Hear No Evil, Speak No Evil, See Some Evil: No Duty to Disclose Easements

August 2014

In March 2010, Steven and Swee Lin Hoffman purchased a commercial property in Sunnyvale, California, at 170 North Wolfe Road. After the closing, their neighbor, 162 North Wolfe LLC (“162 LLC”), informed the Hoffmans that he had a landscape easement and a prescriptive easement over their property. The Hoffmans refused to acknowledge these easements and the parties sued each other. The Hoffmans claimed that 162 LLC defrauded them by falsely advising them, prior to their purchase, that 162 LLC had no claims or interest in the Hoffmans’ property. The fraud claims were based on an alleged conversation that took place several months before the closing of the Hoffman’s property. At that time, Steven Hoffman approached Jonathon Owens, a member of 162 LLC, and told him that he had noticed service vehicles from the 162 LLC property crossing over onto the soon-to-be acquired Hoffman property. Hoffman wanted 162 LLC to stop using the future Hoffman property because he did not want them to “get used to this.” Owens responded that he “would take care of it” despite the fact that he believed 162 LLC had a right to continue to use these areas because of the easements. 162 LLC had been using the easements since 2001. Owens explained that he did not think to tell Hoffman that 162 LLC had an easement because he was not a real estate attorney (though he was a patent attorney). Despite Owen’s alleged assurance that the vehicles would stop crossing over the areas, they continued to do so following the alleged conversation. The Hoffmans observed these repeated occurrences, yet did not raise further objections and proceeded to purchase their property anyway. In their lawsuit against 162 LLC, the Hoffmans argued two fraud claims: concealment/suppression of facts and intentional misrepresentation. The Hoffmans believed that 162 LLC had a duty to disclose their easements during their conversation, and that the Hoffmans were justified in relying on the assurance that 162 LLC “would take care of it” and stop using the areas. 162 LLC argued they had no duty to disclose their rights to the Hoffmans because they did not have a relationship with them. 162 LLC also argued that the Hoffmans did not justifiably rely on this alleged conversation because the vehicles continued to use the areas for months after the conversation and before the Hoffmans closed on their purchase, without further objection. The trial court agreed with 162 LLC and upheld the easements, and the court of appeals confirmed the trial court’s decision.

One lesson to be learned from this case is that parties do not have a duty to disclose their interests in their neighbors’ properties. But more importantly – and an issue that was not discussed in this case – the Hoffmans could have protected themselves from this outcome. Before buying their property, the Hoffmans should have obtained an ALTA title insurance policy together with a survey of the property that would have disclosed these easements. Had the Hoffmans done this, the survey should have alerted them to this ongoing problem so that they could address it before completing their purchase – or, if the surveyor overlooked the easements, then the Hoffmans might have been able to recover their damages from their title insurance policy.