Seller Didn't Disclose "Fake" Sprinkler System

Buying & Selling Real Estate
5yFollow

Seller Didn't Disclose "Fake" Sprinkler System

Brandon Lopez
Member since 2018 · 2 posts · 0 votes

Hello,

Thanks to everyone in advance for the help. I've read several similar threads on this site looking for information, but I haven't really found my answer yet, so please excuse another post on the topic.

I closed on my first commercial/mixed-use property last year, and my wife and I are building out a hair salon in the retail space.  After we closed on the building, we discovered that the sprinkler system already installed was for visual appeal only (a plumbing line was NEVER hooked up and the pipes were made of PVC).  The city now requires us to install a proper sprinkler system throughout the building before they'll allow the salon to open.  Here are a few key bits of info:


  • There was no seller disclosure form (which I hear is pretty standard for commercial real estate) stating the sprinkler system was not up to code.  The seller did not otherwise indicate this at any point during the due diligence period.
  • The pvc pipes themselves were concealed by a drop ceiling, although sprinkler heads were visible through cutouts.
  • The inspector did not identify the issue.  There is a clause in the inspection report stating it's not intended to ensure code enforcement and may be limited if there are concealed areas (does drop ceiling qualify?).
  • According to the previous tenant in this building (in writing), the seller was aware the sprinkler system wasn't up to code (though I'm not sure he had it installed as he only owned for 10 years). They had this conversation because the tenant was worried his business could get interrupted if there was ever an inspection (not related to this sale).  According to the same tenant (verbally), the seller mentioned he hoped the drop ceiling would conceal this.
  • The cost to install an approved sprinkler system in the building is roughly $50-60k, plus an additional 8-10 weeks before we can open.

Given all of the information above, I'd love to get your opinion on whether or not there might be grounds for legally recovering some or all of the cost of the new sprinkler system?  Thanks again for any thoughts you can provide!

EDIT: Sorry for all of the bullets - could not figure out the list function in the forum!

    0Reply
    33 views

    Most Popular Reply

    John Mocker
    Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
    5y

    Brandon,

    When you speak to the Attorney, discuss whether or not your realtor had an obligation to request disclosures.  if they failed to request it there may be some recourse against the realtors Errors & Omissions (Professional Liability).  Similarly, the Inspector who failed to look into the drop ceiling, may be subject to a professional Liability Claim.  Your attorney can advise if the inspector would have a hard time arguing that it was not their obligation to get on a step ladder and see the condition of any ducts, wiring, plumbing, etc behind the drop ceiling at various points.  Your attorney may advise that you put in claims against both or neither.

    1Reply
    See this reply in the discussion

    5 Replies

    Jump to latestLatest
    • Charlie MacPherson
      China, ME · Member since 2014 · 3k+ posts · 4k+ votes
      5y

      @Brandon Lopez  This is a really bad situation and has the ability to bleed you dry in a hurry.  No income flowing in, loan payments, taxes, utilities and insurance flowing out.

      You need to consult a local real estate attorney ASAP.

      It seems that you have a decent case for fraud.  It might be that the best course of action is to unwind the deal if it's possible.  That will minimize your losses.

      If not, check to see if there are any local grants or low-cost loans to help to get up to code. 

      If you have to sue, it will probably be expensive and lengthy, but every day you delay is more cash flowing in the wrong direction, so time is of the essence. 

      Good luck and please update us on this mess.  

      0Reply
    • Brandon Lopez
      OP
      Member since 2018 · 2 posts · 0 votes
      5y

      @Charlie MacPherson Thanks so much for your response!  You're correct - this is not a fun situation at all.  At this point, we're too far into the salon buildout to walk away so we're hoping to recoup as much as we can from the previous owner (either through litigation or trying to negotiate directly with him outside of litigation).  I've been in contact with our closing attorney and a few attorneys on rocketlawyer at the moment, so hopefully I'm taking the right steps as of now.

      Again, appreciate your perspective and will keep you updated on how it turns out!

      0Reply
    • John Mocker
      Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
      5y

      Brandon,

      When you speak to the Attorney, discuss whether or not your realtor had an obligation to request disclosures.  if they failed to request it there may be some recourse against the realtors Errors & Omissions (Professional Liability).  Similarly, the Inspector who failed to look into the drop ceiling, may be subject to a professional Liability Claim.  Your attorney can advise if the inspector would have a hard time arguing that it was not their obligation to get on a step ladder and see the condition of any ducts, wiring, plumbing, etc behind the drop ceiling at various points.  Your attorney may advise that you put in claims against both or neither.

      1Reply
    • Russell BrazilBusiness Member
      Moderator
      Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
      5y

      Typically commercial properties are exempt from any type of disclosure laws.  Unless you have something in writing that the seller said that the sprinkler system was functional and up to code, then I do not see any action that can be taken here. If they did provide you with something that said they were, and they were not, then that may be an issue of fraud. But no disclosure of such, sounds like they are clear. 

      Caveat Emptor.

      [email protected]301-893-4635Podcast Guest on Show #192
      District Invest Group546 Reviews
      WebsiteView Page
      0Reply
    • Kim Knox
      Real Estate Broker · Jacksonville, OR · Member since 2009 · 199 posts · 155 votes
      5y

      Wow, I am sorry to hear that!  I believe Commercial property is exempt from disclosure law.  

      Was the property listed? If so, in the MLS listing details, did it indicate a sprinkler system?

      Were you represented by a Realtor in this transaction? Was the Seller?   

      I have never had a home inspector have a sprinkler system as part of their inspection, so I don't find it surprising that it is not part of your report.  Many Inspector contracts indicate that their maximum liability is the cost of the inspection itself.  The report also indicates the limitations, which generally include sprinkler systems. 

      0Reply
    Join the conversationCreate a free account to reply, vote on answers and follow this thread.
    Log InJoin for Free