Resdidential v. Commercial: Duty to disclose

Caveat emptor is the principal that a buyer alone is responsible for checking the quality and suitability of property before a purchase. California was one of the first states to abolish caveat emptor better known as “buyer beware” during the sale of residential property. The state has adopted disclosure duties and the legislator has developed strict requirements for sellers of residential property.

Not only must a seller conduct a diligent inspection,  but the seller’s broker has a duty to inspect the premises as well. The legislator has even created an inspection checklist of potential defective items that the seller must complete before the property closes escrow. If a seller fails to inform a buyer of material defects in the property, they may be held liable. A defect is material if its disclosure would have changed a reasonable buyer’s decision to purchase the property.

However, a buyer cannot choose to simply remain ignorant about the conditions of the property. The buyer must also conduct an inspection of the property. When the buyer has notice or with ordinary care should have noticed something wrong with the property, the buyer may not be able to attack the validity of the contract for fraud or misrepresentation.

However, these imposed mandatory disclosure duties that are enforced in the residential realm have not been extended onto sellers of commercial property. In California  “commercial property” is defined as real property which is used for the purpose of producing income and contains more than four dwelling units. A “commercial buyer” is a person that purchases commercial property for purposes of investment, commerce, or industry. Typically, these commercial buyers are deemed more sophisticated then a residential buyer and as a result the heightened disclosures are deemed unnecessary.

Although California courts are the strictest in regards to the heightened requirement placed on sellers and brokers to disclose defects which they should have been aware in addition to those they had actual knowledge, California continues to grant little protection to the commercial purchaser. This does not mean that sellers of commercial property can conceal or mislead their purchasers, but does mean that a commercial buyer must do their due diligence before buying any property.

If you have recently purchased property and you believe the seller failed to disclose material defects or committed fraud, contact Bennett & Demera LLP at (559) 981-2588 or hello@bennettdemera.com