New Jersey has adopted rules requiring the seller of real estate to disclose known defects related to real property. In Weintraub v. Krobatsch, 64 N.J. 445 (1974), the Court determined that a seller of a home has a duty to disclose known on-site defects to the buyer. The Court held that, under certain circumstances where the seller is aware of a significant or material defect in a home and willfully fails to disclose that defect, rescission of the contract of sale would be justified. Twenty years later in Strawn v. Canuso, 140 N.J. 43 (1995), the Court expanded the duty to disclose to cover material off-site defects. The court qualified its holding by applying the duty to disclose material off-site defects to residential housing, not commercial property, and by extending the duty only to “professional sellers of residential housing” and their brokers, not to casual home sellers. This duty later was codified by statute.
In Weintraub, the defect was cockroach infestation. In Strawn, the defect was contamination to a lake and groundwater caused by hazardous industrial and chemical wastes that were not properly contained in, and ultimately escaped from, a landfill near a housing development. One can imagine that such defects could have an impact on the use and enjoyment of commercial property just as much as residential property and, thus, affect the property value. Who would want to eat at a restaurant infested by roaches? Who would want to work in a building where hazardous chemicals are leaching into the ground and air? Arguably, such conditions affect the commercial property owner’s ability to lease the premises to recoup on its investment. These are just some of the factors to be investigated and researched prior to purchasing or selling commercial real estate. Other considerations include safety, ingress and egress, and location vis à vis other businesses and major highways or mass transit. Disclosure of material defects may impact these considerations, as well.
As the courts create more protections for buyers of residential real estate by imposing on sellers an affirmative duty to disclose material facts affecting the property value, the question remains whether such duty should be extended to commercial or industrial properties. An experienced attorney can guide you through the process of selling or purchasing commercial real estate in New Jersey and in conducting due diligence. For more information about buyer’s rights and seller’s responsibilities, contact the attorneys at Sandelands Eyet LLP at (908) 470-1200.