Required Disclosures in Commercial Real Estate Law
A minority of states require sellers to make certain disclosures when selling commercial real estate specifically. These states are California, Maine, Michigan, Minnesota, New Hampshire, Tennessee, Texas, and Washington. Commonly mandated disclosures include things like the presence of potentially hazardous conditions on the property or information about any underground storage tanks. In California, for example, sellers of commercial property must disclose certain environmental conditions of the property, like whether it is located in an earthquake fault zone.
Failing to Disclose and Misrepresenting Material Facts
Some states, even if they do not require specific disclosures, impose liability on buyers and sellers for failing to disclose or misrepresenting facts material to the transaction. Material facts are generally those facts that a reasonable person would consider important when making their decision. However, many states lean towards the principle of “buyer beware.” This means that a seller cannot be liable for defects a buyer could have discovered.
California sellers may be liable for failing to disclose facts materially affecting the value or desirability of the property only known or accessible to the seller when the seller knows that the buyer does not know of these facts and cannot discover them through diligent observation. This liability cannot generally be waived by an “as-is” provision in the sales contract.
Sellers in Arizona, as another example, have a duty to disclose facts materially affecting the value of the property. This includes new information that would prevent a previous disclosure from being misleading. Sellers have a duty to disclose known latent defects, meaning defects that are not discoverable by a buyer’s reasonable inspection of the property. If a seller does not make proper disclosures, a buyer may have a viable claim for damages. Arizona also applies the duty of good faith and fair dealing to both parties, meaning that in some instances, a buyer could be liable to a seller for failing to disclose a significant risk that they could not actually purchase the property.
In all states, buyers and sellers might make voluntary disclosures as part of the marketing and negotiation process. If these disclosures are memorialized in the purchase and sale agreement’s representations and warranties, a party might have a claim if the other party’s representations and warranties were not true.
