Question 1

What should a commercial real estate purchase and sale agreement cover in California?

Accepted Answer

A California commercial PSA should define the purchase price and payment structure, title transfer mechanics and conditions, representations and warranties with appropriate survival periods, indemnity allocation, closing conditions, and escrow design. It should address whether the transaction is an asset purchase or entity acquisition — a distinction with significant tax and liability implications — and include clear remedies for breach and defined procedures for the diligence period and closing timeline.

Question 2

What does title insurance actually protect against in California commercial real estate?

Accepted Answer

A title insurance policy covers losses from title defects, undisclosed liens, encroachments, ownership challenges, and other matters affecting title as of the policy date. It does not cover future zoning changes, physical condition, environmental conditions, or matters that a current survey would have revealed but were not included. Endorsements extend coverage to specific risks and are an essential part of tailoring the policy to the property's actual risk profile.

Question 3

How does environmental liability work in California commercial real estate acquisitions?

Accepted Answer

Federal CERCLA liability is strict, joint, and several — a current owner can be responsible for remediation costs regardless of whether they caused the contamination. California's Hazardous Substance Account Act imposes parallel state-level liability. The innocent landowner defense requires completing all appropriate inquiries before closing. Contractual indemnities can allocate environmental risk between buyer and seller but do not eliminate regulatory exposure.

Question 4

What is a triple-net lease and when does it make sense?

Accepted Answer

In a triple-net lease, the tenant pays base rent plus property taxes, insurance, and maintenance costs. NNN leases provide landlords with predictable net income while shifting operating cost variability to the tenant. Critical terms include the definition of CAM charges, whether CAM increases are capped, what maintenance obligations the landlord retains, and how expense reconciliations are handled. Ambiguity in these terms is a primary source of landlord-tenant disputes in California commercial leasing.

Question 5

What are the key legal risks in a California real estate joint venture?

Accepted Answer

The most common failure points in real estate joint ventures involve governance and exit. Promote structures are typically negotiated carefully, but what happens when partners disagree on whether to sell, refinance, or hold is often underspecified. Other significant risks include fiduciary duty conflicts, securities compliance for syndicated capital raises, and allocation of development and regulatory compliance obligations. Governance documents must align control rights with economic obligations from the beginning.

Question 6

How does nonjudicial foreclosure work in California and what are a borrower's rights?

Accepted Answer

California uses a deed of trust structure for most commercial real estate financing. When a borrower defaults, the lender can foreclose nonjudicially through a trustee's sale. California Civil Code § 580d limits the lender's ability to pursue a deficiency judgment after a nonjudicial foreclosure sale. Borrowers have the right to reinstate the loan before a certain point and to receive legally required notices. Understanding these mechanics affects how lenders structure covenants and how borrowers negotiate workout arrangements.

Question 7

What is CEQA and how does it affect California development projects?

Accepted Answer

The California Environmental Quality Act requires agencies to analyze environmental impacts of discretionary approvals before granting them. The process can range from a categorical exemption to a full Environmental Impact Report, which can take years to complete. CEQA challenges can delay or stop projects even after EIR approval. Structuring acquisition and development agreements to address CEQA timing risk, including appropriate contingencies and risk allocation provisions, is essential for California development transactions.

Question 8

What entity structure makes sense for holding commercial real estate in California?

Accepted Answer

Single-purpose entities achieve bankruptcy remoteness and are typically required by institutional lenders. LLCs offer pass-through taxation and operational flexibility. Holdco/propco structures separate operational liability from ownership. Multi-asset structures offer administrative efficiency but introduce cross-collateralization risk. The entity structure should be designed with the intended exit strategy in mind, not just the acquisition.

Question 9

How does California's regulatory environment differ from other states for commercial real estate?

Accepted Answer

California imposes a substantially more complex regulatory overlay than most states. CEQA adds procedural requirements to virtually all discretionary land use approvals. California's anti-deficiency rules limit lender remedies after nonjudicial foreclosure. Disclosure obligations are broader than most jurisdictions. The DFPI actively enforces securities requirements for real estate syndications. Local jurisdictional variability in zoning, permitting, and planning requires California-specific counsel rather than a national template approach.

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