What Is an “As-Is” Clause in a Real Estate Contract, and How Does It Affect the Buyer’s Rights?
What is an "as-is" Clause?
It is more difficult for the seller to get out of a signed contract than the buyer because if the buyer has competent counsel, their lawyer will include provisions which allow the buyer to terminate the agreement under certain circumstances related to due diligence and financing.
A seller is usually obligated to sell per the signed contract unless buyer fails to make or is unable or perceived to be unable to make a payment of a required deposit or the balance of the purchase price at closing.
A seller who wants to back out of the deal for reasons such as a better buyer came along or because they now believe the price they accepted is too low, will have to be lucky (e.g., buyer fails to make a payment) or savvy enough to create an escape hatch out of a buyer weakness such as lack of authority, conflict, or a material adverse change to buyer’s financial circumstances.
When Are "as-is" Clauses Typically Used?
"As-is" clauses are typically used in place of any seller representations about the condition of the property in commercial real estate contracts. This clause aims to be a point of understanding between the seller and buyer and serves as an acknowledgment point. Both parties must understand and agree on the contract terms before signing the contract. Working with an experienced real estate attorney can help you find where an "as-is" clause would be in your contract and help explain what this means going forward.
How Does the "as-is" Clause Work?
If something is found during inspections that the buyer deems unacceptable, the buyer may request the seller to address it. However, the as-is clause reflects a mutual understanding that the seller is not required to address the problem, but if the seller declines, the buyer can agree to proceed as-is or cancel the transaction.
How Does the "as-is" Clause Affect Buyer's Rights?
If there is an "as-is” clause in your commercial real estate contract, the buyer must understand that they will be purchasing the property as-is, flaws, and all, or terminate. Buyer cannot compel the seller to change anything after the agreement is signed.
For buyers, this means that they must pay attention to the property inspection report information, and decide if they are okay with purchasing the property because there is a no returns policy once they do. Buyers must agree that they are okay with buying the property as-is, and if they find something wrong, they do not have the right to compel the seller to negotiate or change anything after the agreement is signed. The buyer has a right to bring up anything found during inspections that the buyer deems unacceptable, and the buyer may request the seller to address it. However, if the seller disagrees and will not fix the problem, the buyer has the choice to either accept the property as-is without the requested fix, withdraw the request, or cancel the entire transaction.
Are "as-is" Clauses Good to Have?
As a seller, having an "as-is" clause in your commercial real estate contract can protect you. You can disclose any known defects of the property to the buyer and let them have inspection rights before making an informed decision.
As a buyer, having an "as-is" clause in your commercial real estate contracts can be more of a hassle. You will have to ensure you are reviewing the inspection reports properly and intensively before deciding whether to follow through with the purchase or cancel it. Working with a commercial real estate attorney can help you determine what's best for your commercial real estate needs.
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