Commercial Real Estate Sales: What Information Must Be Disclosed

California’s commercial real estate has been booming thanks to a thriving economy and expanding businesses. Understanding the legal requirements is crucial, whether you are buying property to grow your business or selling to pursue new ventures. One key legal requirement for real estate sellers is disclosing any defects or issues with property or existing leases. This article outlines the information that must be disclosed in California’s real estate sales, highlighting its importance for a successful transaction.

What Must Be Disclosed in a Commercial Real Estate Sale?

In California, a Real Estate Transfer Disclosure Statement (TDS) is required in a residential sale. While California does not require a TDS in commercial transactions, sellers are still obligated to disclose certain things about a property and can be held liable for nondisclosure. Some of these critical disclosures include the following:

1. Material Defects and Property Conditions

Sellers of commercial real estate in California must disclose known material defects that could adversely affect the property’s value or desirability. This includes structural issues, environmental hazards, or other conditions that might influence a buyer’s decision.

2. Natural Hazard Zones

Additionally, California Civil Code § 1103 states that sellers must inform buyers if the property is located within natural hazard zones, such as areas prone to flooding, wildfires, or earthquakes.

3. Energy Use Disclosure

Sellers are mandated to disclose information about specific commercial properties’ energy use and consumption data from the previous 12 months and the building’s ENERGY STAR performance score.

4. Accessibility Compliance

Sellers must also disclose whether a Certified Access Specialist (CASp) has inspected the property and if it meets accessibility standards.

It is worth noting that general disclaimers stating a property is being sold “as-is” do not absolve a seller from liability for fraud, concealment, or failure to disclose material defects. The term “as-is” cannot be used as a loophole to avoid accountability. Sellers are still required to disclose known material defects to potential buyers. If the buyer chooses to proceed with the purchase, it is considered “as-is” with full knowledge of the disclosed issues. If you are pursuing a failure to disclose claim in California, you must prove the following elements:

• A property defect that significantly reduces the market value of the commercial property exists
• The seller was aware of these defects
• You could not have discovered the defects even by exercising reasonable care and diligence
• The seller deliberately withheld this information to influence your decision
• You incurred financial losses directly from the seller’s failure to disclose the defects.

What is the Risk of Failing to Disclose This Information?

Failing to disclose material information about a commercial property poses significant legal risks. Under California law, sellers must reveal facts that materially impact the property’s value or desirability if those facts are known only to the seller and not reasonably discoverable by the buyer. Failure to do so constitutes actual fraud, and buyers misled by nondisclosure can pursue legal action for fraud. According to California Civil Code §3343, buyers defrauded in property transactions can recover damages, including the difference between the property’s represented and actual value, along with any additional losses caused by the fraud.

Contact Us for Legal Assistance

If you have any questions about disclosure standards, contact our San Francisco real estate attorneys at SAC Attorneys LLP.