May 2, 2017 – A construction worker fell through a hole at a building his employer was renovating. Recently, the Wisconsin Supreme Court relied on the caveat emptor doctrine to conclude that a previous long-term tenant bears no liability for the injuries.

In Brenner v. Amerisure Mut. Ins. Co., 2017 WI 38 (April 18, 2017), the supreme court (6-0) found no exception to the caveat emptor (“buyer beware”) doctrine, which terminates a former possessor’s liability for bodily harm upon real estate transfer.

For 20 years, Charter Manufacturing Company (Charter) leased property from Garland Brothers Inc. (Garland Brothers), which had owned the building all that time.

Charter ran a wire manufacturing business, which required the installation of heat treatment furnaces that protruded upward through large holes in metal grate flooring.

In 2009, Charter notified Garland that it was terminating the lease, which required Charter to remove the furnaces. Charter hired a general contractor to remediate the property before lease termination. The general contractor hired a subcontractor to remove the furnaces. Removal left holes in the metal floor grating where the furnaces once stood.

The subcontractor covered the holes with plywood boxes as a safety measure, but no signs or warnings indicated that large holes were under the plywood boxes.

Garland and Charter did a final walk-through before Charter released possession to Garland, and Garland did not raise concerns about the holes or the plywood coverings. About two years later, Garland sold the property to Milwaukee World Festival (MWF).

MWF took the property “as is” and “with all faults.” MWF inspected the property multiple times before making the purchase, and its construction director assessed it for future plans. After purchasing the property, it hired a construction company to renovate.

Russell Brenner was one of the construction workers. He removed one of the plywood boxes covering a hole once occupied by Charter’s furnace. Brenner was unaware that a hole lurked under the plywood box, and was seriously injured when he fell through it.

Who is Liable?

Brenner and his wife sued MFW (the owner), Garland (the former owner), and Charter (the former long-term tenant). They alleged negligence and a violation of the state’s safe place statute, claiming the holes were unsafe and he should have been warned.

The circuit court dismissed Charter and Garland from the lawsuit, concluding the doctrine of caveat emptor precluded judgment against them. MFW appealed Charter’s dismissal, noting that a jury could still apportion liability between eligible defendants, even though Garland and Charter settled with Brenner after their dismissal.

The appeals court affirmed the dismissal of Charter from the case. And the state supreme court affirmed, with six justices agreeing that Charter, as former tenant, did not owe a duty of care to Brenner. Justice Rebecca Bradley did not participate.

The court ruled that the caveat emptor doctrine terminated Charter’s duty when it surrendered the possession of the property and before the injury occurred.

MFW urged the court to abandon the caveat emptor doctrine and adopt principles expressed in comments of the Restatement (Third) of Torts. MWF read the Third Restatement to trigger liability for former possessors who create a risk of harm.

But the majority declined to adopt, as law, comments in the Third Restatement, concluding that “when a vendee purchases Wisconsin real estate as-is, without warranty, its contract incorporates the caveat emptor doctrine. So too with leases.”

“As relevant here, a purchasing party that assumes those risks can, because of that assumption, negotiate a lower purchase price,” Justice Kelly explained.

“MWF, having reaped the financial benefit of a lower price in exchange for assuming those risks, would now enlist us in shifting some or all of those risks to Charter.”

No Exceptions to Caveat Emptor

MWF argued, in the alternative, that the caveat emptor doctrine does not apply to long-term former tenants and an applicable exception triggers liability for Charter.

Specifically, MWF argued that caveat emptor applies to “vendors,” and Charter was not a vendor because it was merely a tenant who did not sell the property. The caveat emptor doctrine is expressed in Restatement (Second) as applicable to “vendors.”

But the court noted that definitions within Restatements don’t control, and commercial tenants occupy the same position as “vendors” under the state of law in Wisconsin.

“The one difference is that a tenant will, when commencing the tenancy, occupy the position of a vendee with respect to the landlord, while at the end of the tenancy he will occupy the position of the vendor,” Justice Kelly explained.

The court noted that, under the caveat emptor doctrine, Charter was immune from liability for Brenner’s injuries unless an exception applies.

MWF argued that there’s an exception to caveat emptor when a vendor knows of a dangerous condition, does not disclose it, the vendee didn’t know or have reason to know it existed, and the vendor had reason to think the vendor would not discover it.

The court noted that Garland Brothers was the vendee in this situation, as Charter relinquished possession of the property to Garland Brothers, which owned the property.

“[W]e believe the record unequivocally demonstrates that Garland Brothers had reason to know of the holes under the plywood boxes,” Justice Kelly wrote.