Successor Liability in Real Estate Transactions

Purchasers of real property must be vigilant in assessing whether they will assume a seller’s rights, obligations, and potential liabilities to third parties as part of a transaction. For example, a contract of sale may provide that the purchaser assumes certain rights, obligations, and potential liabilities that have accrued while the seller owned the real property—and is thereby required to “stand in the shoes” of the seller as its successor-in-interest.

This concept is generally referred to as successor liability and is largely dependent on the terms and conditions set forth in the purchase and sale documents underlying the sale of real property. Absent an agreement which limits the liability of either party, the purchaser may be deemed to stand in the shoes of the seller, and as such, will likely have assumed all of the seller’s rights, obligations, and potential liabilities to third parties as part of a transaction.

Thus, it is important that a purchaser of real property conduct a thorough due diligence review prior to entering into a contract of sale. Alternatively, if there are known liabilities, a purchaser may account for such liabilities in the contract of sale, and in doing so, the parties can “chart their own course” as to which potential liabilities are assumed by the purchaser and retained by the seller.