Under California law, every residential property seller is required to complete a Transfer Disclosure Statement (TDS) for the buyer. A multi-page document, the TDS is used to inform the residential property buyer about any major property defects. In contrast, a TDS is not mandatory in a commercial property transaction.
That being said, commercial property sellers do still have some responsibilities to disclose certain material defects. If they fail to do so, they may be held legally liable for a commercial property buyer’s damages under the common law. Here, our Novato real estate lawyers discuss the standard for bringing a failure to disclose claim for a commercial real estate transaction in California.
Understanding the Common Law: Failure to Disclose Claim for Commercial Property
In California, a commercial real estate failure to disclose case generally falls under common law. The standard used by state courts for these types of claims was articulated in the 1963 case of Lingsch v. Savage. The dispute centered around the sale of a property that the buyer allegedly knew was in a state of disrepair and had been condemned by San Francisco city officials, but failed to disclose that information to buyers. In its decision, the court clearly states that a commercial property seller has a duty to disclose “ facts materially affecting the value or desirability of the property which are known or accessible only to him” assuming that those facts are “not known” and not “within the reach” of the commercial real estate buyer.
Know the Elements of a Commercial Real Estate Failure to Disclose Claim
Commercial real estate non-disclosure claims are notoriously complex. Parties should have an understanding of the applicable legal standard. In order to bring a successful failure to disclose defect claim in relation to a commercial property transaction, a California buyer must prove the following five things:
- There was an undisclosed material defect
- The seller had knowledge of negative property condition
- The defect was not known or within reach of the buyer
- The seller intended to induce action by not making a complete and accurate disclosure
- The commercial property buyer suffered actual harm as a result of the failure to disclose
As the duties owed by commercial sellers are lower than the duties owed by residential sellers, it is more difficult to prove liability in a failure to disclose defect claims involving the sale of commercial property. If you have questions about failure to disclose claims, contact an experienced California commercial real estate attorney for help.
Additional Rule: Commercial Property Sellers Must Disclose Certain Environmental Risks
California also has special statutory disclosure rules for certain environmental risks. Under Cal. Civ. Code § 1103, commercial property sellers must disclose some basic natural disaster risks, such as if the property is located within an earthquake zone, flood area, or wildfire area. A commercial property seller could potentially be held liable for damages caused by failure to make these mandatory disclosures. As these disclosures are required by state statute, commercial property sellers have a proactive duty to share accurate information with buyers.
Get Help From a Real Estate Attorney in Novato, California
At the Law Office of David C. Winton, our California commercial real estate lawyers are focused on finding practical solutions for our clients. If you have any questions about failure to disclose in a commercial real estate transaction, we are more than qualified to help. Contact us now for a confidential case evaluation. From our legal office locations in Novato, Nevada City, and Auburn, we provide real estate law services throughout the wider region.