Selling Commercial Real Property “AS-IS” Is Not a "Get Out of Jail Free" Card

It’s not uncommon for property owners today to want to sell their real property ‘as-is” and not remain on the hook for problems that arise later. However, there are limits to what an “as-is” clause covers.

 

“As-is” clauses refer to the physical condition of the property and relieve the seller of a duty to disclose any defect in the physical condition of the property. Including an “as-is” clause does not protect a seller from claims based on fraudulent misrepresentation or fraudulent concealment. This does not mean than a buyer who gets burned on an “as-is” purchase can merely cry fraud and have his or her day in court. Nondisclosure does not equal fraud when the sale is an arm’s length commercial real estate sale and the seller has no fiduciary or other special duty that might otherwise require him or her to speak out about undisclosed conditions. There may arise, however, unique situations where the facts of the case indicate that the seller’s actions go beyond mere nondisclosure and justifies further fact finding by the court. That is exactly what happened in the following case in Washington County, Ohio.

 

In Mar Jul, LLC v. Hurst, 2013 Ohio 479 (4^th Dist. Ct. of App., Washington Cty.), Mar Jul purchased a commercial building with tenants from Hurst and the contract contained an “as-is” clause regarding the condition of the property. After the closing the buyer found several problems with the property, including insufficient water supply, the building being out of square and sinking, and materially inaccurate lease information.  Mar Jul sued Hurst alleging fraud, and related causes of action. The trial court granted summary judgment in favor of the seller based on the “as-is” clause in the purchase agreement.

 

Mar Jul appealed and the appellate court reinstated a portion of the case. The trial court’s dismissal of claims related to the physical condition of the property was upheld, but the appellate court found that Mar Jul did not have adequate opportunity to obtain the lease information regarding the building tenants and its reliance on the seller, Hurst’s, representations in the purchase agreement regarding the lease terms was not unreasonable. The court felt there were sufficient questions of fact that warranted allowing the Mar Jul its day in court to present its fraud claims regarding the leases.

 

When buyers of commercial real property are considering an “as-is” purchase, they need to negotiate adequate time for thorough due diligence prior to any closing or risk suffering substantial financial consequences. A thorough inspection of the premises and review of the leases is time and money well spent. If a seller doesn’t want to cooperate and allow for adequate inspection and review, then walk (or even run) away. Sometimes no deal is better than a bad one.

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