Buying & due diligence · Offering memorandums
Why does an offering memorandum say it can’t be relied on, and what does that mean for the buyer?
The short answer
An offering memorandum disclaimer warns buyers that the property’s marketing information may not be guaranteed for accuracy or completeness. The seller or broker may limit responsibility for errors, estimates, or omissions. Buyers are generally expected to investigate material facts independently, although the legal effect depends on the wording and applicable law.
Read the full answer ↓Why do offering memorandums include reliance disclaimers?
Commercial real estate offering memorandums often contain information gathered from sellers, tenants, public records, or third parties.
A disclaimer may state that:
- Property information has not been independently verified.
- Financial projections are estimates, not guarantees.
- Buyers must conduct their own investigations.
- The seller or broker may not be responsible for certain inaccuracies.
- Only specified written agreements establish enforceable representations.
An SEC-filed commercial property purchase agreement provides a documented example. Its provisions illustrate how a purchase agreement may allocate responsibility for investigating property information and limit reliance on certain seller-provided materials.
A non-reliance provision attempts to limit which statements a buyer can legally depend upon. Its enforceability is not automatic and varies with the circumstances.
What does an offering memorandum disclaimer mean for buyers?
An offering memorandum disclaimer shifts attention from advertised claims to independently verified documents. Buyers should investigate material facts before removing contingencies or completing a purchase.
Example
Consider a hypothetical property advertised with $200,000 in annual net operating income. At a 5% cap rate, that income implies a $4 million value. If verified income is $180,000, the implied value falls to $3.6 million at the same cap rate, a $400,000 difference. This calculation illustrates valuation sensitivity, not an actual market transaction or industry statistic.
The same verification process applies to roof condition, tenant guarantees, renewal options, and landlord expenses.
When considering NNN real estate for sale, confirm what the documents establish rather than assuming the brochure is correct.
Key offering memorandum terms
- Non-reliance clause
- Language restricting reliance on specified statements outside an agreement.
- Representation
- A statement of fact made by a party in a transaction.
- Due diligence
- The buyer’s investigation of the property and transaction.
- Contingency
- A contractual condition affecting a party’s obligation to proceed.
- Material fact
- Information that could significantly influence a buyer’s investment decision.
- Purchase agreement
- A binding contract establishing the terms and conditions of a property transaction.
Does a disclaimer protect the seller from every claim?
No.
A disclaimer does not necessarily excuse fraud, intentional misrepresentation, or every inaccurate statement.
A disclaimer’s legal effect depends on its precise wording, the governing law, and the circumstances of the transaction.
The Cornell Legal Information Institute explains reliance as a legal concept involving dependence on another party’s statements or conduct.
Have qualified legal counsel review material disclaimers and purchase agreement provisions.
Our guide to evaluating an NNN leased property addresses additional buyer protections.
Key takeaways
- An offering memorandum disclaimer limits reliance on marketing information.
- Financial figures and property claims require independent verification.
- Disclaimer enforceability depends on law and contractual wording.
- Buyers should review material provisions with legal counsel.
A disclaimer is a reason to investigate carefully, not a reason to ignore the information altogether.
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