LOS ANGELES—Boilerplate provisional clauses in commercial real estate contracts are not necessarily enforceable, and will not defend against fraud and gross negligence, according to the expert litigation lawyers on the Real Property Contracts panel at the recent USC Gould Real Estate Law & Business Forum. The panel included Bridget S. Johnsen of Sidley Austin LLP; Robert J. Odson of Shumener, Odson & Oh; Eric V. Rowen of Greenberg Trauig LLP; and panel moderator Peter J. Breckheimer of Glaser Weil.

“The as-is clause was designed to prevent someone from coming back and saying that they wanted to use the property for something else. It was never intended to allow people to get away with fraud,” said Rowen on the panel, pointing out that it isn't enough to drop an as-is clause into a contract and expect that you will be exempt from any wrongdoing after the sale. The issue came to the forefront with the recent court case of Thrift Payless Inc. vs. the Americana at Brand, where the former sued the shopping center for fraud when the property taxes grossly exceeded estimates. The ruling initially sided with the Americana, agreeing that the negotiations between the companies were estimates; however, the ninth court of appeals reversed the charge, saying that the Americana did not share operating cost information with the store, and therefore a fraud claim can be made.

Rowen goes on to explain that you can not sit on information, and then add in a provisional statement, while Odson concurs, saying, “It is a matter of expectations.” The panelists recommended that parties should specifically mention “negligence” in any general exculpatory clauses to help “disclaim liability for active as well as passive negligence.” Additionally, parties can agree to settle future disputes through general judicial reference to avoid going to trial for possible contractual disagreements at a later date. This can be done through a pre-dispute waiver; however, it is unenforceable to deny a jury trial even if this agreement has been expressly stated in the contract.

In the end, all of the panelists agreed that real estate lawyers should not depend on these boilerplate provisions to meet their objective needs, especially considering that these provisions are frequently unenforceable.

The USC Gould conference was held last week in Downtown Los Angeles, and included discussions about a range of real estate topics, from city planning to crowdfunding.