In many purchase transactions, a key element of the negotiation is the condition of the property and what representations, if any, a seller is willing to make as to the condition of the property being sold. Often the seller insists that the sale is in AS-IS condition and shifts all the responsibility for determining the true condition of the property to the purchaser by granting a time frame within which the purchaser has the right to have the property inspected and, if not satisfied, cancel the deal and walk away.
In commercial transactions the responsibility of the seller in disclosing known but hidden defects is often less than that in a residential transaction, but that depends on the jurisdiction, and state case law differs on this topic from state to state. So, all sellers and their counsel should be advised of the law in their particular jurisdiction. Even if the transaction is an AS-IS sale, the buyer will want to obtain some representations as to known and hidden defects, as well as other issues that may not be readily discernible during inspections. As such, even in an AS-IS deal, it is typical for the seller to make some representations. This typically results in some hybrid element with a statement in the contract which states that “other than as represented, the transaction is AS-IS.”
Sophisticated sellers and their counsel will often insist on an additional paragraph in the AS-IS paragraph (which is often inserted in bold print) stating that the buyers are sophisticated real estate professionals and are knowledgeable about inspections and the conditions of property and the like. This shields the seller from a potential claim or argument that the buyers did not really understand what AS-IS truly meant, and that they did not know how to conduct proper inspections. Often times disgruntled purchasers make these claims against the seller post -closing. In addition, the seller will often insist on including language that states that the purchaser conducted inspections of the property, was aware of its condition as of the end of the inspection period and agrees to waive all rights to object to the condition of the property if they elect to proceed to closing.
At the end of the day, AS-IS clauses create many challenges for the contract drafter. They can be truly and completely AS-IS or only partially so. Each word could be critical in the interpretation of the clause, should a claim arise post-closing.
The other real estate attorneys at our firm and I are extremely experienced in the drafting of commercial real estate contracts, and we are available to help clients with these contracts from our offices in Miami-Dade, Broward and Palm Beach counties. We write about commercial real estate legal and business issues in this blog on a regular basis, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to receive all of our future articles.