California imposes extensive disclosure obligations in commercial real estate transactions to protect buyers, promote transparency, and reduce post-transaction disputes. For sellers, failing to comply with California disclosure requirements can result in costly litigation, damages, and even rescission of the transaction. As a result, understanding what must be disclosed is critical in any California commercial real estate sale.
Under California law, sellers of commercial real estate have a duty to disclose known material facts affecting a property’s value, use, or desirability when such facts are not readily observable and are known to the seller at the time of sale. While commercial transactions are not governed by the same statutory disclosure regime as residential sales, California courts impose a robust common-law duty of disclosure in commercial real estate transactions.
Examples of material facts that may require disclosure include, but are not limited to:
- Known mold or moisture intrusion issues affecting the property.
- Known releases or presence of hazardous materials, including contamination or environmental hazards.
- Flood hazards or flood zone designations, and any associated flood insurance requirements, where material.
- Seismic safety issues, including known earthquake retrofits or structural deficiencies
- Groundwater basin conditions, overdraft restrictions, or known limitations affecting water use.
- Proximity to airports or flight paths that may materially impact noise levels, operations, or permitted uses.
Failure to Disclose in California Commercial Real Estate
A seller’s failure to disclose material information in a commercial real estate transaction can expose them to substantial liability under California law including claims for misrepresentation, concealment and fraud. Commercial sellers are subject to common-law duties of disclosure. A buyer asserting a failure-to-disclose claim generally must establish that:
- A material fact or condition existed that adversely affected market value.
- The seller knew of the material fact or condition.
- The material fact was not reasonably discoverable by a prudent buyer.
- The seller failed to disclose the material fact in connection with the transaction.
- Had the omitted information been disclosed, the buyer would have behaved differently.
- The non-disclosure was a substantial factor in causing harm to the buyer.
A “material fact” includes any information a reasonable buyer would consider important in deciding whether to purchase the property or how much to pay. Claims for nondisclosure frequently arise after closing and can result in substantial damages and prolonged litigation. An “as-is” clause does not relieve a seller of its disclosure obligations. California law still requires disclosure of all known material facts that are not readily observable or reasonably discoverable and that affect the property’s value, use, or desirability.
Protect Your Interests in California Commercial Real Estate Transactions
California’s commercial real estate disclosure laws are complex, and even unintentional omissions can lead to serious legal consequences. Contact our office today to speak with an attorney about disclosure obligations, risk management, and protecting your interests in your next transaction.
Disclaimer: The information contained on this website and in this article is for general information purposes only and is not intended to be, nor should it be interpreted as, legal advice or a substitute for legal counsel. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. While we strive to ensure the information is accurate and up-to-date, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, or reliability of this information. Any reliance you place on such material is strictly at your own risk.