Utah Hotel: You can leave at any time, but you can never leave. . . Your Disclosure Obligations | Snell & Wilmer

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A recent decision by the Utah Supreme Court is a warning to real estate sellers attached to operating businesses and potential development issues. In Shree Ganesh, LLC v Weston Logan, Inc., 2021 UT 21, the Supreme Court ruled that the seller of a current hotel business had both contractual and common law obligations to disclose to the buyer that at least the seller and the court of first instance did not believe they existed. Under this provision, in Utah, the seller of an ongoing commercial enterprise associated with real estate must carefully consider whether there is an obligation to disclose facts or circumstances that the buyer strength consider the material.

In Weston Logan, the buyer entered into a purchase agreement with the seller to purchase a hotel in Logan, Utah. The purchase contract contained standard real estate purchase contract clauses which required the seller to disclose “all rental contracts, leases, service contracts, insurance policies, latest tax invoices and the like. written agreements, written violations of the code or other notices that affect ownership. “The written purchase contract also required the seller to obtain the buyer’s consent before entering into new contracts that make ‘material changes in ownership, doing any deed or entering into agreements of any kind. whoever changes noticeably The value of the property. “

After the deal was signed and before closing, the seller was developing another hotel in the same hotel market, but miles away. Above all, the buyer was aware of these plans. The vendor’s plans changed, however, when the Town of Logan approached the vendor to offer to build the new hotel on a site directly across from the sold hotel. The seller never disclosed to the buyer prior to concluding any plans to build a competing hotel in the new location across the street. Without knowing the planned hotel across the street, the buyer closed the sale of the hotel in question. When the buyer learned of the seller’s plans, he sued the seller for failing to disclose that building a competing hotel across the street would drastically reduce the market value of the contracted property.

The trial court rendered a summary judgment in favor of the seller, ruling that the seller had no contractual or common law obligation to disclose his plans which had nothing to do with the property in question. The Supreme Court disagreed and reversed. By demanding a trial on the issues in dispute, the Supreme Court found that the written purchase contract was ambiguous as to whether it required the seller to reveal its intention to build a competing hotel across the street . She further considered that it was at least a plausible interpretation that the contract required disclosure of “written agreements” that “affect” the property. Prior to this ruling, this clause was generally interpreted as being limited to agreements, such as leases, insurance policies, etc., which directly affected the property in question for sale. And that can be the seller’s testimony at trial. But the language of the purchase contract has been interpreted by the Supreme Court to be broader, so any written agreement that could “affect” property could fall under the disclosure requirements of the purchase contract. The Supreme Court noted that Utah common law requires disclosure of the “physical elements” of a property for sale when the elements are not readily verifiable by the buyer and materially affect the value of the property. The Supreme Court rejected the district court’s opinion that the prospect of a competing hotel across the street was not a significant feature of the property in question. The Supreme Court found that since the property sold had an ongoing concern of a working hotel, the prospect of building a competing hotel business across the street was an important part of the ” Property “. Perhaps the most important wording of the opinion was the Supreme Court’s decision that there was a common law duty to disclose a case when it “encompasses any question or information that would have been a material factor in the decision. of a buyer to buy the building ”. Id at ¶ 35. Unfortunately, the Supreme Court did not and could not define what type of information would be “important” to a buyer. And it has not been said whether this importance is a subjective or an objective test. What’s important to one buyer may not be important to another. These questions will ultimately be left to the trier of fact, what unarticulated standard can make selling commercial property in Utah a more difficult proposition.

The ruling underscores the importance Utah courts place on full disclosure in commercial real estate sale transactions, but leaves much uncertainty about the judgment calls that accompany whether the information is material or important. for a specific buyer or buyers in general. One way to avoid potential liability may be to err on the side of well-documented disclosure, and at the same time consider using protective language against overly broad disclosure obligations and dispelling ambiguities in the written agreement that could potentially extend disclosure obligations



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