knowledge” of the seller, “as is” and “no reliance” clauses in the parties’ agreement will not save a defendant from claims of fraudulent misrepresentations.[4]
When dealing with real estate transactions, fraudulent misrepresentation claims “must be analyzed within the doctrine of caveat emptor.”[5] “New York adheres to the doctrine of caveat emptor and imposes no liability on a seller for failing to disclose information regarding the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller which constitutes active concealment.”[6] However, where affirmative conduct “on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the property,” but the conduct must be “more than mere silence.”[7] “To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his responsibilities fixed by the doctrine of caveat emptor.”[8]
In the Bartlett Plaza, LLC v. Jose, 2025 N.Y. Slip Op. 05662 (2d Dept. Oct. 15, 2025) (here), the Appellate Division, Second Department, affirmed the dismissal of a fraud claim where the buyer of real property sued the sellers and their agent, alleging misrepresentations about a tenant’s occupancy. The Court dismissed the claim, ruling the buyer failed to exercise due diligence and could not prove justifiable reliance.
Plaintiff commenced the action seeking damages for fraud and breach of contract relating to its purchase of defendants’ commercial property on Bartlett Street in Brooklyn (the “Property”). The Property was advertised for sale by the sellers through a listing by defendant, The Corcoran Group Inc., a/k/a The Corcoran Group (“Corcoran”), their real estate agent. The listing indicated that the Property housed an active two-bay auto mechanic garage, but that the premises could be “delivered vacant” or that the “tenants [were] willing to sign [a] short term lease with [the] new owners”. On February 5, 2020, the sellers entered into a Contract of Sale with plaintiff, wherein the sellers agreed to sell the property to plaintiff for $4,000,000.
The parties also executed a Rider to the Contract of Sale (the “Rider”) and a “Post-Closing Possession Agreement (“PCPA”), which set forth additional terms relating to delivery of the property following the closing.
At the time the parties executed the Contract of Sale, Rider and PCPA, the Property was occupied by an auto repair shop doing business as Robel & Sons Auto Repair, Corp. (“Robel”), of which plaintiff was aware. The sellers did not own or control the business. It was owned by a third-party named Robel De La Cruz, Jr. (“De La Cruz”).
Plaintiff and defendants closed title on January 21, 2021. Robel remained in possession of the auto repair shop throughout the Holdover Period as defined in the PCPA (e.g., January 21, 2021 through April 21, 2021) and through the Outside Date, also defined in the PCPA (e.g., May 21, 2021), resulting in the escrow funds being released to plaintiff in accordance with the PCPA. The Property remained occupied by Robel at the time plaintiff started the action on October 27, 2021.
Plaintiff commenced the action, inter alia, to recover damages for fraud, breach of contract, and negligence, alleging that, despite the terms of the contract and the assurances of the sellers and their listing agent, that (a) the sellers were the sole occupants of the Property, (b) the Property was not occupied by any third-party tenant, and (c) the Property would be delivered vacant, the Property was occupied at the time of closing by Robel pursuant to a multiyear lease.
With respect to the fraud claim, plaintiff alleged that “[s]hortly after Closing, contrary to the representations made by Defendants, Plaintiff discovered that Defendants were not actually in possession of the Premises;” that “Defendant represented on numerous occasions that no tenants occupied the Premises and that Defendants were in sole possession of the space;” that “Defendants’ representations were knowingly false, as [De La Cruz] was in possession and operating a business from the garage space in the Premises;” that “[a]s a result of Plaintiffs reliance of Defendants’ intentional misrepresentations, Plaintiff was forced to negotiate with [De La Cruz] to gain possession of the Premises” and that “[i]n order to remove [De La Cruz], Plaintiff was forced to pay $350,000.00 for his move”.
In their answer, the sellers interposed various affirmative defenses in addition to counterclaims for a judgment declaring that they fully performed under the agreements and for an award of contractual attorneys’ fees as a prevailing party. Additionally, the sellers asserted a crossclaim against Corcoran and the other defendant for indemnification and contribution.
The sellers subsequently brought a motion for summary judgment, maintaining that plaintiff was aware, or should have been aware using due diligence, that a tenant occupied the Property when plaintiff executed the Contract of Sale and PCPA and when it closed title, and that all of the sellers’ contractual payment obligations under the PCPA were satisfied either through direct payments or by reason of the release of the escrow funds as “liquidated damages” on the Outside Date. Corcoran cross-moved for summary judgment, claiming that it did not owe a duty to plaintiff.
In support of its motion for summary judgment, the sellers submitted an affidavit in which it was averred, among other things, that between December 2019 and before the commencement of the Covid-19 pandemic, they met with plaintiff’s principal on multiple occasions at the Property; that during these meetings the parties walked through the Property, including in and out of the auto repair shop; that De La Cruz was present during many of those walk-throughs; that De La Cruz was the Property’s longstanding tenant; that the sellers planned to relocate De La Cruz when the sellers acquired a new property; and that the sellers needed weeks or months following a closing on the Properly to relocate De La Cruz in a new location. The sellers also submitted a copy of the listing, indicating that a “tenant” existed on the Property.
The motion court held that the sellers’ submissions established that no misrepresentations were made to plaintiff with respect to De La Cruz.
The motion court went on to say that plaintiff failed to allege reasonable reliance on any misrepresentation, holding that “[a]s a matter of law, a sophisticated plaintiff cannot establish that it entered into an arm’s length transaction in justifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the means of verification that were available to it”. The motion court explained that “Plaintiff [did] not allege that it made an inquiry or took steps to ascertain who owned Robel, nor [did] it submit proof that the alleged misrepresentation as to possession was a matter peculiarly within the [sellers’] knowledge or that there were no means readily available by which plaintiff could have determined its truth.” “Thus,” concluded the motion court, “under the circumstances, even if there was a misrepresentation by the [sellers] as to possession or ownership of Robel, plaintiff failed to show that its reliance on the alleged misrepresentation was justifiable.”
“As a result,’ concluded the motion court, “that part of the [sellers’] motion for dismissal of plaintiff’s first cause of action for fraud is granted.”
On appeal, the Second Department affirmed.
The Court held that “the sellers demonstrated their prima facie entitlement to judgment as a matter of law dismissing the first cause of action, alleging fraud, … against them by establishing that even if there was a material misrepresentation, any reliance thereon was unreasonable, since the plaintiff had the means available to it of knowing, by the exercise of ordinary intelligence, the existence and status of the third-party tenant.”[9]
The Court also held that the motion court “properly granted that branch of Corcoran’s cross-motion which was for summary judgment dismissing the complaint … against it.”[10] The Court found that “Corcoran demonstrated, prima facie, that it did not actively conceal the third-party tenant’s existence and status and did not thwart the plaintiff’s efforts to fulfill its responsibilities fixed by the doctrine of caveat emptor.”[11]
Takeaway
A successful claim for fraudulent misrepresentation requires proof of a false statement or omission made knowingly to induce reliance, justifiable reliance by the plaintiff, and resulting injury. With regard to the reliance element, it must be justifiable. The courts have consistently held that if the facts are not exclusively within the defendant’s knowledge and the plaintiff had the means to uncover the truth through reasonable diligence, then the plaintiff cannot later claim to have been misled.
This principle was central to the Court’s decision in Bartlett Plaza. As discussed, the buyer alleged fraud, claiming the sellers and their real estate agent misrepresented that the property would be delivered vacant, while in fact, it was occupied by a third-party tenant operating an auto repair shop. The Court found that plaintiff had ample opportunity to discover the tenant’s presence through site visits and contract documents, which referenced the tenant. Plaintiff’s failure to investigate undermined its claim of justifiable reliance.
The decision also underscores the point that New York courts continue to adhere strictly to the doctrine of caveat emptor in arm’s-length real estate transactions. This means that buyers are expected to conduct their own due diligence and cannot later claim fraud if they fail to investigate reasonably discoverable facts.
Additionally, the Court reaffirmed the principle that active concealment, not mere silence, is required to impose a duty on the seller to disclose information. Since the sellers and agent did not actively prevent plaintiff from discovering the tenant’s occupancy, and the plaintiff failed to exercise due diligence, the Court affirmed the dismissal of the fraud claims.
Further, the ruling makes clear that a buyer’s reliance on a seller’s representations is not justifiable if the buyer had access to information that would have revealed the truth through ordinary intelligence or reasonable inquiry. In Bartlett Plaza, the buyer had walked through the property, observed the tenant, and had access to documents referencing the tenant’s presence, yet failed to investigate further.
Ultimately, Bartlett Plaza reinforces the importance of due diligence in real estate transactions and illustrates how courts apply the doctrine of caveat emptor to assess the reasonableness of a buyer’s reliance on seller representations.
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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.
[1] R. Vig Props. v. Rahimzada, 213 A.D.3d 871, 872 (2d Dept. 2023) (citations and internal quotation marks omitted).
[2] We have examined the element of justifiable reliance in numerous articles. Here are some of the more recent articles for your review: Fraud Notes: First Department Talks About Misrepresentations of Fact and Justifiable Reliance; Failure To Read Relevant Documents Prevents Claim Of Justifiable Reliance; Publicly Available Information, Justifiable Reliance and The Caveat Emptor Doctrine; Fraudulent Inducement: Exculpatory Clauses, Representations and Warranties, and Justifiable Reliance; and Fraud Notes: Justifiable Reliance, Particularity and Duplication. To read additional articles in which we examined fraud causes of action, please see the BLOG tile on our website and search for any fraud, or other commercial litigation, issue that may be of interest you.
[3] Danann Realty v. Harris, 5 N.Y.2d 317, 322 (1959) (citations and internal quotation marks omitted).
[4] TIAA Global Investments, LLC v. One Astoria Square LLC, 127 A.D.3d 75, 87 (1st Dept. 2015) (citing Danann, 5 N.Y.2d at 322).
[5] 98 Gates Avenue Corp. v. Bryan, 225 A.D.3d 647, 649 (2d Dept. 2024) (citation omitted).
[6] Id. (citations and internal quotation marks omitted).
[7] Id. at 649-50 (citations and internal quotation marks omitted).
[8] Razdolskaya v. Lyubarsky, 160 A.D.3d 994, 996 (2d Dept. 2018).
[10] Id.
[11] Id. (citing R. Vig Props., 213 A.D.3d 8at 73; Schottland v. Brown Harris Stevens Brooklyn, LLC, 107 A.D.3d 684, 686 (2d Dept. 2013); Glazer v. LoPreste, 278 A.D.2d 198, 199 (2d Dept. 2000)).
Tagged with: Caveat Emptor, Commercial Litigation, Fraud, Justifiable Reliance, Real Estate Litigation
