Commercial Real Estate Claims Due to Foreclosure

by Mike W. Smith, President

We are seeing an increase in the number of commercial real estate E&O claims due to foreclosure or business failure. Due to the economy many shopping centers are experiencing a loss of tenants.  As businesses in these shopping centers go under, their is loss of traffic within the shopping center which affects all other businesses in the shopping center.  What happens when a real estate agents leases a new space in a dying shopping center?  What obligation does the leasing agent have to disclose the financial condition of other tenants or the shopping center as a whole?  In many cases, none.  However, we are seeing increased claims from tenants seeking retribution from the property manager or leasing agent for failing to disclose just that.  In one case the settlement was over $200,000.

It is more important that ever to address your real estate agency or brokerage E&O policy. Further, given the size of the potential claims in commercial real estate, it is also a good time to consider the limits for your current E&O policy. A standard one million dollar policy may be fine for a residential real estate agent, however, a commercial real estate agent clearly should consider higher limits based on the size and types of transactions .

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