Follow the rules and let the buyer beware: caveat emptor’s role in commercial real estate

Follow the rules and let the buyer beware: caveat emptor’s role in commercial real estate

The long-standing doctrine of American law known as caveat emptor, or “let the buyer beware,” is still alive and well in the State of Florida with respect to the purchase and sale of commercial real estate (though quite dead in the residential real estate context, see Johnson v. Davis).  In its most basic application, the doctrine of caveat emptor shifts the burden of discovering property defects to the buyer of commercial real estate, largely relieving the sellers of such property from any duty to disclose latent defects known to the sellers that may negatively affect the property’s value. As a consequence of the rule, buyers often opt to undertake significant due diligence prior to closing on any sale of commercial real estate property, or make the choice to forego such due diligence knowing that they do so at their own peril.
While the doctrine of caveat emptor shifts the responsibility to the buyer, let the seller, and the seller’s broker, beware also. It comes with exceptions. We cannot capture all of the exceptions here, but want to specifically point out that despite its existence, under caveat emptor the seller is not allowed to actively interfere with a buyer’s attempts to discover defects in the subject commercial real estate property prior to closing. Sellers should be certain to avoid actively concealing defects that are known to exist, or fundamentally misrepresenting the condition of any property being sold. As a general rule, buyers may be expected to fend for themselves, but this general rule does not give the sellers license to make misrepresentations or actively conceal defects.

While buyers may be well-advised to perform extensive due diligence before closing on the purchase of any commercial real estate property, the doctrine of caveat emptor does not require them to decipher calculated misrepresentations and other forms of concealment. Of course, contractual provisions existing between a buyer and a seller often address certain issues relating to the purchase and sale of commercial real estate property, and any contractual provisions that exist will necessarily have the potential to create varied results. Astute brokers will keep their eyes open for these issues, and astute sellers will make certain to engage brokers with a track record for integrity to avoid being saddled with liability long after the checks are deposited and the closing dinner table is cleared.

Contact Doug A. Bates by phone, 850-436-6465, or dbates@clarkpartington.com.

This article originally appeared in Beck Partners’ 2017 Insights Magazine.  This publication should not be construed as legal advice.  Its applicability is dependent upon specific facts and circumstances and is provided for informational purposes only.  You should not act upon this information without seeking advice from a lawyer licensed in your own state.