Commercial Real Estate: What Constitutes a ‘Failure to Disclose’ in California?

In a real estate transaction, sellers have a legal responsibility to make certain disclosures to the buyer. In California, a Real Estate Transfer Disclosure Statement (TDS) is a required part of a residential sale. The core purpose of a TDS is to ensure that the seller has informed the buyer of any material defects before the real transaction is complete.

 

California does not require Real Estate Transfer Disclosure Statements in commercial transactions. That being said, a commercial real estate seller still owes duties to the buyer and may be liable for their failure to disclose a property defect. Here, our Riverside commercial real estate lawyers explain the most important things you need to know about failure to disclose claims.

 

Real Estate Non Disclosure in California: An Overview of the Required Elements

 

While commercial real estate sellers are held to lower standards than are residential property estate sellers, they could still be held legally liable for failure to disclose a property defect. Sellers must disclose certain known information that would adversely affect the market value of the property. Here are five required elements of a failure to disclose claim in California:

 

1. A property defect exists that adversely impacts the tangible market value of the commercial property;
2. The commercial real estate seller knew of the property defects;
3. The adverse information that was known by the seller could not have been reasonably ascertained by a buyer of ordinary prudence;
4. The seller’s non disclosure of the property defect was intended to induce action by the buyer; and
5. The commercial property buyer suffered actual financial losses as a consequence of the failure to disclose.

 

It is important to emphasize that a commercial property seller does not have comprehensive duties to discover and disclose defects. California courts have been clear: A commercial real estate seller’s duty to disclose defects does not require them to conduct a full inspection of their property (Smith v. Rickard). While they can be held liable for concealing information, they cannot be held liable simply because they fail to inspect and uncover an unseen issue.

 

Some Limited Statutory Disclosures are Required in Commercial Transactions

 

Beyond California’s common law governing commercial real estate defect claims, property sellers also have some limited statutory obligations. Most notably, under Cal. Civ. Code § 1103, commercial real estate sellers must disclose certain basic information related to natural disaster risks. Among other things, state law requires the duty to disclose whether or not the property is located in a flood zone, wildfire zone, or earthquake zone.

 

Be Proactive: Immediate Action is Needed in a Commercial Dispute

 

Commercial real estate disputes require immediate action. Whether you are a commercial real estate developer, property seller, or a property buyer, proactive action is a must. In some cases, disputes can be resolved at a lower level of conflict—saving time and money for all parties involved in the case. In other cases, commercial real estate litigation may be necessary. If so, parties need to act quickly to build a strong complaint or a competent legal defense.

 

Call Our Riverside, CA Commercial Real Estate Lawyers for Immediate Help

 

At Wagner Zemming Christensen LLP, our California commercial real estate attorneys are aggressive, competent advocates for our clients. If you have any questions about California’s failure to disclose standards, we are more than ready to help. To set up a completely confidential, no obligation initial consultation, please contact our legal team today. With an office in Riverside, we handle commercial real estate cases throughout the region, including in Jurupa Valley, San Bernardino, Moreno Valley, and Redlands.