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					       Real Estate Bulletin
Spring 2007

Due Diligence in Real Estate Transactions                                                     by Glenn A. Fuller Esq.

Overview                                        (“Environmental Issues”). These two            the process. The availability of resources,
                                                “legal” due diligence categories will not      the number of professional consultants,
I. Why Due Diligence?                           be discussed in this article since they are    and the allocation of due diligence
                                                each broad and important enough to             responsibility will, of course, vary with
One of the oldest common law maxims             merit their own separate analysis. Also        each transaction and the needs of the
regarding real estate is that no two            for the purpose of this article, I use the     individual investors. In almost every
pieces of real estate are the same. In          term “investor” to represent the party         case, however, the process will involve a
a highly complex and an increasingly            conducting the due diligence since I           team approach. As such, the first task of
sophisticated real estate market, this          believe the need for thorough due              the real estate investor and its attorney
has never been more true. For instance,         diligence exists in virtually every major      is to identify the team of consultants and
take two buildings of the same size,            transaction, including the acquisition of      their respective roles.
class and quality; chances are, there will      property for investment or development,
be significant differences in valuation         extension of a loan secured by real            While the attorney ’s substantive
between these assets based simply on            estate, formation of investment in a           contributions will in almost all cases
variables such as the location of the           real estate syndication or entry into a        require expertise in traditional real
property itself, the legality and flexibility   long-term ground lease. While the              estate law including landlord/tenant
of its existing and potential uses, traffic     needs of each of these “investors” in          law, conveyance and title issues, entity
patterns, lot configuration and a host of       each individual transaction will vary,         formation issues, and the principles of
other factors. In addition to empirical         the core principles involved are the           real estate financing, depending on the
differences, the provisions of the leases,      same, including the absolute necessity         project in question and the history of its
matters on title and the location of the        of extensive due diligence. Finally, the       use, sometimes specialized knowledge
improvements on the property in relation        issues involved in conducting the due          of land use and hazardous waste
to recorded restrictions can result in          diligence will vary depending upon asset       materials regulations, development
dramatic economic differences in the            class and the status of entitlements and       and construction principles and other
value of seemingly similar real estate          improvements on the asset. This article        related disciplines are necessary for even
assets. The only way these factors can          will focus primarily on the common             fully improved projects. Increasingly
be ascertained and incorporated into            issues an investor and its legal counsel       real estate transactions involve tax and
the decision making process is through          should consider in connection with the         business law issues including issues
thoughtful, exhaustive investigation – in       acquisition of a fully improved office         related to 1031 tax exchanges, tax and
other words, through due diligence.             building, shopping center or industrial        other implications of contributions of
                                                complex.                                       real property to entities, being cognizant
For purposes of this article for conceptual                                                    of the investor’s exit strategy to help
reasons, I have divided the due diligence       II. Allocation of Responsibility               structure and acquisition a loan to militate
process between “factual” due diligence                                                        against adverse tax consequences in the
and “legal” due diligence. Sometimes,           The due diligence process for real estate      ownership and dissolution of the asset.
depending upon the circumstances,               investments involves many professional         Finally, if the investment in question
traditional “legal” due diligence must          disciplines, including law, architecture,      involves a syndication, the attorney
be supplemented by two additional               planning, engineering, appraisal, market       involved in the transaction should be able
areas of concern: compliance with               and the financial analysis. In general, in     to advise the investor regarding securities
land use and zoning regulations                 order to conduct adequate due diligence        and other issues in connection with
(“Land Use”) and if toxic or hazardous          within the time frames generally provided      raising funds from investors. This can
materials or other contaminants are             by the contract provisions it is necessary     include advising clients on the special
involved, environmental legal review            to assemble a qualified team to conduct        requirements and restrictions applicable
                                                                                                                                   Page 2

to investments made by pension funds, real        the investor will focus initially on review of   inadequate or raises significant questions;
estate investment trusts and other entities.      the preliminary title report and supporting
                                                  documentation, leases and survey. As             There needs to be sufficient time to allow
In general, it is the responsibility of           noted above, consultants will generally          the investor and its counsel the maximum
environmental inspectors, soil engineers          focus on the third-party reports along with      opportunity to evaluate the information
and other consultants to identify potential       the investor to determine the appropriate        assembled; and
environmental problems and it will be the         physical condition of the property, relevant
responsibility of architects, civil engineers,    market conditions (through appraisals,           The discovery and evaluation of a problem
building inspectors and other consultants         market studies and financial analysis),          must be identified far enough in advance
to insure compliance with zoning laws             compliance with governmental agencies’           of the scheduled closing date to enable
and building codes; provided, however,            requirements and, if necessary, compliance       the parties to (i) solve the problem before
that analysis of compliance for zoning,           with environmental laws.                         closing, (ii) postpone closing to solve or
subdivision and other land use regulations                                                         eliminate the problem or to modify the
generally involves legal review as well. For      Because of the complexity and infinite           relevant agreements by price adjustment or
example, in the case of acquiring or financing    variations in the due diligence process, it is   otherwise, or (iii) negotiate and document
a project under construction or recently built,   impossible to set forth a single methodology     a post-closing remedy.
a thorough review by a land use attorney          or set of procedures that will apply to
of the project approval proceedings and           each and every transaction; however,             Use of Checklists. A good due diligence
other operative documentation is needed to        certain important principles apply to all        checklist is an important analytical tool
confirm the absence of procedural defects,        due diligence investigations. In general,        for systematically reviewing issues and
expiration of applicable statutes of limitation   these will involve the establishment of two      recording the information discovered. A
for legal challenges, or other vesting rights     extremely important issues: (i) timing; and      checklist may simply be a lengthy list of
in project approvals.                             (ii) the use of checklists.                      all items that are potentially relevant to a
                                                                                                   particular transaction with an indication of
Whatever the allocation of responsibility,        Timing. In almost all real property              who is responsible for a given issue and
the attorney/client relationship should           transactional documents, the approval            a space provided for indicating whether
provide that someone, either a professional       of due diligence is a condition for the          a review or investigation is required. A
consultant or an expert within the client’s       investor going through with the transaction.     more elaborate version is a matrix of items
organization, coordinates closely with            Consequently, time periods for approval are      that not only identifies the issues and the
counsel to ensure that each aspect of due         usually hotly negotiated issues, with sellers    party responsible for each aspect of due
diligence investigation is adhered to.            and lenders seeking the shortest possible        diligence, but also allows for an updated
                                                  period for investigation and buyers and          narrative statement about what has been
III. The Due Diligence Process                    borrowers seeking the longest possible           done and how an issue has been resolved.
                                                  period of time to insure adequate due            This approach is almost always used in
Most acquisitions and loan documentation          diligence review. It is almost always the        complex real estate transactions and is an
provide for extensive pre-closing conditions      case, however, that due diligence must be        effective way to immediately communicate
that require an investor’s receipt and review     conducted in a limited time period, and          to the due diligence team the status of
of various information. Although different in     this fact puts a premium on establishing         various issues. Attached hereto on the
each instance, these almost always include        a systemized process for conducting              Appendix is a version of a checklist the
the following: (i) the financial information      due diligence as early in the transaction        author utilized in a recent transaction.
regarding the property in question; (ii)          as possible. In connection therewith,
plans and specifications for improvements         someone (usually the transactional attorney)     IV. Transactional Issues
and notices from governmental authorities;        must “quarterback” the process and be
(iii) obtaining building inspection, soil, or     responsible for insuring that the structure is   As noted earlier, this section focuses
environmental reports prepared by third-          adhered to and deal with the contingencies       primarily on issues to consider when
party consultants; (iv) an original or copy       as they arise. In general, there are four        conducting transactional due diligence,
of any leases as well as management               major issues related to limited timing:          with the focus on matters that are primarily
and operating contracts; (v) receipt of a                                                          the responsibility of the real estate attorney,
preliminary title report and all supporting       Counsel should ensure prompt delivery            excluding environmental and land use due
documents referenced in the preliminary title     of existing information without which the        diligence items.
report; and (vi) a survey showing, among          process cannot proceed;
other things, the boundary of the property,                                                        1. Lease Review. It is axiomatic that in
location of buildings and other structures on     The initial documentation must be reviewed       connection with the acquisition of an
the property and plotting all exceptions of       and analyzed quickly enough to permit            operating asset, lease review is one of
title that are plottable on the survey.           counsel and the investor to make further         the most important due diligence items
                                                  inquiries and arrange for additional studies     that investors and their counsel must be
In most cases, the attorney representing          to the extent the initial information is         concerned with. Of course, the actual

nature of the asset and tenants can have          modify or in some cases completely              If any such rights exist, it may be possible
a significant impact on the necessity to          change provisions in the main body of the       to obtain a waiver or to verify, through
review each individual lease. For instance,       lease. Although it is often a tedious task      the estoppel certificates or otherwise, that
in connection with a multi-unit residential       to ensure that all of these documents are       events or conditions that can trigger any of
building or self storage center, investors        obtained and reviewed, obtaining and            these rights have not occurred. In addition,
may be more concerned with the simple             reviewing these documents is a critical part    the leases should be closely scrutinized to
economics of the leasing structure and will       of the due diligence process. For instance,     confirm that there are no expired purchase
only review perhaps a form lease and not          serious consequences can arise if exhibits      options or rights of first refusal. If such
have the attorney review each individual          are inconsistent or not attached as these       rights exist, the investor and transactional
lease and/or obtain an estoppel certificate       can come back to haunt the investor who         lawyer should ascertain if the property
from individual tenants. In connection with       stepped into the shoes of the previous owner    has been offered to the tenant/optionee
retail centers, office buildings and industrial   of the property.                                in accordance with the contract provisions
buildings wherein the leasing issues are far                                                      or that such rights have been otherwise
more complex and leases tend to be for            While in most transactions a rent roll will     waived or terminated and obtained written
much longer periods of time, it is absolutely     be provided to the investor as part of          confirmation of the same.
imperative that to the extent feasible the        the due diligence process, it is extremely
leases are reviewed not only to verify the        important for each lease to be reviewed         Finally, the transactional attorney should
economic terms of the leases but also to          to verify that the business terms (such as      review each lease with an eye to unusual
unearth key legal provisions in the leases        rent, expenses, security deposit, and lease     provisions that may create an undue
that can affect the investor’s investment         terms) stated in the lease corresponds to the   burden on the investor. These are often
decision.                                         business terms on which the buyer based         pre-negotiated rights to assign or sub-
                                                  its pricing of the property. Although it is     lease space, damage or destruction clauses
In connection with the actual review of the       tempting to simply rely on the summary          that are inconsistent with loan terms
leases, it is helpful if this process not be      of a rent roll, in more complex real estate     secured by the property, limitations on a
undertaken in a piecemeal fashion if at           assets that contain specialized leases,         tenant’s obligation to pay common area
all possible since the way that the leases        investors and their counsel should review       maintenance or other operating expenses,
interact with each other is an extremely          any provisions that are fundamental to          exclusive use clauses, limitation on the
important element of the lease review             the investor’s economic assumptions and         ability of the landlord to relocate the tenant,
process. For instance, for obvious reasons,       consider any lease provisions that have         and other similar issues.
a thorough lease review should confirm that       the potential to alter the stated numbers
no two tenants have the right to occupy           in the rent roll or other abstracts provided    2. Tenant Estoppel. Many investors unduly
the same space. This situation can arise          by the seller. Examples of such provisions      rely on receipt of written statements from
in connection with improvidently drafted          include exemptions of tenants’ obligations      tenants (commonly known as “estoppel
expansion rights or other rights to modify        to pay for each tenant’s share of the assets’   certificates”) that their lease is in full force
space that may overlap on another tenant’s        property taxes and insurance, caps on           and effect, that there are no rights of
current or future rights. In addition, care       escalator clauses requiring tenants to pay      offsetting against rent, and other assurances
should be taken to ensure that the common         for increased operating costs, exemptions       regarding status of the lease.
areas are defined consistently in all of the      on tenants paying increased property taxes
leases, that no tenant’s use of the common        in the event of a reassessment and similar      Most estoppels will attempt to confirm key
area conflicts with any other tenant’s rights,    clauses.                                        information such as:
that common area maintenance and other
charges are consistently defined in all of the    Another extremely important issue that the      (a) Absence of knowing defaults by the
leases and to ascertain whether any tenant        attorney should verify is that there are no     landlord;
has the right to expand into any portion of       obstacles or unsatisfied conditions in the
the common areas or otherwise impede              assignment of a previous owner’s interest       (b) Absence of rental offset rights;
the landlord’s ability to utilize, modify or      in the leases to the investor. In connection
otherwise change common areas, parking            therewith, special concern should be given      (c) Set forth options to extend the term or
arrangements or access rights.                    to the need by the investor since standard      extend the premises;
                                                  subordination and attornment provisions in
Once counsel is sure that it has all of the       leases can mean very different things if the    (d) Confirm the lease commencement
leases, the next step should be to insure that    investor is a purchaser or acquires interest    date;
all amendments, modifications or ancillary        in the real estate asset through enforcement
documentation (such as exhibits, guarantees       of a lien.                                      (e) Confirm the lease term; and
or subordination attornment agreements)
are included. These amendments and other          Investors and their counsel should also         (f) Confirm all amendments, modifications
ancillary documents often contain extremely       ascertain if any of the leases contain the      or revisions to the lease.
important legal provisions that significantly     right of early termination or rental offset.

Estoppel certificates are essential in serving     realty, this is an additional representation       to title, third-party monetary encumbrances
an important function, but they do not             and warranty from the seller that leases           are removed as of closing. This, however,
replace thorough and careful lease review.         are in full force and effect. These generally      is often not the case in connection with
For example, tenant estoppels do not, absent       have absolutely no protection in connection        liens assessed but not yet due in connection
a clear and stated intent to the contrary, alter   with protecting the investor against claims        with taxes, bonds and other governmental
amended leases that are inconsistent with          of the individual tenants; however, seller’s       requirements. As such, it is absolutely
the tenant certificate. Nor do they prevent        estoppels can be useful in connection with         imperative that title and all supporting
a tenant from raising problems or issues           certain assets such as multiple residential        documents be reviewed in order determine
discovered following execution, even if            properties and self storage units wherein          if the property in question lies within a
they existed when the tenant delivered an          obtaining a single estoppel from each              special assessment district, whether the
unqualified estoppel certificate. In addition,     tenant is impractical.                             owner of the property has any maintenance
in the common estoppel certificate, many,                                                             or repair responsibilities for its own property
if not most, representations regarding             Title and Survey Review. This article considers    or surrounding property or for any other
the landlord’s conduct are limited to the          title and survey review together because they      unusual assessments affecting the property.
tenant’s knowledge. Accordingly, counsel           are inter-dependent. In general, it is difficult   If such obligations are recorded against
should use the standard estoppel certificate       to adequately investigate title without            the property, any owner of the property will
primarily for investigation purposes to            reviewing the location of each “plottable”         be deemed to assume these obligations
smoke out potential problems and not as            title exception. In like fashion, any attempt      and such encumbrances should be taken
a substitute for further review of the leases      to have a survey review without making             into account by the investor in order to
themselves.                                        sure that each title exception is shown on         ensure that they do not adversely affect the
                                                   the survey, has limited utility and, even if the   investor’s valuation of the property.
While it is tempting to incorporate as much        exceptions are all plotted on the survey, the
detail as possible in an estoppel certificate,     transaction lawyer must be able to reference       Covenants, Conditions and Restrictions.
such attempts may not be practical both            the underlying documentation reflected on          Covenants, conditions and restrictions,
because there is not sufficient time to custom     the plotted exceptions in order to ascertain       reciprocal easement agreements and other
draft each estoppel certificate and because        third-party rights in connection therewith         similar recorded documents (collectively,
many tenants will refuse to execute an             and potential limitations on the utilization       “CC&Rs”) are often lengthy, cumbersome
estoppel certificate that contains too much        of the real estate asset or improvident            and convoluted. Nonetheless, they comprise
detail. In addition, there is a significant        placement of improvements thereon.                 one of the most important documents that
danger that if an investor actually attempts                                                          absolutely must be reviewed and understood
to incorporate all business terms into an          As in lease review, a review of title and          by the transactional attorney in providing
estoppel certificate and misses certain            survey must be done comprehensively with           due diligence assistance. For example,
key issues, these issues will be deemed            an eye towards considering how all of the          CC&Rs may prohibit a property’s use as
waived by omission. The better practice is         relevant documents relate to each other.           a supermarket. The attorney reviewing
usually to attach a copy of the lease and all                                                         title must make sure not only that no
amendments to the estoppel itself and have         Without exception, one of the first things         supermarket presently exits on the property
the tenant simply certify that the attachment      that an attorney should ensure when                but also that the client does not intend to
is correct and a complete copy of the lease        undertaking due diligence of real estate           construct a supermarket on the property
and all amendments thereto.                        assets is to obtain the preliminary title report   or convert an existing building to that use.
                                                   and thoroughly review each and every               Again, the valuation of the property may
Even given the inherent limitations of             document supporting the exceptions set             have been based as much or more on the
estoppel certificates, proceeding without          forth on the preliminary title report to ensure    expectation that it can be redeveloped in a
key estoppel certificates can be extremely         that they are complete and legible.                way that proves to be prohibited as on the
risky in certain transactions. For instance, in                                                       existing use.
connection with a large or long-term tenant        Use Rights/Financial Items. One of the
for which a decision to obtain investment          most significant encumbrances that must            Finally, one should attempt to obtain
property is a critical element, estoppel           be ascertained at the beginning of the due         estoppel certificates assuring that there is no
certificates provide certain protection that       diligence process is whether any third-            present violation of the CC&Rs with respect
there is not trouble in connection with the        party rights to own or use the property exist      to existing structures or uses. Such estoppels
lease and may provide a defense against            (purchase options, rights of first refusal and/    may come from the “Declarant” under
certain contrary factual assertions or legal       or reversionary interest) and if any monetary      CC&Rs established as part of a recorded
contentions by the tenant at a later date.         obligations are recorded against title that        subdivision or from neighboring property
                                                   will not be removed at closing. For instance,      owners who may have enforcement rights
Finally, in some transactions, it may be           unless the investor is assuming the existing       under less elaborate restrictive covenants.
impractical to obtain estoppel certificates        financing, most well-drafted transactional         Although CC&R estoppels are subject to the
for each tenant. In such circumstances,            documents provide that notwithstanding             same limitations as tenant estoppels, they
a “seller’s estoppel” may be obtained. In          any other objections raised by the investor        also have the same strengths. They are a

potential source of important information,         when reviewing the location of underground        negotiate a solution before closing.
and they may effectively estop the estoppel-       utility lines. If these concerns cannot be
giver from subsequently asserting a contrary       addressed by amendment of the recorded            Survey Requirements. All necessary
position.                                          easements, or an appropriate title insurance      information must be contained on the
                                                   endorsement, the existence of the easement        engineering survey, and the client must
Utility and Other Easements. Easements             becomes part of the investor’s business risk      understand each reference and symbol
in favor of utility companies are common           analysis.                                         on the survey. It may be necessary to
on commercial properties. Ideally, the                                                               request second (and sometimes third)
recorded instrument granting the easement          Issues regarding potential encroachments          drafts of surveys after determining that
includes an indemnification of the property        over utility lines can be evaluated only by       necessary information is missing or that the
owner for any loss or claim resulting from         obtaining “as built” plans for improvements       survey contains unlabeled or ambiguous
the utility company’s use of the easement          and having improvements and existing              markings. The survey should provide
area; provides for reasonable relocation           easements plotted on the engineering              sufficient information to determine zoning
rights to accommodate future development;          survey. There is another reason to have           compliance, which is frequently missing
and provides for restoration of the property       the location of underground utility lines and     in the first version of an engineering
after installation, repair, or removal of          driveways and other access routes added to        survey. Preparing a detailed list of survey
conduits or other facilities. It is also           the survey. It is important to ensure that all    requirements and a comprehensive form of
desirable for the easement to clearly define       utility lines and rights of way to and from the   surveyor’s certificates (stating that certain
the uses permitted by both the grantor and         property connect directly to public conduits      enumerated items have been shown on
the grantee on the easement area.                  and thoroughfares, respectively, without          the survey), and forwarding them to the
                                                   crossing over privately owned property.           surveyor before commencement of the
Unfortunately, such provisions are often           Otherwise, the affected property owner can        job, may dramatically reduce the changes
lacking in standard utility easement               act or threaten to cut off access or utility      necessary in subsequent iterations.
instruments. Most, especially those entered        service to extort some economic concession
into many years ago, contain hardly any            from the buyer. If access or utility line
terms. Utility easements without protective or     encroachments of this nature are discussed
explanatory language, although troubling,          and a proper easement cannot be obtained          V. Building Permit and Certificate of
will rarely scuttle a transaction. When            before closing, an indemnity from the seller      Occupancy Review
confronted with such an instrument, there          may be the only viable solution.
is little to be done except to verify that there                                                     In performing transaction due diligence,
are no existing or proposed improvements           Boundary Encroachments. When reviewing            counsel should review copies of certificates
located in the easement area. Parking areas,       the survey, the attorney should specifically      of occupancy and major building permits.
small shacks, temporary or easily movable          locate the boundaries of the property, all        Some jurisdictions instead evidence
enclosures, and shrubbery-type landscaping         structures located on the property, and all       authorization of occupancy by final building
are usually acceptable encroachments.              easements to confirm that there are no            permit sign-offs. The lawyer must discuss
Minor building encroachments on utility            boundary encroachments. Counsel may               the applicable procedure with the local
easements are also ordinarily not a                accomplish this in consultation with, or          building inspection authority to determine
problem, especially in California, where           by delegation to, the surveyor or project         the form of approval available for the
title companies frequently issue California        architect.                                        property and the significance of any missing
Land Title Association (CLTA) Form 103.3                                                             documentation.
endorsements (no forced removal) to buyers         Boundary encroachments by neighboring
and lenders.                                       structures are rarely a problem, especially
                                                   if the historic use has had no detrimental
Major building encroachments are not               impact. An on-site structure or easement          Ultimately it is not the lawyer’s job to
so easily resolved. If a large building is         encroaching onto neighboring property             determine current compliance with building
located above an underground utility line,         is potentially a far more significant issue.      and safety codes. This evaluation should
it is unlikely that the structure will need to     Although the long-term, uncontested               be completed by a qualified engineering
be razed or moved, although that possibility       existence of such a structure or easement         or architectural consultant. Indeed, even if
cannot be dismissed. It is more likely that        provides some comfort, the encroachment           there is a certificate of occupancy for every
future maintenance and repair work by the          is technically a legal trespass. Relocation of    existing tenant and a final building permit
utility company will require removal of the        an easement is frequently a simple matter;        for every building or street address at the
floor in the building for some period, which       however, the impossibility or difficulty of       property, a tenant or previous owner could
would obviously disrupt existing operations        relocating a large, encroaching structure         have performed unpermitted work at the
and might even permit affected tenants to          may lead to legal action against the owner        site after the issuance of the certificates of
terminate their leases. Potential disruption       and costly structural modifications or            occupancy or building permit. Thus the
or interference with crucial parking areas         monetary damages. The only acceptable             review of the building department files
or access ways should also be considered           approach is to identify the problem and           is simply part of a more comprehensive

inquiry and is intended as only one source       assumption.                                        About the Firm:
of information.
                                                 4. Taxes, Assessments and Fees. An                 Jackson DeMarco Tidus & Peckenpaugh
VI.Other Due                 Diligence           important part of the due diligence process        has offices in Irvine and Westlake Village and
Responsibilities                                 is identification of the taxes, assessments        is recognized as a preeminent California
                                                 and fees associated with the transaction           full service law firm, offering high quality,
1. Party Formation and Authority Documents.      and the subsequent ownership of the                innovative, responsive and cost-effective
The lawyer must review the formation             property. Documentary transfer taxes, bulk         solutions to meet client needs. Through
documents of the seller, particularly when       sales taxes on personal property, and other        our industry reputation, we frequently act
partnerships are involved, to ensure that (i)    transactional taxes should be identified and       as counsel for non-California law firms
all necessary approvals for the transaction      quantified.                                        on transactions and litigation matters.
have been obtained before closing; and                                                              We represent clients in key California
(ii) the seller, and the individuals who         5. Tax Withholding. Under certain federal          industries, including agriculture, energy,
execute documents on its behalf, have the        and state tax laws, a “reporting person”           emerging technologies, life science, real
authority to enter into and consummate the       (usually a title company or other escrow           estate development and finance. More
transaction. The seller ordinarily represents    holder, but, if no escrow is involved, the         information is available at www.jdtplaw.
in the purchase agreement that it has            buyer) must withhold a specified percentage        com.
the requisite authority to enter into, and       of the sale proceeds if the seller does not
perform its obligations under, the purchase      certify its nonforeign status. (IRC §§ 1445,       Orange County Office:
agreement. The “bootstrap” nature of             6045(e); Rev & T C § 18662.) Failure               2030 Main Street
such assurances should be obvious; if            to (i) withhold or (ii) obtain the requisite       Suite 1200
the signatory cannot bind the seller, its        certificate or other appropriate evidence          Irvine, California 91614
representation is unenforceable. The             that withholding requirements do not apply,        tel 949.752.8585 fax 949.752.0597
buyer’s lawyer must independently confirm        could result in the imposition of some or
that these representations are true.             all of the seller’s tax liability on the buyer.    Ventura County Office:
                                                 Accordingly, the lawyer must review, and           2815 Townsgate Road
2. Confirmation of Seller’s Continued            ensure compliance with, the applicable tax         Suite 200,
Existence. Lawyers often spend a great           withholding requirements before closing the        Westlake Village, California 91361
deal of time negotiating representations,        purchase transaction.                              tel 805.230.0023 fax 805.230.0087
warranties and indemnities in a purchase
agreement, without any serious consideration     6. Uniform Commercial Code Searches.               Disclaimer:
of the status or creditworthiness of the party   If the buyer is acquiring any significant
giving such assurances. In many real estate      interest in personal property, the lawyer          This newsletter has been prepared by
transactions, real estate assets are held by     should obtain a UCC search to ascertain            Jackson DeMarco Tidus Peckenpaugh and
single purpose entities whose only asset         the existence and priority of any third party      is intended for informational purposes
is the property to be conveyed. As such,         security interest affecting such property.         ONLY. The information provided in this
in certain circumstances, the investor may                                                          newsletter is provided only as general
insist on either holding a certain amount of     About the Author                                   information, which may or may not reflect
the sale proceeds in escrow for a specified                                                         the most current legal developments. The
period or obtaining a guaranty from the                                    Glenn A. Fuller is       opinions expressed in or through this
entity affiliated with seller to cover the                                 an attorney in the       newsletter are the opinions of the individual
seller’s contingent liabilities. In addition,                              Westlake Village         author and may not reflect the opinions of
certain insurance products are available to                                office of Jackson        Jackson DeMarco Tidus Peckenpaugh or
provide coverage for representations and                                   DeMarco Tidus            any individual attorney.
warranties.                                                                & Pe c k e n p a u g h
                                                                           and concentrates         Transmission of the information contained
3. Assumption of Underlying Debt. If                                       his practice in the      in this newsletter is not intended to create,
a buyer intends to assume any existing                                     acquisition, sale,       and receipt does not constitute an attorney-
financing encumbering the investment                                       exchange and             client relationship between you and
property, it is imperative that the attorney                               development and          Jackson DeMarco Tidus Peckenpaugh.
review all applicable loan documents to          redevelopment of real property, secured            This newsletter is not a substitute for legal
confirm the business terms stated in the         financing transactions, leasing, and his clients   advice from a qualified attorney licensed in
loan documents are acceptable to the             range from commercial and residential              the appropriate jurisdiction.
investor, verify that the loan documents         developers, publicly traded companies, to
may be assigned and assumed, and, if             institutional parties and individuals. He can
necessary, obtain the lender’s consent, and      be reached at 805.418.1925 or gfuller@
identify any hidden costs associated with the

Description: Principles Real Estate Syndication document sample