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On March 15, 2010, the State of Washington expanded the reach of mandated real estate disclosures to new heights by adding a new section to chapter 64.06 RCW to cover commercial transactions. The new law, unanimously passed by both the House and the Senate, goes into effect on June 10, 2010, and will require sellers of commercial real estate to provide buyers with a disclosure statement. The disclosure, at a minimum, must contain the information requested in the form.
Coverage of Statute
All commercial real estate conveyances are covered by the new statute, except for the following transactions:
• A foreclosure or deed-in-lieu of foreclosure.
• A gift or other transfer to a parent, spouse, domestic partner, or child of a transferor or child of any parent, spouse, or domestic partner of a transferor.
• A transfer between spouses or between domestic partners in connection with a marital dissolution or dissolution of a state registered domestic partnership.
• A transfer where the buyer had an ownership interest in the property within two years prior to the date of the transfer, including an ownership interest as a partner in a partnership, a limited partner in a limited partnership, a shareholder in a corporation or a leasehold interest.
• Transfers to and from a facilitator pursuant to a tax deferred exchange.
• A transfer of an interest that is less than fee simple, except the transfer of a vendee's interest under a real estate contract is covered.
• A transfer made by the personal representative of the estate of the decedent or by a trustee in bankruptcy.
• A transfer in which the buyer has expressly waived the receipt of the seller disclosure statement. However, if the answer to any of the questions in the "environmental" section of the disclosure statement would be "yes," then the buyer may not waive the receipt of the "environmental" portion of the disclosure statement.
These exemptions are identical to the exemptions that exist with respect to disclosure requirements applicable to sellers of residential real property under RCW 64.06.
If a seller of commercial real property in Washington fails or refuses to provide the disclosure document to a buyer, the buyer may rescind his or her agreement of purchase and sale until the earlier to occur of (i) three business days after receipt of the disclosure statement or (ii) the date the transfer has closed, unless the buyer has waived the right of rescission in writing. After closing, the seller's obligation to deliver the disclosure statement and the buyer's rights under the new law terminate.
Practical Effects...
The information supplied by the seller may help buyers identify concerns with the property early on in their due diligence period. However, it is expected that sellers routinely will insist that buyers waive the disclosure requirements, particularly when property is to be conveyed "as is."
The new law may create exposure to additional liabilities associated with the sellers' answers to the questions included in the disclosure. The seller will not be held liable for errors, inaccuracies and omissions in the disclosure if the seller had no actual knowledge of the same. However, should the seller fail to answer a question in the disclosure accurately, the seller may leave a door open for liability for misrepresenting the condition of the property.
Final Thoughts and Suggestions
1. Buyers will want to make sure that they promptly request the seller disclosures should they decide not to waive the disclosure requirement. Since the new law does not specify a time period within which the seller is required to provide the disclosure, buyers should make sure that a time is specified early in the negotiations to avoid incurring needless transaction expenses prior to issuance of the disclosures.
2. Sellers should note that the disclosure requirement cannot be waived with respect to the environmental portion of the disclosure if any of the answers to the questions in that section would be "yes."
3. After the closing of the transaction, the seller's obligation to disclose and buyer's right to rescind terminate.
4. The new law may present an obstacle to sellers who wish to sell property "as is." With the new disclosure requirement, a seller will need to be cautious with respect to the interplay between the disclosures and the "as is" clause.
5. The statute does not specify the remedies available to the buyer when a seller knowingly offers an incomplete or incorrect disclosure. Presumably, common law remedies are available to the buyer.
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