Commercial real estate sales represent a significant transaction for both the buyer and the seller. The parties want a sale that’s negotiated in good faith, so they can trust that the decisions they make are good ones. Disclosure is an important part of that process, so it’s critical to understand what the law requires.
Buyer and seller responsibilities
Due to the contractual nature of their relationship, Arizona imposes duties upon both the buyer and seller of commercial real estate. Fundamentally, both parties must negotiate the sale with good faith and fair dealing. As the party in control of the property, most disclosure requirements fall to the seller – they must disclose all facts that are material to the transaction. Put another way, if a reasonable person would attach importance to a fact about the property which, if they knew, would affect their decision, it is material and must be disclosed.
Even if information is not material, if a buyer inquires about it, the seller is obligated to disclose what they know. They must also disclose information if the disclosure would prevent previously disclosed information from being misleading – such as when there’s a change in conditions. Conversely, when the buyer chooses to rely on their own inspection and makes no inquiries, the buyer likely cannot hold a failure to disclose against the seller, if the inspection should have revealed an alleged defect. This rule does not apply to hidden defects, however.
The seller is not alone when it comes to disclosure requirements. The buyer is bound by the same covenants of good faith and fair dealing, and must disclose to the seller certain information which could affect the transaction. In some cases, the failure to disclose can rise to the level of fraud or misrepresentation and give rise to civil penalties.
Due to the complexity of disclosure requirements in commercial real estate transactions, if you have questions or concerns about a deal you are contemplating, consult with an experienced professional who is knowledgeable about Arizona disclosure laws.