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Investing in commercial real estate is a costly endeavor. No business wants to spend money buying property only to find out after the fact that it has expensive defects that need to be fixed immediately. How can a buyer ensure that the commercial real estate they are purchasing is in good condition? That is where the seller’s disclosures can make or break a deal.
Does Illinois Have Laws Requiring Disclosure of Material Defect?
A statute called the Illinois Residential Real Property Disclosure Act requires sellers of residential real estate to disclose the property’s condition. In most residential real estate transactions, a standard form includes specific disclosures for the condition of many aspects of the home. The key term here is residential real estate transactions.
This statute does not apply to commercial real estate transactions in Illinois. This means that sellers of commercial real estate do not have to make the same disclosures as residential sellers.
However, there are other ways in which commercial real estate buyers can be protected in the process. An experienced commercial real estate attorney can help you navigate the real estate purchase process. Read our article to learn more about Risks of Not Using an Attorney When Buying or Selling Commercial Real Estate.
Read on to find out what disclosures commercial real estate sellers require.
Is The Seller Required to Provide a Disclosure for Commercial Real Estate in Illinois?
As explained above, the seller of commercial real estate does not have to provide the same lengthy disclosure for the property condition that a residential seller must give.
When investing in commercial real estate, a seller is bound by the disclosures they make during the negotiation and sale process. By disclosures made during the negotiation and sale process, we mean any affirmative representation or warranty they make about the property’s condition.
While there may be no official duty to disclose, a seller will be bound by disclosures they do make and by the terms of the purchase agreement.
An experienced commercial real estate attorney can be crucial in this process for both buyers and sellers. An attorney can help a seller make any necessary disclosures to avoid future liability. On the buyer’s side, an attorney can ensure the buyer does their due diligence and asks the right questions to elicit the necessary disclosures to make an informed purchase. Attorneys can also craft an explicit purchase agreement that explicitly describes the condition of the property and any representations relied upon by either party when choosing to transact with each other. For more information read our article, 6 Tips for Commercial Leases.
How Can a Buyer of Commercial Real Estate Ensure the Property is in Good Condition?
A buyer must do their due diligence when purchasing commercial real estate. A visual inspection of the property will not always reveal defects. A buyer should ensure a licensed professional perform all inspections needed to determine the building’s condition and quality. This is not the time to skimp on services or try to save by failing to act. Choosing a competent and qualified inspector and performing all needed inspections can save you time and hassle down the road.
Once you have a thorough inspection, come up with a list of questions to ask the seller pertaining to the property’s condition. Remember that any affirmative representation will bind a seller that they make. If they lie, they can be held liable for that. If they make material misrepresentations, they can be held liable for that.
However, if you never make the inspection and ask about a specific issue, and that issue becomes apparent after the transaction has been completed. That seller is not liable for anything.
This is where an experienced real estate attorney can help you come up with the right questions.
Furthermore, because the terms of the purchase agreement also bind a seller, it is essential to include any seller representations or warranties in the agreement. This will make it easier to hold the seller accountable in the event of something going wrong after the sale.
What Happens If a Seller Lies on a Disclosure?
Because sellers aren’t required to make most disclosures in commercial real estate deals, the only way a seller can be held liable for lying on disclosures is if the buyer asked specific questions that cause the seller to make specific disclosures.
If the seller lies about these disclosures before the buyer purchases the property, and the buyer relies on these misrepresentations in closing the deal, then the seller can be held liable for his disclosures.
The buyer can hold the seller liable by suing for fraud or breach of contract. Depending on the situation, the buyer may be entitled to damages.
All of this, however, relies on the seller making specific disclosures, which they are not required to do. For this reason, it is imperative that a buyer completes their due diligence and asks the right questions.
Call our office at (630) 324-6666 or schedule a consultation with one of our experienced Illinois real estate lawyers today. You can also fill out our confidential contact form, and we will get back to you shortly.