Purchasing commercial property “as is” means you get what you see and even what you don’t see
This article was written by Natalie Cheung, a summer associate at Kohrman Jackson & Krantz P.L.L.--
Everyone’s heard it before: “buyers beware.” But, commercial real estate purchasers should be even more cautious when entering an “as is” contract than residential buyers since Ohio law treats them differently. All residential sellers, with some exceptions, are statutorily required to fill out a disclosure form revealing the condition of the property and any known defects. (See Ohio Revised Code § 5302.30). This disclosure form helps inexperienced home buyers discern how much additional renovation costs will incur and gives them an opportunity to simply walk away from the property if too many defects exist. This sounds great right? It is--however, commercial property sellers are not required to fill out any disclosure forms.
When buying property “as is,” commercial buyers should know that sellers have no legal duty to disclose flaws in the property. Once commercial property is bought, a buyer has to live with the property, warts and all, and any hidden defects that arise after purchase cannot be blamed on the seller. The only duty sellers have is not to commit fraud by intentionally making false statements or purposely hiding known problems. Though sellers could be liable for fraud, buyers have the burden of proving that the seller was intentionally dishonest or hiding flaws at the time of sale. That is no easy task. Commercial buyers need to be diligent in inspecting the property and should consider hiring experts to assist in the property inspection and to protect themselves as much as possible from hidden defects.
Entering into a commercial “as is” contract impliedly means that the buyer has acted with due care in negotiating the terms of the transaction and accepts the seller’s level of disclosure or lack thereof. The purchase agreement is a representation of the buyer’s complete and total understanding that sellers have no duty to disclose defects in a commercial “as is” transaction. Because “as is” and all of its variations (“in its present condition,” “with all faults,” etc.) truly means exactly “as the property is,” purchasers and sellers should give careful thought before entering into these kinds of agreements. Sellers and buyers need to make sure that contracts containing any language similar to an “as is” clause adequately represent both parties’ full understanding of their legal obligations.