KSL INVESTIGATES

Unlawful gag clauses found in multiple Utah home builder contracts

Jul 20, 2023, 10:59 PM | Updated: 11:07 pm

HIGHLAND, Utah — When Tony Capone deliberated moving back to Utah, building a home instead of buying an existing one was an attractive option.

“What that would do for us is to give us 10 months to a year to figure out the logistics,” Capone said, “and then we’ll be able to move the family in due time once the house is complete.”

Capone shopped around and ultimately found the perfect spot in Salt Lake County.

“We were enamored with the views,” Capone gushed, “and we were to the point where we’re about to sign the contract.”

Capone is an attorney and had previously practiced real estate, so reading real estate purchase contracts was something at which he was proficient.

In this contract, there was one red flag too big to ignore.

“There’s a non-disparagement clause and a very, very rigorous one,” Capone said.

The terms outlined the “buyer…agrees not to disparage Seller in any public or private format including…social media, website, public or private meeting…regarding the construction, habitability, workmanship, or any other condition of the Property or provision of this REPC.”

In short, Capone would not be allowed to say anything negative about his experience with the builder or the home they built him, even if the experience was true.

Violating that agreement meant losing the home’s warranty and paying the builder “liquidated damages of $2,500.” “I was shocked to see even in private,” Capone said. “I mean, if I can’t confide in my family in private about issues, like, what can I do?”

Capone reached out to the builder’s agent, asking the clause to be removed.

In an email, he was told, “[the company] doesn’t make changes to their contract…sections of the contract have to stay the way they are written.”

Capone didn’t sign and walked away from the builder.

Not enforceable

 

KSL Investigators decided not to name which builder Capone nearly contracted.

As we dug into the issue, we found multiple builders using non-disparagement clauses in their real estate purchase contracts.

In one case, we saw the exact same clause in the contracts of two different developers, also threatening to void the homeowner’s warranty and assess damages.

“That’s unlawful under the Federal act,” said Jeff Hunt, a First Amendment attorney with Parr Brown.

The federal act to which he refers is the Consumer Review Fairness Act.

In 2016, Congress decided consumers should be allowed to share their honest experiences about a company in a public forum without fear of retribution.

The Act outlawed these types of gag clauses in contracts that cannot be altered. “If you have one of these illegal clauses in your contract, it’s just void as a matter of law,” Hunt explained. “It’s not enforceable, but it doesn’t prevent the company from continuing to do that.”

That’s where the Utah Division of Consumer Protection comes in, which can enforce the Act.

“This law is really important for a couple reasons,” said Division Director Katie Hart. “One is we’d never want to have consumers not be in a position to speak honestly about the goods and services that they receive. It’s almost a suppression of speech.”

“Number two is it doesn’t create a very level playing field for businesses,” Hart explained. “If one allows for honest feedback and the other doesn’t, but you don’t know which ones those are, how do you make an informed decision?”

Hart indicated the Division has not received any specific complaints that would violate the Consumer Review Fairness Act but has seen these clauses in other complaints to the Division.

“I don’t think a lot of people know or realize that these are illegal to have in the contract,” Hart said.

There are specific rules under the Act to protect businesses from bad actors.

“You have to be honest,” Hart explained, “It has to be related to the thing that was under the contract. You have to be honest in your reviews. You cannot be vulgar, harass people, you can’t put personal information.”

Complaints made to Hart’s office are investigated, and if a company is found to have violated the Act, they could be fined.

“There are administrative penalties of up to $2,500 per violation,” Hart explained, “and they can also be subject to an enforcement action from the Division of Consumer Protection, the Utah Attorney General’s office, or from the Federal Trade Commission.”

According to data from the Federal Trade Commission, at least seven companies were dinged for violating the Act since 2019. In some cases, the companies were made to notify their customers that the clause in the contract was not enforceable.

Why do these clauses exist?

KSL Investigators reached out to five different builders with gag clauses in their contracts, trying to find out why they exist.

Of those five builders, one responded with “no comment.” We did not hear from the remaining four companies.

We reached out to the Utah Home Builders Association for comment on these clauses and did not hear back.

At least one other Utah builder has explained why these clauses made it into their contracts.

According to an article by The Herald Journal in May 2022, Visionary Homes opted to drop the clause after pushback from a Providence city councilman who felt the clause was “anti-consumer, anti-American,” and “in violation of consumer protection laws.”

In a statement made to the Herald Journal, Visionary stated “The purpose of the non-disparagement clause was to protect Visionary Homes against persons who sought to damage the company’s reputation by spreading falsehoods and half-truths. It was never intended as a tool to silence discontent, nor is it a ‘gag order.’”

Visionary told The Herald Journal they had never enforced the clause prior to axing it from their contracts.

KSL reached out to Visionary Homes for comment but did not receive a response. Hunt explained developers and contractors do have options available against those that damage their reputation with lies and fake reviews.

“They can sue you for defamation if you get your facts wrong,” Hunt said.

As for Capone, he said it took some time to find a builder without the non-disparagement clause or was willing to negotiate the contract.

He hopes more can be done to make sure consumers are getting all the facts with the biggest purchase of your life.

“Really, the economy is meant so that those that are providing exceptional service rise to the top,” Capone said, “and if we don’t know where the issues lie, then we can’t weed out those bad actors.”

Have you experienced something you think just isn’t right? The KSL Investigators want to help. Submit your tip at investigates@ksl.com or 385-707-6153 so we can get working for you.

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Unlawful gag clauses found in multiple Utah home builder contracts