Nabeel Hussain bought residential property in 2017, but used it to sell pre-owned cars. Change in use happens routinely in Houston, where there is no public zoning.
IYKYK.
Hussain wanted to convert the residence into a 2,900 SF auto dealership and office in 2019. Before this type of conversion project can commence, the City of Houston requires building permits, and before it can be occupied again, certificates of occupancy.
Hussain’s construction plans were denied twice due to noncompliance with the Houston City Code and its regulations. Regardless, Hussain started construction anyway in 2020.
In 2021 a prospective buyer reviewed an advertisement offering the property for sale. The marketing piece represented that the property was an office building and park lot, used for the sale of pre-owned cars and trucks. The advert also represented that the property sale included “state-of-the-art cameras and security units.”
The buyer was familiar with this industry, as it was then operating its own used car dealership on rented property. So the buyer contacted Hussain and expressed interest in relocating their car lot from their rented property to the office and sales lot owned by Hussain.
The buyer toured the property and noted that it was being used as a car lot. The buyer also observed offices, equipment, furnishings, and persons working at the property who were identified as employees of “Houston Direct Auto.”
When questions were asked of Hussain about a certificate of occupancy, the buyer was informed that a C/O had been issued but the document had been misplaced.
So the buyer’s affiliate, Euro Property LLC, entered into a Contract in July 2021 with Hussain’s company to purchase the property for $1.6 million. The Contract included a provision that Euro was accepting the property “AS IS WHERE IS.” In addition, Euro was granted a 20-day feasibility period to inspect the property.
The contract also included the conveyance of the security cameras and systems without additional cost.
Hussain’s company furnished a Seller’s Disclosure document. In it, seller represented that there were no material physical defects, or conditions that violated laws or ordinances.
Hussain did not disclose to Euro that: (a) the City of Houston denied construction plans to convert the property from residential to commercial; (b) Hussain proceeded with construction anyway; (c) the property never received a construction permit; (d) the property never received a certificate of occupancy; and (e) using the property for a commercial purpose without a C/O violated City of Houston Ordinances.
After Closing, Euro discovered that the property did not have a C/O. The City of Houston required changes and corrections to material defects before it would issue a C/O. Euro hired contractors and paid $120,000 to complete the repairs and remediation efforts, resulting in the final and successful issuance of a C/O.
Euro was unable to use the property as a car lot after Closing for a year. Which meant that Euro’s tenant – Auto Selection – refused to pay rent, to Euro’s loss of $220,000.
Following Closing, Euro learned that Hussain had removed all cameras and security systems. Replacement of the equipment cost Euro $18,000.
Litigation was asserted in 2022 for fraud. The trial court entered a default judgment against the seller. The remaining defendants filed a motion for summary judgment, which the trial court granted.
Euro appealed.
To prevail on a fraud claim, Euro would need to present evidence of a false representation of a material fact, made to induce the person to enter into a contract and relied on by that person. Or, a false promise to do an act, if the false promise is material, made with the intent of not fulfilling it, made to induce a person to enter into a contract, and relied on by that person.
Hussain argued there could be no liability since the contract contained an “AS IS WHERE IS” clause. While it is true that a valid “as is” clause can negate the causation element as a matter of law, it is also true that a buyer is not bound by an “as is” provision induced by fraudulent representation or concealment of material information.
Hussain represented to Euro that the property had a C/O. Hussain knew otherwise. Hussain also knew that it was vital that Euro acquire only property that had a valid C/O.
The “AS IS WHERE IS” clause will not overcome fraud and concealment of important facts. Euro wins; Hussain loses; the trial court’s judgment in favor of Hussain is reversed.
See Euro Property LLC v. Hussain and Franco; Case No. 14-24-00170-CV; Texas 14th Court of Appeals; April 29, 2025: https://cases.justia.com/texas/fourteenth-court-of-appeals/2025-14-24-00170-cv.pdf?ts=1745931286.
Stuart A. Lautin, Esq.*
* Board Certified, Commercial and Residential Real Estate Law, Texas Board of Legal Specialization
Licensed
in the States of Texas and New York
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