Representations and Warranties in

Commercial Real Estate Sales Contracts Strategies for Buyers and Sellers Negotiating Agreements of Sale

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THURSDAY, JANUARY 17, 2013

Presenting a live 90-minute webinar with interactive Q&A

Todd Evan Stark, Partner, Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor, Los Angeles

Mitchell C. Regenstreif, Founding Partner, Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor,

Los Angeles

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Presented by: Mitchell C. Regenstreif & Todd Evan Stark Liner Grode LLP 310.500.3500 mregenstreif@linerlaw.com ; tstark@linerlaw.com

Strategies and Topics for Buyers and Sellers when Negotiating Purchase and Sale Agreements

Representations and Warranties in

Commercial Real Estate Sales Contracts

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Critical Issues for Buyer

Negotiating the Purchase and Sale

Agreement can be expensive and time

consuming.

Outside pressures and costs can limit review

and negotiation.

Most current form contracts favor Seller.

Focus on fundamental issues to Buyer.

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Critical Issues for Seller

Time and expense is issue for Seller as well - goal

is getting Buyer non-refundable.

Providing information not providing insurance.

Representations and Warranties are intended to

supplement a Buyer’s diligence investigations not

replace them.

Most initial drafts are prepared by Sellers.

Seller’s concerns are liability and unintended

exposure.

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Bottom Line:

The Market Dictates/Limits What is Realistic

for Well-represented Sellers and Buyers!!

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Due Diligence

Buyer is almost always entitled to perform

due diligence investigation of the property.

Differing Requirements for Property Types:

Investment Property Types

Office, Industrial, Retail, Multi-family, Mixed Use,

Development Property

Special Situations

REO Sales

Brownfields

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Due Diligence (Cont’d)

Timing and Scope of Due Diligence

Due Diligence Period.

Land Use Conditions.

Intrusive Testing.

Third Party Reports.

Interviews and Estoppels.

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Due Diligence Items

Materials from Seller in Seller’s possession

or control

Books and records

Plans and Specifications

Agreements and other materials outside of public

records.

Permits, licenses and approvals.

Leases and Contracts.

Rent Roll vs. Schedule of Leases.

Operating and Receivables Reports.

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Due Diligence Items (Cont’d)

Notices of Violations.

Repairs history.

Threatened or pending litigation and insurance

claims.

Including condemnation proceedings

Notice of Proposed Assessments.

Seller’s Acquisition and Periodic Third Party and

Internal reports.

Seller’s existing financing documents (is it being

paid off/ Assumed?).

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Due Diligence Items (Cont’d)

Title and Survey

Third Party Reports

Physical Condition Reports: Geotechnical

Structural, Mechanical, Electrical, Plumbing

Zoning and Land Use Reports

UCC, Litigation Searches

Interviews with Third Parties

Property Manager

Governmental Agencies

Tenants, Contractors, REA Parties

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Due Diligence Items (Cont’d)

Estoppels, Beneficiaries Statements and

Certifications.

From Tenants.

REA Parties.

Lenders.

Governmental Agencies.

NOTE: How delivered or made available?

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Representation and Warranties

Generally Buyer wants Extensive Reps (as much as Buyer can

get); Seller wants Limited (as narrow as possible).

Usually Extensive Negotiations which deal with

standards, timing, qualifications, substance, and

remedies and limitations.

Note: Not just in R&W Section

Brokers

Implied reps in Deed, Closing Documents

Agree when negotiating contract

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Representation and Warranty

Standards and Timing Absolute

Knowledge

Actual, Constructive or Duty to Inquire and Investigate

Knowledge Group

Notice

Oral or Written

Timing – At Execution/Remade at Closing?

Matters discovered during Buyer’s diligence?

Duty to Update?

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Qualifications: AS-IS Language

AS-IS Language - Typically comprehensive provision

(“disclaimer”), may include release, waiver and

indemnity; CERCLA Waiver

Risk Shifting to Buyer; Clarification no implied

warranties

Exceptions to As-Is Language

“Except as expressly otherwise provided in this Agreement,

or in the Closing Documents…”

Trade for longer due diligence period

Other qualifications: As disclosed in Deliveries or

Schedules

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Remedies/Survival

Protections under law

Fraud, concealment

Merger By Deed/Survival-Survival Period?

Failure of Condition vs. Default…

Pre-Closing vs. Post-Closing

What are Buyer’s remedies/options?

Reimbursement

Bringing suit/timing

Rights to Cure

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Limitations and Seller Liability Issues

Seller as “special purpose entity” (“SPE”)

Exculpation provisions

Forms of security

Net Worth Covenants

Escrow Holdback

Common for environmental issues

Letters of credit

Personal Guaranties

Liquidity is always the issue

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Representation and Warranties

Substance

Seller Status and Authority

Seller Entity, Good Standing, Qualification

Authorization

No Conflicts

No Approvals of Consents

Enforceability

Property Status

Title/Title Affidavits and Indemnities

Compliance with Laws

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Representation and Warranties

Substance (cont’d)

Property Status (cont’d)

No Litigation

No Condemnation

Notices of Assessments

Environmental

Property Operations

Leases; parties in possession

Contracts

Employees

Documents, Defaults

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Representation and Warranties

Substance (cont’d)

Due Diligence Items; All Material Information

FIRPTA

OFAC; Anti-Money Laundering

ERISA

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Conclusions

Buyer to thoroughly investigate

Identify potential issues early

Carefully negotiate Limitations and

Remedies

Maintain adequate security and survival of

representations

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Liner Grode Stein Yankelevitz

Sunshine Regenstreif & Taylor LLP

Los Angeles 100 Glendon Avenue,

14th Floor Los Angeles, CA 90024

San Francisco One California Street,

Suite 900 San Francisco, CA 94111

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Thanks. Presented by:

Mitchell C. Regenstreif & Todd Evan Stark Liner Grode LLP 310.500.3500

mregenstreif@linerlaw.com tstark@linerlaw.com

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Illustrative Provisions

DISCLAIMER- THE FOLLOWING PROVISIONS

ARE BEING PROVIDED FOR ILLUSTRATIVE

PURPOSES ONLY. THE PRESENTERS

EXPRESSLY DISCLAIM ANY REPRESENTATION AS

TO THEIR SUITABILITY FOR ANY PARTICULAR

TRANSACTION. ANY USE OF THE ATTACHED

PROVISIONS IS AT YOUR OWN SOLE RISK AND

LIABILITY.

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