Reps and Warranties in Commercial Real Estate

Sales Contracts: Buyer and Seller Perspectives

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

The audio portion of the conference may be accessed via the telephone or by using your computer's

speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.

TUESDAY, SEPTEMBER 17, 2019

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

Michael J. Kiely, Partner, Abram Roy LLP, Los Angeles

Mitchell C. Regenstreif, Partner, DLA Piper, Los Angeles

Tips for Optimal Quality

Sound Quality

If you are listening via your computer speakers, please note that the quality

of your sound will vary depending on the speed and quality of your internet

connection.

If the sound quality is not satisfactory, you may listen via the phone: dial

1-877-447-0294 and enter your Conference ID and PIN when prompted.

Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately

so we can address the problem.

If you dialed in and have any difficulties during the call, press *0 for assistance.

Viewing Quality

To maximize your screen, press the ‘Full Screen’ symbol located on the bottom

right of the slides. To exit full screen, press the Esc button.

FOR LIVE EVENT ONLY

Continuing Education Credits

In order for us to process your continuing education credit, you must confirm your

participation in this webinar by completing and submitting the Attendance

Affirmation/Evaluation after the webinar.

A link to the Attendance Affirmation/Evaluation will be in the thank you email

that you will receive immediately following the program.

For additional information about continuing education, call us at 1-800-926-7926

ext. 2.

FOR LIVE EVENT ONLY

Program Materials

If you have not printed the conference materials for this program, please

complete the following steps:

• Click on the link to the PDF of the slides for today’s program, which is located

to the right of the slides, just above the Q&A box.

• The PDF will open a separate tab/window. Print the slides by clicking on the

printer icon.

FOR LIVE EVENT ONLY

Presented by:

Michael J. Kiely

Abram Roy LLP

310.203.2683

mkiely@abramroylaw.com

Mitchell C. Regenstreif

DLA Piper LLP (US)

213.330.7700

mitchell.regenstreif@us.dlapiper.com

Strategies and Topics for Buyers and

Sellers when Negotiating Purchase and

Sale Agreements

REPRESENTATIONS AND WARRANTIES

IN COMMERCIAL REAL ESTATE SALES

CONTRACTS

6

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.

7

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.

8

Bottom Line:

The Market Dictates/Limits What is Realistic for Well-

Represented Sellers and Buyers!!

9

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

10

Due Diligence (Cont’d)

Timing and Scope of Due Diligence

– Due Diligence Period.

– Land Use Conditions.

– Intrusive Testing.

– Third Party Reports.

– Interviews and Estoppels.

11

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.

12

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?).

13

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

14

Due Diligence Items (Cont’d)

Estoppels, Beneficiaries Statements and Certifications.

– From Tenants.

– REA Parties.

– Lenders.

– Governmental Agencies.

NOTE: How delivered or made available?

15

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

16

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?

17

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

18

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

19

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

20

Representation and WarrantiesSubstance

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

21

Representation and WarrantiesSubstance (cont’d)

Property Status (cont’d)

– No Litigation

– No Condemnation

– Notices of Assessments

– Environmental

Property Operations

– Leases; parties in possession

– Contracts

– Employees

– Documents, Defaults

22

Representation and WarrantiesSubstance (cont’d)

Due Diligence Items; All Material Information

FIRPTA

OFAC; Anti-Money Laundering

ERISA

23

Conclusions

Buyer to thoroughly investigate

Identify potential issues early

Carefully negotiate Limitations and Remedies

Maintain adequate security and survival of

representations

24

THANKS Presented by:

Michael J. Kiely

Abram Roy LLP

11400 West Olympic Boulevard, Suite 1450

Los Angeles, California 90064

310.203.2683

mkiely@abramroylaw.com

Mitchell C. Regenstreif

DLA Piper LLP (US)

550 North Hope Street, Suite 2400

Los Angeles, California 90071

213.330.7700

mitchell.regenstreif@us.dlapiper.com

25

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.

26

27

28

29

30

31