Tennessee Business Litigation Lawyers Blog
In Tennessee, it is not highly unusual for a buyer to discover, after buying a piece of property, that it contains less acreage than was represented in the deed. For example, a buyer’s deed might state the property contains 22 acres “more or less” or 22 acres “approximately” after giving a legal description of the land in question. After buying the property, our hypothetical buyer might have a survey done which reveals that the property described consisted of only 18 acres.
Under Tennessee law, what are the chances that our hypothetical buyer can recover part of the purchase price or rescind the contract altogether and recover the entire purchase price? In most cases, based on my experience and familiarity with Tennessee real estate cases, the answer is that the chances are not very good. This is certainly not to say that a buyer cannot be successful in receiving a partial refund or rescission. As well, that pessimistic opinion applies only to real estate transactions in which the sales of property were “in gross” and not by the acre.
In its simplest terms, a sale in gross occurs when the purchase price is not determined by an amount per acre, but by a lump sum for land, the location and boundaries of which are described. In my experience, sales in gross account for most all real estate transactions.
Where a sale is in gross, a seller is not liable for any deficiency in the quantity of land unless the buyer can show facts establishing that the seller acted fraudulently or that the seller made such a substantial mistake that fraud should be inferred. The rationale for this rule is that, where the seller has described the boundaries of the property, the buyer is free to have his or her own survey done to verify the accuracy of the seller’s representations as to the acreage contained within those boundaries.
The rationale for that rule is sensible and the rule is fair. It is, therefore, critical for buyers to obtain surveys before closing a sale of real estate, especially for larger tracts of land in less urban areas in my opinion. (I would pay for one even if I were buying a small, improved tract in an urban setting.) From my vantage point of having seen the problems that can arise when a buyer does not obtain a survey, a survey is well worth the money. In ways, it is like an insurance policy.
What could probably be called the modern seminal case on this issue was decided by the Supreme Court of Tennessee in 1980 in Vaughn v. Ray. In that case, the buyers’ deed set forth a legal description of the location and bounds of the property in question and represented it to be “25 acres more or less.” After closing, the buyers had a survey done which revealed it was only 13.63 acres, which amounted to a deficiency of over 45%.
In the Vaughn case, the Court of Appeals found that the buyers were not entitled to any relief. The Supreme Court reversed because it found that two facts established fraud on the part of the seller. First, the deficiency was so large it indicated fraud. Second, there was evidence that the seller knew that the property at issue was carried on the county tax roles as consisting of 14.6 acres.
In my opinion, the outcome in Vaughn is the exception and not the rule. Three cases which have been decided since Vaughn support this conclusion. See, Gottschall v. Fenn (Tenn. Ct. App. 1986)(relief denied to buyer where property described as 16 acres “more or less,” but consisted of only 11 acres); Goolsby v. Stephenson (Tenn. Ct. App. 1988)(buyer denied relief where deficiency was 15.86%); and Bridgewater v. Adamczyk (Tenn. Ct. App. 2013)(buyers denied relief where deficiency was 20%). In a case decided before Vaughn, the Court of Appeals of Tennessee denied relief to a buyer where the deficiency was 37%. See, Evins v. Price (Tenn. Ct. App. 1971). In the Evins, Goolsby, and Bridgewater cases, the courts specifically wrote that the buyers had not obtained surveys before closing on their respective purchases.
Two final points are worth noting for real estate litigation practitioners dealing with acreage deficiency cases. First, it is doubtful that title insurance will apply to such a loss as most title policies exclude defects in title which could have been discovered by a survey. Second, the outcomes of all cases, maybe especially fraud cases, depend on their unique facts. So, take a close look at the facts of your case. Despite my opinion about the typical outcome of these types of cases, it is possible for a buyer to obtain relief, even when the deficiency in acreage is itself low.