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California Real Property Sales Transactions

This book guides you through commercial and residential real estate purchase and sale transactions, from the time a client enters your office until the close of escrow.

This book guides you through commercial and residential real estate purchase and sale transactions, from the time a client enters your office until the close of escrow.

  • Broker contracts and compensation; broker duties and liabilities
  • Letters of intent, deeds, sample CAR forms
  • General commercial sales agreements, specialty hotel clauses, ancillary closing documents
  • Extensive due diligence checklist
  • Escrow and closing the sale; state & federal withholding requirements (including FIRPTA); form escrow instructions
  • Short sales, including antideficiency protections under CCP §580e
  • Property and liability insurance considerations
  • Hazardous waste considerations
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4th edition, 2 looseleaf volumes, updated 2/20

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This book guides you through commercial and residential real estate purchase and sale transactions, from the time a client enters your office until the close of escrow.

  • Broker contracts and compensation; broker duties and liabilities
  • Letters of intent, deeds, sample CAR forms
  • General commercial sales agreements, specialty hotel clauses, ancillary closing documents
  • Extensive due diligence checklist
  • Escrow and closing the sale; state & federal withholding requirements (including FIRPTA); form escrow instructions
  • Short sales, including antideficiency protections under CCP §580e
  • Property and liability insurance considerations
  • Hazardous waste considerations

1

Lawyer’s Role in Real Property Sales

Theani C. Louskos

  • I.  INTRODUCTION  1.1
  • II.  OVERVIEW OF ATTORNEY’S ROLE
    • A.  Services Typically Provided by Attorney  1.2
    • B.  Checklist: Attorney’s Services  1.2A
    • C.  Professional Responsibility  1.3
      • 1.  Rules of Professional Conduct  1.4
        • a.  General Standard of Performance  1.5
        • b.  Conflicts and Financial Relationships  1.6
          • (1)  Conflict With Attorney’s Own Interest  1.7
          • (2)  Conflict With Other Interests  1.8
            • (a)  Written Disclosure  1.9
            • (b)  Informed Written Consent  1.10
            • (c)  Risks of Multiple Representation  1.11
          • (3)  Handling Client’s Property  1.12
        • c.  Professional Liability Insurance  1.12A
      • 2.  Malpractice Law  1.13
        • a.  Duty of Care  1.14
        • b.  Fiduciary Duty  1.15
      • 3.  Resource Materials on Malpractice  1.16
    • D.  Defining the Engagement
      • 1.  Clearly Communicating Scope and Content of Engagement  1.17
      • 2.  Piecemeal Involvement  1.18
    • E.  Defining the Fee
      • 1.  The Fee Agreement  1.19
      • 2.  Amount of Fee  1.20
      • 3.  Equity Interests  1.21
  • III.  IDENTIFYING CLIENT’S NEEDS AND OBJECTIVES
    • A.  Needs and Objectives as Important Guideposts  1.22
    • B.  Areas to be Explored With Client
      • 1.  Client’s Purpose in Selling or Buying the Property  1.23
        • a.  Seller’s Objectives  1.24
        • b.  Purchaser’s Objectives  1.25
      • 2.  Alternatives to Sale  1.26
        • a.  Seller’s Alternatives
          • (1)  Leasing Transaction  1.27
          • (2)  Other Sources of Liquidity  1.28
            • (a)  Debt Sources  1.29
            • (b)  Equity Sources  1.30
          • (3)  Development of the Property in Furtherance of Sale  1.31
          • (4)  Other Sources of Relief  1.32
        • b.  Purchaser’s Alternatives  1.33
          • (1)  Leasing Transaction  1.34
          • (2)  Other Equity Transactions  1.35
        • c.  The “Go/No-Go” Alternative  1.36
      • 3.  Client’s Timing Needs  1.37
        • a.  Ascertaining Client’s Needs  1.38
        • b.  Degree and Causes of Any Timing Requirements  1.39
          • (1)  Seller Timing Requirements  1.40
          • (2)  Purchaser Timing Requirements  1.41
      • 4.  Net Proceeds Requirements  1.42
        • a.  The Bottom Line  1.43
        • b.  Distinguishing Between Wants and Needs  1.44
          • (1)  Wants  1.45
          • (2)  Needs  1.46
      • 5.  Client’s Risk Tolerance: Presale Contingencies  1.47
        • a.  Seller’s Presale Risk Tolerance  1.48
        • b.  Purchaser’s Presale Risk Tolerance  1.49
      • 6.  Client’s Risk Tolerance: Postsale Contingencies  1.50
        • a.  Seller Financing  1.51
        • b.  Condition of Property  1.52
        • c.  Other Postsale Problems  1.53
      • 7.  Client’s Tax and Financial Accounting Requirements  1.54
      • 8.  Client’s Knowledge and Experience Concerning the Property
        • a.  Seller’s Knowledge and Experience  1.55
        • b.  Purchaser’s Knowledge and Experience  1.56
      • 9.  Client’s Transactional Resources  1.57
  • IV.  PRECONTRACT DUE DILIGENCE  1.58
    • A.  Precontract Due Diligence Matters to Review With Seller
      • 1.  Seller’s Objectives  1.59
      • 2.  Consider Valuation of Property  1.60
      • 3.  Review Condition of Title  1.61
      • 4.  Review Condition of Property
        • a.  Existing Information  1.62
        • b.  Additional Information  1.63
        • c.  Special Situation: Environmental Conditions  1.64
      • 5.  Review Legal Issues Affecting Property  1.65
      • 6.  Ascertain Whether Consents Needed From Others
        • a.  Internal Approvals  1.66
        • b.  External Approvals and Nonobjections  1.67
      • 7.  Review Matter From Purchaser’s Perspective  1.68
      • 8.  Assist in Engaging Outside Experts  1.69
    • B.  Precontract Due Diligence Matters to Review With Purchaser
      • 1.  Purchaser’s Objectives  1.70
      • 2.  Financing the Purchase  1.71
      • 3.  Legal Feasibility of Intended Use
        • a.  Necessary Approvals  1.72
        • b.  Effect of Applicable Laws  1.73
          • (1)  Local and Regional Laws  1.74
            • (a)  General Plans  1.75
            • (b)  Specific Plans  1.76
            • (c)  Zoning Ordinances  1.77
            • (d)  Building Codes  1.78
            • (e)  Subdivision Approvals  1.79
            • (f)  Miscellaneous Applicable Laws  1.80
          • (2)  State Laws  1.81
            • (a)  Environmental Laws  1.82
            • (b)  Subdivision Map Act  1.83
            • (c)  Laws on Vested Rights  1.84
            • (d)  Laws Regulating Foreign Investment and Disposition  1.85
            • (e)  Miscellaneous Applicable Laws  1.86
          • (3)  Federal Laws  1.87
            • (a)  Environmental Laws  1.88
            • (b)  Laws Regulating Foreign Investment and Disposition  1.89
            • (c)  Miscellaneous Applicable Laws  1.90
      • 4.  Economic Feasibility of Intended Use  1.91
      • 5.  Consents Needed From Others  1.92
      • 6.  Assist in Engaging Outside Experts  1.93
  • V.  STRUCTURING THE TRANSACTION  1.94
    • A.  Structuring Seller/Purchaser Entities
      • 1.  Advising the Seller  1.95
      • 2.  Advising the Purchaser  1.96
    • B.  Structuring the Transaction Itself  1.97
      • 1.  Choice of Form  1.98
      • 2.  Liquidated Damages  1.99
      • 3.  Warranties  1.100
      • 4.  Tax-Deferred Exchange  1.101
      • 5.  Letter of Intent  1.102
      • 6.  Client’s Ability to Be Flexible  1.103
  • VI.  STRUCTURING AND COORDINATING THE MARKETING PROCESS
    • A.  Marketing Considerations to Review With Seller  1.104
      • 1.  Brokered or Nonbrokered Sale  1.105
      • 2.  Negotiated Sale or Sale Involving Bidding
        • a.  Estate  1.106
        • b.  Non-Estate  1.107
      • 3.  Anticipating Multiple Offers  1.108
    • B.  Marketing Considerations to Review With Purchaser  1.109
      • 1.  Separate Broker  1.110
      • 2.  Negotiated Sale Versus Bidding Sale
        • a.  Estate  1.111
        • b.  Non-Estate  1.112
      • 3.  Anticipating Multiple Offers  1.113
  • VII.  STRUCTURING AND COORDINATING THE NEGOTIATION AND DOCUMENTATION PROCESS  1.114
    • A.  Organizing the Negotiating Team  1.115
    • B.  Conducting Negotiations  1.116
      • 1.  Other Counsel  1.117
      • 2.  Attorney’s Role in Negotiation Process  1.118
    • C.  Generating Transactional Documents
      • 1.  Drafting and Adapting Forms  1.119
      • 2.  Standard Forms; Boilerplate  1.120
    • D.  Rendering Legal Opinions
      • 1.  Contexts in Which Legal Opinions Arise  1.121
      • 2.  How to Know an Opinion When You See One  1.122
        • a.  Watch for Writings in Legal Opinion Contexts  1.123
        • b.  Watch for “Factual,” “Reasoned,” and “Comfort” Opinions  1.124
        • c.  Avoid Unnecessary Opinions  1.125
      • 3.  Legal Standards Applicable to Opinions  1.126
      • 4.  Essential Resources Available to the Attorney  1.127
        • a.  State Bar Reports  1.128
        • b.  ABA Reports  1.129
        • c.  Accord  1.130
  • VIII.  STRUCTURING AND COORDINATING THE CLOSING PROCESS
    • A.  Organizing and Coordinating Escrow
      • 1.  Understanding the Process  1.131
      • 2.  Written Escrow Instructions; Follow-Up  1.132
    • B.  Advising Client on Title Insurance  1.133
      • 1.  Choice of Basic Policy Forms  1.134
      • 2.  Addressing Particular Problems  1.135
      • 3.  Policy Endorsements  1.136
      • 4.  Wording of Policy Provisions  1.137
      • 5.  Insurer’s Financial Ability  1.138
      • 6.  Policy Costs and Required Lead Times  1.139
  • IX.  POSTCLOSING FOLLOW-UP
    • A.  Making Sure All Closing Details Are Complete and Correct  1.140
    • B.  Examples of Follow-Up Matters  1.141
      • 1.  Receipt and Review of Title Policy  1.142
      • 2.  Receipt and Review of Other Closing Documents  1.143
      • 3.  Monitoring Certain Postclosing Notices and Actions  1.144

2

Real Estate Brokers

Randall I. Barkan

Jeffrey H. Belote

  • I.  SCOPE OF CHAPTER  2.1
  • II.  REGULATION OF BROKERS
    • A.  Applicable Laws  2.2
    • B.  Licensing Requirements  2.3
      • 1.  Licensing Qualifications and Renewals  2.4
      • 2.  Corporations and Partners as Licensees
        • a.  Corporations  2.5
        • b.  Partnerships  2.6
        • c.  Fictitious Business Names and Team Names  2.6A
      • 3.  Finders
        • a.  Brokers Distinguished From Finders  2.7
        • b.  Restrictions on Collection of Finder’s Fees  2.8
      • 4.  When a License Is Required  2.9
    • C.  Exemption From Usury for Loans Made or Arranged by Broker  2.10
      • 1.  “Make or Arrange”  2.11
      • 2.  Restrictions on Usury Exemption  2.12
    • D.  Real Estate Advertising  2.13
    • E.  Interpretive Opinions  2.14
    • F.  Distinguish Brokers and Salespersons  2.15
      • 1.  Broker’s Duties  2.16
      • 2.  Broker’s Liabilities  2.17
    • G.  Broker as Escrow Agent
      • 1.  License Requirements  2.18
      • 2.  Decision to Use Broker-Escrow Agent  2.19
  • III.  BROKERS’ SERVICES
    • A.  Residential and Commercial Services  2.20
    • B.  Types of Services Offered  2.21
  • IV.  FACTORS TO CONSIDER IN SELECTING A BROKER  2.22
  • V.  BROKER AS AGENT
    • A.  Agency Versus Contract Law  2.23
    • B.  Creation of Agency Without Written Contract  2.24
    • C.  Disclosure Requirements on Agency Relationship
      • 1.  Residential Disclosure of Agency and Confirmation Forms  2.25
      • 2.  Commercial Disclosure Requirements on Agency Relationship  2.25A
      • 3.  Failure to Comply With Agency Disclosure Requirements  2.26
      • 4.  Agency Elections  2.27
      • 5.  Change in Agency Election  2.28
    • D.  Dual Agency
      • 1.  Disclosure Requirements  2.29
      • 2.  Seller’s Decision Regarding Dual Agency  2.30
      • 3.  Form: Disclosure of Agency Relationship (CC §2079.16)  2.31
      • 4.  Form: Confirmation of Agency Relationship (CC §2079.17)  2.32
    • E.  Unintended Dual Agency  2.33
    • F.  Broker Acting in Nonagency Capacity  2.34
    • G.  Multiple Listing Service  2.35
    • H.  Extent of Broker’s Authority to Bind Principal  2.36
  • VI.  CONTRACTING WITH BROKER
    • A.  Elements Applicable to Both Sellers and Buyers
      • 1.  Essentials of Contract  2.37
      • 2.  Statute of Frauds
        • a.  Contents of Required Writing  2.38
        • b.  Electronic Signatures  2.39
        • c.  No Compensation Without a Writing  2.40
        • d.  Exceptions  2.41
        • e.  Modification of Listing Agreement  2.42
    • B.  Seller-Broker Listing Agreements  2.43
      • 1.  Listing Agreement Checklist  2.44
      • 2.  Types of Listing Agreements
        • a.  Exclusive Right to Sell
          • (1)  General Characteristics  2.45
          • (2)  Form: Residential Listing Agreement (Exclusive Authorization and Right to Sell) (CAR Form RLA)  2.46
        • b.  Exclusive Agency  2.47
        • c.  Open Listing
          • (1)  General Characteristics  2.48
          • (2)  Form: Nonexclusive (“Open”) Agency Residential Listing Agreement (Authorization and Right to Sell) (CAR Form RLAN)  2.49
        • d.  Net Listing Provisions  2.50
      • 3.  Drafting Forms and Provisions for Listing Agreements  2.51
    • C.  Buyer-Broker Agreements
      • 1.  General Considerations  2.52
      • 2.  Form: Buyer Representation Agreement—Exclusive (CAR Form BRE)  2.53
  • VII.  BROKER’S COMPENSATION
    • A.  Prerequisites to Broker’s Right to Commission  2.54
      • 1.  License Required to Recover Compensation  2.55
      • 2.  Written Contract Required  2.56
        • a.  Broker Must Not Represent Self  2.57
        • b.  Contract Provisions Govern  2.58
        • c.  Transactions Other Than Outright Sale  2.59
      • 3.  Procuring Cause of a Ready, Willing, and Able Buyer
        • a.  Procuring Cause
          • (1)  Definition  2.60
          • (2)  When Procuring Clause Is Relevant  2.61
          • (3)  Factors to Consider
            • (a)  Introduction of Parties  2.62
            • (b)  Showing Property  2.63
            • (c)  Completion of Sale  2.64
            • (d)  Type of Listing Agreement  2.65
            • (e)  Cooperating Broker  2.66
            • (f)  Safety or Protection Clause  2.67
        • b.  Ready, Willing, and Able Buyer
          • (1)  Basic Considerations  2.68
          • (2)  Offer Rejected by Seller  2.69
          • (3)  Offer Accepted: Sale Not Completed  2.70
          • (4)  Nonconforming or Conditional Offer Accepted  2.71
      • 4.  Conditional Commission Provision  2.72
        • a.  Examples of Conditions  2.73
        • b.  Provisions in Standard Forms
          • (1)  Residential Exclusive Authorization and Right to Sell  2.74
          • (2)  Real Estate Residential Purchase Agreement and Receipt for Deposit  2.75
    • B.  Broker’s Rights Under Withdrawal-From-Sale Clause  2.76
    • C.  Sale After Listing Period
      • 1.  When Broker Can Recover Commission  2.77
      • 2.  Activity Required to Recover Under Safety Clause  2.78
      • 3.  Danger of Liability for Two Commissions  2.79
    • D.  Amount of Commission
      • 1.  Governed by Listing Agreement; Reasonableness  2.80
      • 2.  Legal Restrictions on Amount of Commission  2.81
    • E.  Broker’s Right to Damages if Buyer Breaches
      • 1.  Listing Agreement Limits on Damages  2.82
      • 2.  Availability of Liquidated Damages  2.83
    • F.  Recovery of Commission From Buyer
      • 1.  Implied Covenant to Complete Purchase  2.84
      • 2.  Interference With Prospective Economic Advantage  2.85
      • 3.  Buyer Representation Agreements  2.85A
  • VIII.  BROKER’S FIDUCIARY DUTIES TO CLIENT
    • A.  Standard of Care  2.86
      • 1.  Duty Arises When Agency Created  2.87
      • 2.  Duty May Survive Closing  2.88
    • B.  Duty to Disclose Material Facts  2.89
      • 1.  No Duty to Elaborate, Verify, or Explain  2.90
      • 2.  Buyer’s Broker Has No Duty to Verify Accuracy of Seller’s Disclosures  2.91
      • 3.  No Heightened Duty to Disclose Because Property Part of Planned Unit Development  2.92
      • 4.  No Duty to Disclose Death That Occurred More Than Three Years Before Sale  2.92A
      • 5.  Conflicts of Interest  2.93
        • a.  Dual Agency  2.94
          • (1)  Failure to Disclose  2.95
          • (2)  Criticism of Dual Agency  2.96
        • b.  Other Multiple Agency Scenarios  2.97
        • c.  Self-Dealing  2.98
          • (1)  Broker’s Burden to Prove Fairness  2.99
          • (2)  Disclosure Requirements  2.100
            • (a)  Indirect Sales  2.101
            • (b)  Broker’s Interest in Property Sold to Client  2.102
        • d.  Secret Profits  2.103
        • e.  Kickbacks, Referral Fees, Other Unearned Fees  2.104
        • f.  The Dishonest Client  2.105
      • 6.  Advice on Price and Value  2.106
        • a.  Best Price Obtainable  2.107
        • b.  Statements to Parties About Price  2.108
        • c.  Speculative Purchases and Resales  2.109
        • d.  Communicating Offers to Seller  2.110
      • 7.  Advice on Excess Monetary Liens and Encumbrances  2.111
    • C.  Duty to Exercise Reasonable Care  2.112
      • 1.  Advice on Financial Soundness  2.113
      • 2.  Advice on Title Matters  2.114
      • 3.  Advice on Real Estate Matters  2.115
      • 4.  Advice on Tax Considerations  2.116
      • 5.  Advice on Legal Matters  2.117
      • 6.  Advice on Short Sales  2.118
    • D.  Duty to Perform With Diligence  2.119
    • E.  Duty to Account for Funds; Duty to Account for File  2.120
    • F.  Limitations on Broker’s Duties
      • 1.  No Duty to Verify Accuracy of Others’ Representations  2.121
      • 2.  No Duty to Advise on Matters Outside of Broker’s Expertise  2.122
  • IX.  CLAIMS AGAINST BROKER
    • A.  Duty to Mediate and Right to Arbitrate
      • 1.  Pre-Litigation and Pre-Arbitration Duty to Mediate  2.123
      • 2.  Right to Arbitrate Claims  2.124
    • B.  Breach of Fiduciary Duty  2.125
      • 1.  Bases of Liability
        • a.  Common Law Liability  2.126
        • b.  Statutory Liability  2.127
      • 2.  Damages for Breach of Fiduciary Duty  2.128
        • a.  Breach of Contract; Fraud Actions  2.129
        • b.  Tort Action  2.130
        • c.  Attorney Fees  2.131
    • C.  Damages for Negligence  2.132
    • D.  Recovery of Secret Profits  2.133
    • E.  Recovery of Commission  2.134
    • F.  Punitive Damages  2.135
    • G.  Indemnity  2.136
    • H.  Recovery of Unsatisfied Judgments From Consumer Recovery Account of Real Estate Fund  2.137
      • 1.  Requirements for Recovery
        • a.  Licensed Defendant  2.138
        • b.  Basis of Judgment  2.139
        • c.  Specified Categories of Actions  2.140
        • d.  No Discharge in Bankruptcy  2.141
      • 2.  Amounts Recoverable  2.142
      • 3.  Procedures  2.143
  • X.  DISCIPLINARY PROCEEDINGS
    • A.  Real Estate Commissioner Proceedings  2.144
    • B.  Penalties Under Real Estate Law  2.145
    • C.  Local Association of Realtors® Proceedings  2.146
  • XI.  BROKER LIABILITY TO THIRD PARTIES
    • A.  Theories of Liability  2.147
    • B.  Principal to Broker; Indemnification  2.148
  • XII.  PRINCIPAL LIABLE TO THIRD PARTIES FOR BROKER’S ACTS
    • A.  Misrepresentations and Nondisclosure  2.149
    • B.  Effect of Exculpatory “As Is” Provision  2.150
    • C.  Broker’s Failure to Disclose Principal  2.151
    • D.  Liability to Subsequent Purchasers  2.152

3

Letters of Intent

Jamie O. Harris

Steve Stwora-Hail

  • I.  WHAT IS A LETTER OF INTENT?  3.1
  • II.  WHEN ARE LETTERS OF INTENT USED IN REAL PROPERTY SALES TRANSACTIONS?  3.2
    • A.  When Parties Prepare Letter Without Attorney’s Assistance  3.3
    • B.  When Attorney Prepares Letter  3.4
      • 1.  Factors to Consider in Using Letter of Intent  3.5
        • a.  Time, Cost, and Efficiency  3.6
        • b.  Method of Structuring the Transaction  3.7
        • c.  Identification of “Deal-Breaker” Issues  3.8
        • d.  Effect on Negotiations  3.9
        • e.  Reduction of Risks Inherent in Partial Performance  3.10
        • f.  Creation of Legally Binding Agreement on Certain Matters; Due Diligence and Confidentiality  3.11
        • g.  Providing a Liquidated Damages Provision in a Letter of Intent  3.12
      • 2.  When to Use Binding or Nonbinding Letter of Intent  3.13
  • III.  RISKS OF USING A LETTER OF INTENT: WHEN IS IT BINDING?  3.14
    • A.  Unintended Enforceability of Letter of Intent  3.15
      • 1.  Objective Manifestation of Mutual Assent  3.16
      • 2.  How to Determine Intent  3.17
        • a.  Parties’ Conduct  3.18
        • b.  Execution of Formal Documents Expressly Contemplated  3.19
        • c.  Language Choice and Verb Tense  3.20
        • d.  Specificity of Essential Terms  3.21
        • e.  Conditional Third Party Approvals  3.22
        • f.  Complexity and Size of Transaction  3.23
      • 3.  Unexpected Enforceability in Texaco v Pennzoil  3.24
      • 4.  Statute of Frauds  3.25
    • B.  Promissory Estoppel  3.26
  • IV.  DUTY TO NEGOTIATE IN GOOD FAITH
    • A.  Basis for Existence of Duty  3.27
    • B.  Necessity of a Contract  3.28
    • C.  Recovery Limited to Reliance Damages  3.29
    • D.  Scope of Duty to Negotiate in Good Faith  3.30
  • V.  NEGOTIATING AND DRAFTING A LETTER OF INTENT
    • A.  Negotiating and Drafting Considerations  3.31
    • B.  Letter of Intent  3.32
      • 1.  Form: Letter Heading  3.33
      • 2.  Form: Introductory Clause  3.34
      • 3.  Form: Parties’ Intentions on Binding or Nonbinding Nature of Letter  3.35
      • 4.  Form: Description of Property  3.36
      • 5.  Form: Purchase Price and Payment of Purchase Price  3.37
      • 6.  Form: Deposits  3.38
      • 7.  Form: Purchase and Sale Agreement  3.39
      • 8.  Form: Buyer’s Contingencies  3.40
      • 9.  Form: Early Access for Inspections  3.41
      • 10.  Form: Seller’s Representations and Warranties  3.42
      • 11.  Form: Escrow  3.43
      • 12.  Form: Commissions  3.44
      • 13.  Form: Confidentiality  3.45
      • 14.  Form: Execution of Letter of Intent  3.46
    • C.  Additional Considerations  3.47

4

The Purchase and Sale Agreement

Timothy N. Brown

Sherry L. Geyer

Jennifer R. Bae

Gordon K. Eng

  • I.  FORM OF AGREEMENT
    • A.  Introduction  4.1
    • B.  Forms and Appendixes  4.2
    • C.  Conditional Purchase Agreements  4.3
    • D.  Options  4.4
    • E.  Use of Printed Forms  4.5
  • II.  ESSENTIAL ELEMENTS OF AGREEMENT
    • A.  Requirements for Enforceability  4.6
    • B.  Parties With Capacity to Contract  4.7
    • C.  Mutual Consent  4.8
    • D.  Description of Property  4.9
    • E.  Lawful Object  4.10
    • F.  Consideration  4.11
    • G.  Writing
      • 1.  General Rules  4.12
      • 2.  Statute of Frauds  4.13
  • III.  PARTIES
    • A.  Persons Without Capacity to Contract  4.14
      • 1.  Minors  4.15
      • 2.  Persons of Unsound Mind  4.16
      • 3.  Guardianship or Conservatorship for Persons Under Legal Disability  4.17
    • B.  Contracting Issues Specific to Certain Parties
      • 1.  Prisoners  4.18
      • 2.  Native American Tribes  4.18A
    • C.  Necessary Parties as Sellers  4.19
    • D.  Methods of Holding Title
      • 1.  Entities  4.20
      • 2.  Community Property; Cotenancies; Separate Property  4.21
    • E.  Issues to Consider in Taking Title
      • 1.  Cotenancy
        • a.  Distinguishing Tenants in Common From Joint Tenants  4.22
        • b.  Partition of Cotenancy  4.23
      • 2.  General Partnerships  4.24
      • 3.  Limited Partnerships  4.25
      • 4.  Limited Liability Partnerships  4.26
      • 5.  Limited Liability Companies  4.27
      • 6.  Corporations  4.28
  • IV.  INTRODUCTORY PROVISIONS OF AGREEMENT
    • A.  Preamble and Recitals  4.29
    • B.  Agreement to Buy and Sell  4.30
    • C.  Description of Property
      • 1.  Legal Description of Real Property  4.31
      • 2.  Improvements and Appurtenances  4.32
      • 3.  Personal Property  4.33
      • 4.  Intangible Property  4.34
  • V.  PURCHASE PRICE AND DEPOSIT
    • A.  Price
      • 1.  Type of Consideration  4.35
      • 2.  Allocation of Purchase Price  4.36
    • B.  Deposit  4.37
    • C.  Purchasing Subject to Existing Encumbrances
      • 1.  Credit to Purchase Price  4.38
      • 2.  Review of Loan Documents
        • a.  In General  4.39
        • b.  Issues in Securitized Loans  4.40
      • 3.  Buyer’s Personal Liability
        • a.  Assuming Encumbrances  4.41
        • b.  Taking Subject to Encumbrance  4.42
      • 4.  Due-on-Sale Provision  4.43
    • D.  Seller Financing  4.44
  • VI.  DUE DILIGENCE  4.45
    • A.  Methods of Providing for Due Diligence  4.46
    • B.  Due Diligence Conditions
      • 1.  Purpose of Due Diligence Conditions  4.47
      • 2.  Drafting Considerations  4.48
    • C.  Seller’s Disclosure Obligations  4.49
    • D.  Title
      • 1.  Marketable Title
        • a.  Definitions of Marketable Title  4.50
        • b.  Examples of Unmarketable Title  4.51
        • c.  Statutory Procedures for Curing Certain Title Defects  4.52
      • 2.  Title Insurance  4.53
        • a.  Preliminary Report
          • (1)  Contents of Preliminary Report  4.54
          • (2)  Nature of Preliminary Report  4.55
          • (3)  Fees and Costs  4.56
        • b.  Purchase Agreement’s Title Insurance Provisions  4.57
      • 3.  Surveys
        • a.  Role of Surveys  4.58
        • b.  Seller’s Knowledge and Notice of Boundaries  4.59
      • 4.  Typical Title Issues
        • a.  Taxes
          • (1)  Real Property Taxes  4.60
          • (2)  Personal Property Taxes  4.61
          • (3)  Federal Tax Liens  4.62
        • b.  Special Assessments  4.63
        • c.  Easements  4.64
        • d.  Party Walls  4.65
        • e.  Covenants, Conditions, and Restrictions  4.66
        • f.  Encroachments  4.67
        • g.  Adverse Possession  4.68
        • h.  Mechanics Liens  4.69
        • i.  Matters Discoverable by Inspection  4.70
    • E.  Leases
      • 1.  In General  4.71
      • 2.  Purchase Free of Leases  4.72
      • 3.  Purchase Subject to Leases  4.73
      • 4.  Agricultural Leases  4.74
      • 5.  Ground Leases  4.75
      • 6.  Third Party Contracts  4.76
    • F.  Physical Condition of Property
      • 1.  In General  4.77
      • 2.  Buyer’s Inspection Rights  4.78
      • 3.  Structural Pest Control Inspection  4.79
      • 4.  Hazardous Substances  4.80
      • 5.  Natural Hazard Disclosure Statement  4.81
      • 6.  Sources of Maps and Other Natural Hazard Information  4.81A
      • 7.  Toxic Mold Disclosure Requirements  4.82
    • G.  Financing  4.83
    • H.  Seller’s Books and Records  4.84
    • I.  Use and Development of Property
      • 1.  In General  4.85
      • 2.  Zoning  4.86
      • 3.  Conditional Use Permits and Variances  4.87
      • 4.  Coastal Development Permits  4.88
      • 5.  Other Permits  4.89
      • 6.  Access  4.90
      • 7.  Annexation  4.91
      • 8.  Subdivision  4.92
      • 9.  Williamson Act and Similar Laws  4.93
      • 10.  California Environmental Quality Act  4.94
        • a.  Requirement for Environmental Review  4.95
        • b.  Exemptions and Negative Declarations  4.96
        • c.  Environmental Impact Reports (EIRs)  4.97
        • d.  Impact on Buyer  4.98
    • J.  Failure to Meet Due Diligence Conditions
      • 1.  Issues Regarding Failure of Conditions  4.99
      • 2.  Recovery of Buyer’s Deposit  4.100
  • VII.  COVENANTS PENDING CLOSING
    • A.  Leases
      • 1.  Covenant by Seller to Obtain Estoppel Certificates  4.101
      • 2.  Limitations on New Leases  4.102
      • 3.  Seller’s Obligation to Terminate Leases  4.103
    • B.  Seller’s Operations of Property  4.104
    • C.  Seller’s Construction Covenants  4.105
    • D.  Insurance  4.106
  • VIII.  REPRESENTATIONS AND WARRANTIES
    • A.  Purpose  4.107
    • B.  Limitations on Warranties  4.108
    • C.  Survival of Warranties  4.109
    • D.  Trend Toward Limited Warranties  4.110
    • E.  Typical Subjects for Seller’s Warranties
      • 1.  Title  4.111
      • 2.  Physical Condition of Property  4.112
      • 3.  Zoning  4.113
      • 4.  Subdivision Map Act Compliance  4.114
      • 5.  Violation of Other Governmental Requirements  4.115
      • 6.  Litigation  4.116
      • 7.  Books, Records, Leases, and Contracts  4.117
      • 8.  Authority  4.118
    • F.  Typical Buyer’s Warranties  4.119
    • G.  “As Is” Provisions  4.120
  • IX.  CLOSING CONDITIONS
    • A.  Purpose of Closing Conditions  4.121
    • B.  Typical Buyer’s Conditions
      • 1.  Title Insurance  4.122
      • 2.  Other Conditions  4.123
    • C.  Typical Seller’s Conditions  4.124
    • D.  Releases and Waivers by Buyer  4.125
    • E.  Closing Subject to Another Transaction  4.126
      • 1.  Simultaneous Exchange  4.127
      • 2.  Multiple Sellers  4.128
      • 3.  Removal of Title Defect  4.129
      • 4.  Purchase of Additional Property  4.130
      • 5.  Sale of Another Property by Buyer  4.131
  • X.  ESCROW AND CLOSING
    • A.  Closing Through Escrow  4.132
    • B.  Prorations  4.133
    • C.  Closing Costs  4.134
    • D.  Brokerage Fees  4.135
    • E.  Possession  4.136
  • XI.  RISK OF LOSS  4.137
    • A.  Condemnation Loss  4.138
    • B.  Casualty Loss  4.139
  • XII.  DEFAULT AND REMEDIES
    • A.  In General  4.140
    • B.  Seller’s Remedies
      • 1.  Damages  4.141
      • 2.  Liquidated Damages  4.142
      • 3.  Specific Performance  4.143
    • C.  Buyer’s Remedies
      • 1.  Damages  4.144
        • a.  Civil Code §3306  4.145
        • b.  Civil Code §3300  4.146
        • c.  Fraud and Misrepresentation  4.147
      • 2.  Methods to Limit Buyer’s Damages  4.148
      • 3.  Specific Performance  4.149
    • D.  Alternative Dispute Resolution  4.150
  • XIII.  MISCELLANEOUS PROVISIONS
    • A.  Notices  4.151
    • B.  Time Is of the Essence  4.152
    • C.  Attorney Fees  4.153
    • D.  Waiver  4.154
    • E.  Assignment by Buyer  4.155
      • 1.  Entity to Be Formed  4.156
      • 2.  Use of Nominees  4.157
    • F.  Interpretation of Agreement  4.158
      • 1.  Integration Provision  4.159
      • 2.  Counterparts  4.160
      • 3.  Binding on Successors  4.161
    • G.  Amendments Only in Writing  4.162
    • H.  No Third Party Benefit  4.163
    • I.  Severability  4.164
    • J.  Tax-Deferred Exchange  4.165
  • XIV.  PURCHASE AND SALE AGREEMENT  4.166
    • A.  Form: Title and Introductory Paragraph  4.167
    • B.  Form: Recitals  4.168
    • C.  Form: Agreement of Sale  4.169
    • D.  Form: Purchase Price  4.170
    • E.  Form: Buyer’s Contingencies  4.171
    • F.  Form: Seller’s Preclosing Covenants  4.172
    • G.  Form: Representations and Warranties  4.173
    • H.  Form: Closing Conditions  4.174
    • I.  Form: Closing  4.175
    • J.  Form: Risk of Loss  4.176
    • K.  Form: Remedies for Default  4.177
    • L.  Form: General Provisions  4.178
    • M.  Form: Signature  4.179
    • N.  Form: Consent of Escrow Holder  4.180
    • O.  Form: Table of Exhibits  4.181
    • P.  Form: Allocation of Purchase Price  4.182

5

Specialty Commercial Purchase and Sale Agreement Provisions: Hotels

Timothy N. Brown

  • I.  INTRODUCTION TO THE PURCHASE AND SALE OF HOTELS  5.1
    • A.  Nature of Hotel Operations  5.2
    • B.  Referral, Management, and Franchise Agreements  5.3
      • 1.  Issues Involved in Franchise or Management Agreements  5.4
      • 2.  Buyer’s Financing  5.5
    • C.  Associated Resort Facilities  5.6
    • D.  Residential and Common Interest Arrangements  5.7
  • II.  PURCHASE AND SALE AGREEMENT PROVISIONS
    • A.  Terminology  5.8
    • B.  Form: Definitions  5.9
    • C.  Assets Being Sold  5.10
    • D.  Form: Hotel Assets and Liabilities  5.11
    • E.  Buyer’s Due Diligence  5.12
    • F.  Form: Due Diligence Documents  5.13
    • G.  Covenants Pending Closing  5.14
    • H.  Form: Seller’s Pre-Closing Covenants  5.15
    • I.  Representations and Warranties  5.16
    • J.  Form: Seller’s Representations and Warranties  5.17
    • K.  Employees  5.18
    • L.  Form: Employees  5.19
    • M.  Closing Conditions  5.20
      • 1.  Required Actions by Franchisor and Manager  5.21
      • 2.  Form: Estoppel Certificate From Hotel Operator  5.21A
      • 3.  Transfer of Liquor License  5.22
      • 4.  Compliance With Bulk Sales Laws  5.23
      • 5.  Prohibition on Material Adverse Changes  5.24
    • N.  Form: Closing Conditions  5.25
    • O.  Escrow and Closing
      • 1.  Prorations  5.26
      • 2.  Liquor License  5.27
      • 3.  Safe Deposits and Baggage  5.28
    • P.  Form: Escrow and Closing  5.29

6

Residential Purchase and Sale Transactions

Howard L. Pearlman

  • I.  INTRODUCTION
    • A.  Relationship to Chapter on Purchase and Sale Agreements  6.1
    • B.  Attorney’s Role in Residential Transactions  6.2
  • II.  RESIDENTIAL PURCHASE AND SALE AGREEMENTS
    • A.  Standard Form Agreements  6.3
      • 1.  Contract Interpretation  6.4
      • 2.  Offer, Acceptance, and Counteroffer  6.5
      • 3.  Selected Provisions of the Purchase Agreement  6.6
        • a.  Description of the Property
          • (1)  The Real Property and Its Encumbrances  6.7
          • (2)  Fixtures Versus Personal Property  6.8
        • b.  “As Is” Clauses  6.9
        • c.  Liquidated Damages and Deposit Forfeiture
          • (1)  Real Property Purchase Contracts   6.10
            • (a)  Owner-Occupied One to Four Units  6.11
            • (b)  Reasonableness  6.12
            • (c)  Initial Sale of New Condominiums  6.13
          • (2)  Deposit Forfeiture  6.14
        • d.  Arbitration  6.15
          • (1)  California Arbitration Act
            • (a)  Format and Notice Requirements  6.16
            • (b)  Exclusions From Arbitration  6.17
          • (2)  Federal Arbitration Act
            • (a)  Preemption  6.18
            • (b)  Application of State Law  6.18A
        • e.  Mediation and Attorney Fees  6.19
        • f.  Contract Contingencies  6.20
          • (1)  Conditions Precedent  6.21
          • (2)  Contingency Removal  6.22
        • g.  Allocations, Prorations, and Disclosure of Transaction Costs  6.23
    • B.  CAR Residential Property Forms
      • 1.  Form: California Residential Purchase Agreement and Joint Escrow Instructions (CAR Form RPA-CA)  6.24
      • 2.  Form: Buyer’s Inspection Advisory (CAR Form BIA)  6.25
      • 3.  Addendums to Purchase Agreement  6.26
        • a.  Form: Assumed Financing Addendum (CAR Form AFA)  6.26A
        • b.  Form: Back-Up Offer Addendum (CAR Form BUO)  6.26B
        • c.  Form: Seller in Possession Addendum (CAR Form SIP)  6.26C
        • d.  Form: Tenant in Possession Addendum (CAR Form TIP)  6.26D
      • 4.  Form: Statewide Buyer and Seller Advisory (CAR Form SBSA)  6.27
      • 5.  Form: Notice to Buyer to Perform (CAR Form NBP)  6.28
      • 6.  Form: Short Sale Addendum (CAR Form SSA)  6.28A
  • III.  SELLER’S DISCLOSURES  6.29
    • A.  Common Law Duty of Disclosure  6.30
      • 1.  Materiality  6.31
        • a.  Physical Property Conditions  6.31A
        • b.  Other Matters  6.31B
        • c.  Corrected Conditions  6.32
      • 2.  Scope and Extent of Disclosure  6.32A
      • 3.  Public Policy Limitations on the Duty to Disclose  6.33
    • B.  Statutory Disclosure Requirements  6.34
      • 1.  Transfer Disclosures  6.35
        • a.  Real Estate Transfer Disclosure Statement  6.36
        • b.  Form: Real Estate Transfer Disclosure Statement (CC §1102.6) (CAR Form TDS)  6.37
        • c.  Local Disclosure and Transfer Requirements
          • (1)  Local Option Transfer Disclosure Statement  6.38
          • (2)  Form: Local Transfer Disclosure Statement (CC §1102.6a)  6.39
          • (3)  Residential Building Records Report  6.40
          • (4)  “Point of Sale” Ordinances  6.41
        • d.  Mello-Roos Act and 1915 Bond Act  6.42
        • e.  Supplemental Property Tax Bill  6.43
        • f.  Former Federal or State Ordnance Locations  6.44
        • g.  Window Security Bars and Safety Release Mechanisms  6.45
        • h.  Industrial Use Zone  6.46
        • i.  Private Transfer Fees  6.46A
      • 2.  Natural Hazard Disclosures  6.47
        • a.  Natural Hazard Zones  6.48
        • b.  Natural Hazard Disclosure Statement  6.49
        • c.  Form: Natural Hazard Disclosure Statement (CAR Form NHD)  6.50
      • 3.  Health and Safety Disclosures
        • a.  Lead-Based Paint Disclosure  6.51
        • b.  Earthquake Hazards  6.52
        • c.  Environmental Hazards
          • (1)  Mandatory Disclosure  6.53
          • (2)  Voluntary Disclosure  6.54
        • d.  Drug Lab Cleanup Order  6.55
        • e.  Registered Sex Offenders (“Megan’s Law”)  6.56
        • f.  Smoke Alarm Compliance Statement  6.57
        • g.  Carbon Monoxide Devices  6.57A
        • h.  Water Heater Compliance Statement  6.58
        • i.  Structural Pest Control Inspection Report  6.59
      • 4.  Common Interest Development Disclosures  6.60
        • a.  Davis-Stirling Act Disclosures  6.61
        • b.  Disclosures in First Sale of Conversion Units  6.62
        • c.  Disclosures in First Sale of Units in a New Common Interest Development  6.63
      • 5.  New Home Sales Disclosures  6.64
      • 6.  Miscellaneous Disclosures
        • a.  Death or Illness of Occupant of Property  6.65
        • b.  Advisability of Title Insurance  6.66
        • c.  FHA/HUD Inspection Disclosure  6.67
        • d.  Flood Disaster Insurance Requirements  6.68
        • e.  Financing Disclosures  6.69
        • f.  Home Energy Rating Program  6.70
        • g.  Gas and Hazardous Liquid Transmission Pipelines Disclosure  6.70A
        • h.  Water-Conserving Plumbing Fixtures  6.70B
  • IV.  BUYER’S DUE DILIGENCE  6.71
    • A.  Buyer’s Duty of Self-Protection  6.72
    • B.  Buyer’s Duty to Investigate  6.73
    • C.  Scope of Buyer’s Due Diligence  6.74
    • D.  Property Inspections  6.75
      • 1.  Pest Inspection  6.76
      • 2.  Home Inspection
        • a.  Nature of Inspection  6.77
        • b.  Home Inspector’s Qualifications and Duties  6.78
        • c.  Prohibited Practices  6.79
  • V.  TITLE AND VESTING  6.80
    • A.  Condition of Title  6.81
      • 1.  Recorded Interests in the Property
        • a.  Preliminary Report  6.82
        • b.  Basic Title Review  6.83
      • 2.  Unrecorded Interests in the Property  6.84
    • B.  Residential Title Insurance Policies  6.85
      • 1.  Coverage Statement  6.86
      • 2.  Exceptions and Exclusions  6.87
      • 3.  Endorsements  6.88
    • C.  Vesting of Title  6.89
      • 1.  Joint Tenancy  6.90
      • 2.  Tenancy in Common  6.91
      • 3.  Community Property  6.92
      • 4.  Registered Domestic Partners  6.93
      • 5.  Community Property With Right of Survivorship  6.94
      • 6.  Tenancy in Partnership  6.95
  • VI.  TAX CONSIDERATIONS  6.96
    • A.  State and Federal Withholding Taxes  6.97
    • B.  Transfer Tax  6.98
    • C.  Property Tax  6.99
    • D.  Capital Gains Tax  6.100
  • VII.  FAIR HOUSING AND ANTIDISCRIMINATION LAWS  6.101
    • A.  Federal Law
      • 1.  Civil Rights Act of 1866  6.102
      • 2.  Fair Housing Act  6.103
    • B.  State Law
      • 1.  Unruh Act  6.104
      • 2.  Fair Employment and Housing Act (FEHA)  6.105
    • C.  Senior Citizen Housing  6.106
      • 1.  Federal Exemption  6.107
      • 2.  State Exemption  6.108
    • D.  Other State Antidiscrimination Laws
      • 1.  Residential Facilities and Family Day Care Homes  6.109
      • 2.  Disabled Access to Condominiums  6.110
    • E.  Local Ordinances  6.111
  • VIII.  SALE OF DISTRESSED PROPERTY  6.111A
    • A.  Deeds in Lieu of Foreclosure  6.111B
    • B.  Short Sales  6.111C
      • 1.  Antideficiency Protection
        • a.  Background  6.111D
        • b.  Antideficiency Protection Under Code of Civil Procedure §580b   6.111E
        • c.  Antideficiency Protection Under Code of Civil Procedure §580e  6.111F
        • d.  Junior Lienholders’ Consent  6.111G
      • 2.  Standard Forms Used; Disclosure Requirements Apply  6.111H
      • 3.  Lender’s Evaluation and Requirements  6.111I
        • a.  Short-Pay Demand Statement [Deleted]  6.111J
        • b.  Home Affordable Foreclosure Alternatives (HAFA) Program [Deleted]  6.111K
          • (1)  HAFA Eligibility Requirements [Deleted]  6.111L
          • (2)  HAFA Procedures [Deleted]  6.111M
            • (a)   Short Sale Pre-Approval [Deleted]  6.111N
              • (i)  Short Sale Notice [Deleted]  6.111O
              • (ii)  Parties’ Obligations After Issuance of the Short Sale Notice (SSN) [Deleted]  6.111P
            • (b)  Short-Sale Approval Prior to Issuance of a Short Sale Notice (SSN) [Deleted]  6.111Q
            • (c)  Subordinate Lienholders [Deleted]  6.111R
          • (3)  Financial Incentives to Participate in HAFA Program [Deleted]  6.111S
      • 4.  Tax Considerations  6.111T
        • a.  Cancellation-of-Debt Income  6.111U
        • b.  Net Short-Sale Proceeds as Capital Gain  6.111V
    • C.  Home Equity Sales Contracts  6.112
      • 1.  Requisites for Enforceability  6.113
      • 2.  Prohibited Conduct and Remedies  6.114
    • D.  Lender-Owned (REO) Sales
      • 1.  REO Sales Described  6.115
      • 2.  Disclosure Requirements  6.116
      • 3.  Buyer’s Choice of Escrow and Title Insurance Services  6.117
    • E.  Form: REO Advisory (CAR Form REO)  6.118

7

Hazardous Waste Considerations

Kenneth S. Kramer

William D. Wick

  • I.  TOXIC CONTAMINATION
    • A.  Introduction  7.1
    • B.  What Is Toxic Contamination?
      • 1.  Frequently Encountered Toxics  7.2
        • a.  Soil Contamination  7.3
        • b.  Groundwater Contamination  7.4
        • c.  Building Contamination
          • (1)  Vapor Intrusion  7.5
          • (2)  Asbestos and Other Contaminants  7.5A
        • d.  Storage Tanks  7.6
        • e.  Air Quality  7.7
      • 2.  Legal Definitions of Toxics
        • a.  Federal Statutes  7.8
        • b.  California Statutes  7.9
    • C.  Remediation Obligations and Defenses  7.10
      • 1.  Potentially Responsible Parties  7.11
        • a.  Owners  7.12
        • b.  Lessees as “Owners”  7.13
        • c.  Operators, Arrangers, Transporters  7.14
      • 2.  Remediation Orders  7.15
      • 3.  Cost Recovery and Contribution  7.16
        • a.  Parties Eligible for Cost Recovery Actions  7.17
        • b.  Liability and Damages Issues  7.18
        • c.  Attorney Fees  7.19
        • d.  Common Law Actions  7.20
      • 4.  Private Agreement Limitations  7.21
      • 5.  CERCLA Defenses  7.22
        • a.  The Third Party Defense  7.23
        • b.  The Innocent Landowner Defense  7.24
          • (1)  Requirements to Qualify for Innocent Landowner Status  7.25
          • (2)  Application to Property Purchased Before May 31, 1997  7.26
          • (3)  Application to Property Purchased Between May 31, 1997, and November 1, 2006  7.27
          • (4)  Application to Property Purchased On or After November 1, 2006  7.28
          • (5)  Comparison of “All Appropriate Inquiries” Standards  7.29
        • c.  The Contiguous Property Owner Defense  7.30
        • d.  The Bona Fide Prospective Purchaser Defense  7.31
      • 6.  California Land Reuse and Revitalization Act of 2004  7.32
        • a.  Eligible Property  7.33
        • b.  Bona Fide Purchaser  7.34
        • c.  Immunity From Cleanup Costs  7.35
    • D.  Investigation and Review of Environmental Conditions
      • 1.  California Toxic Disclosure Statutes  7.36
      • 2.  Environmental Assessments
        • a.  Phase I Reports  7.37
        • b.  Phase II Reports  7.38
        • c.  Remedial Investigation/Feasibility Study/Remedial Action Plan  7.39
      • 3.  Seller’s Review of Property  7.40
      • 4.  Buyer’s Review of Property  7.41
      • 5.  Use of Environmental Consultants
        • a.  Scope of Work  7.42
        • b.  Confidentiality  7.43
        • c.  Principal-Agent Considerations  7.44
  • II.  CONTRACTUAL PROVISIONS ON TOXIC CONTAMINATION  7.45
    • A.  Seller’s Documentation of Knowledge
      • 1.  Disclosure of Knowledge  7.46
      • 2.  Representations and Warranties  7.47
        • a.  Form: Definition of “Hazardous Materials”  7.48
        • b.  Form: Absolute Representation  7.49
        • c.  Form: Best of Knowledge  7.50
        • d.  Form: Best of Knowledge (Specific Individuals)  7.51
        • e.  Form: Best of Knowledge With Exception for Phase I Report  7.52
    • B.  Buyer’s Rights Regarding Unknown Contamination  7.53
      • 1.  Conditions Precedent for Due Diligence  7.54
      • 2.  Lessee’s Estoppel Provision  7.55
      • 3.  Seller’s De Minimis Obligation to Remediate  7.56
      • 4.  Form: Seller to Remediate De Minimis Contamination  7.57
      • 5.  Rights to Terminate  7.58
      • 6.  Loan Contingency Relationship  7.59
    • C.  Renegotiation of Price or Other Terms When Undisclosed Toxics Are Found  7.60
    • D.  Release Clauses  7.61
      • 1.  Form: Broad Clause Releasing Seller  7.62
      • 2.  Form: Limited Clause Releasing Seller; Seller Retains Some Responsibilities  7.63
      • 3.  “As Is” Clauses as Release Clauses  7.64
      • 4.  Form: Expanded “As Is” Clause  7.65
    • E.  Indemnification  7.66
      • 1.  Seller’s Indemnification of Buyer
        • a.  Factors to Consider  7.67
        • b.  Form: Seller’s Limited Indemnification of Buyer  7.68
      • 2.  Buyer’s Indemnification of Seller
        • a.  Assumed Toxic Condition  7.69
        • b.  Form: Buyer’s Broad Form Indemnification of Seller  7.70
        • c.  Postclosing Discoveries
          • (1)  Preexisting Conditions  7.71
          • (2)  Conditions Caused by Buyer After Closing  7.72
    • F.  Remediation  7.73
      • 1.  Responsibility for Costs  7.74
      • 2.  Control of Process  7.75
      • 3.  Disposal  7.76
      • 4.  Agency Assurances—Comfort Letter and Prospective Purchaser Agreement  7.77
    • G.  Securing Remediation Costs
      • 1.  Remediation Cost Estimate  7.78
      • 2.  Escrow of Funds  7.79
      • 3.  Form: Remediation Escrow Agreement  7.80
      • 4.  Letters of Credit  7.81
      • 5.  Guaranty  7.82
      • 6.  Offset Against Buyer’s Note  7.83
    • H.  Miscellaneous Provisions
      • 1.  Arbitration Clause  7.84
      • 2.  Access to Property  7.85
  • III.  INSURANCE MATTERS
    • A.  Title Insurance Products  7.86
    • B.  Environmental Liability Insurance  7.87
  • IV.  LENDER CONCERNS
    • A.  Nature of Lender’s Liability and Underwriting  7.88
    • B.  Loan Application Provisions  7.89
    • C.  Loan Document Provisions  7.90
      • 1.  Representations  7.91
      • 2.  Assurances on Remediation  7.92
      • 3.  Right to Waive Security  7.93
      • 4.  Access, Right to Remediate, and Receivership  7.94
      • 5.  Survival of Indemnities and Other Agreements After Foreclosure  7.95

8

Options, Rights of First Refusal, Puts, and Similar Rights

Nolan M. Kennedy

Thomas H. Jamison

Gordon K. Eng

  • I.  GENERAL PRINCIPLES
    • A.  Definition of Option  8.1
    • B.  Types of Options  8.2
    • C.  Options in the Residential Context  8.3
    • D.  Options as Two Agreements  8.4
      • 1.  Unilateral Contract for Right to Purchase  8.5
      • 2.  Bilateral Contract for Purchase and Sale  8.6
      • 3.  Additional Provisions in Option Contracts  8.7
  • II.  CREATION OF OPTION CONTRACT  8.8
    • A.  Essential Elements of an Option Contract
      • 1.  Essential Terms  8.9
      • 2.  Consideration for Option  8.10
        • a.  Adequacy of Consideration  8.11
        • b.  Consideration for Options Within Other Agreements  8.12
        • c.  Consideration Other Than Money  8.13
      • 3.  Definiteness  8.14
      • 4.  Statute of Frauds  8.15
      • 5.  Term of Option and Rule Against Perpetuities  8.16
      • 6.  Special Notices Required for Option Agreements  8.17
    • B.  Recording Option Contracts; Priority Issues  8.18
    • C.  Title Insurance for Option Contracts  8.19
  • III.  EXERCISE OF OPTION
    • A.  Method of Exercise  8.20
    • B.  Who Can Exercise an Option  8.20A
    • C.  Time to Exercise  8.21
    • D.  Priority of Option on Exercise  8.22
    • E.  Waiver of Defective Exercise  8.23
    • F.  Changed Terms, Added Conditions, or Termination of Option After Exercise  8.24
  • IV.  TRANSFER AND TERMINATION OF OPTIONS
    • A.  Transferability of Options
      • 1.  When Option Is Assignable  8.25
      • 2.  Transfer of Property Subject to Option  8.26
      • 3.  Death of Optionor or Optionee  8.27
    • B.  Effect of Bankruptcy  8.28
    • C.  Condemnation and Destruction
      • 1.  Condemnation  8.29
      • 2.  Destruction  8.30
      • 3.  Effect on Optioned Property  8.31
    • D.  Termination  8.32
  • V.  ENFORCEMENT AND REMEDIES  8.33
  • VI.  TAX CONSIDERATIONS  8.34
    • A.  Income Tax Treatment of Option Payment
      • 1.  Optionor  8.35
      • 2.  Optionee  8.36
    • B.  Tax Implication of Transfer of Option Right  8.37
  • VII.  ADVANTAGES AND DISADVANTAGES FOR OPTIONOR AND OPTIONEE  8.38
    • A.  Substitute for Liquidated Damages  8.39
    • B.  Tax Deferral  8.40
    • C.  Inducement to Investigate  8.41
    • D.  Risk of Better Price  8.42
    • E.  Uncertainty of Sale  8.43
  • VIII.  USES OF OPTIONS  8.44
    • A.  Land Acquisition and Land Use Development  8.45
      • 1.  Investigating Property  8.46
      • 2.  Processing Land Use Applications  8.47
      • 3.  Purchase Price  8.48
    • B.  Obtaining Financing  8.49
    • C.  Speculating on Value Increase  8.50
    • D.  Assembling Multiple Parcels  8.51
    • E.  Positioning for an Exchange Transaction  8.52
    • F.  “Put” in Favor of Seller  8.53
    • G.  Option as Financing Device  8.54
    • H.  Convertible Mortgages  8.55
    • I.  Joint Ownership Agreements  8.56
    • J.  Options to Purchase in Lease  8.57
    • K.  Right of First Refusal; Right of First Offer  8.58
  • IX.  FORM OF OPTION AGREEMENT
    • A.  Form: Introduction; Parties; Recitals  8.59
    • B.  Form: Grant of Option  8.60
    • C.  Form: Term of Option  8.61
    • D.  Form: Consideration  8.62
    • E.  Form: Successive Payments to Extend Option Term  8.63
    • F.  Form: Exercise of Option  8.64
    • G.  Form: Sequential Exercise of Option  8.65
    • H.  Form: Covenants and Warranties of Optionor Concerning Property  8.66
    • I.  Form: Condition of Title  8.67
    • J.  Form: Investigation of Property  8.68
    • K.  Form: Governmental Permits  8.69
    • L.  Form: Assignment of Option  8.70
    • M.  Form: Risk of Loss  8.71
    • N.  Form: Condemnation  8.72
    • O.  Form: Memorandum of Option to Be Recorded  8.73
    • P.  Form: Broker’s Commission  8.74
    • Q.  Form: Time of Essence; Failure to Exercise  8.75
    • R.  Form: Attorney Fees  8.76
    • S.  Form: Notices  8.77
    • T.  Form: Entire Agreement  8.78
    • U.  Form: Waiver  8.79
    • V.  Form: Captions; Signatures  8.80
    • W.  Form: Memorandum of Option  8.81
    • X.  Form: Right of First Offer Agreement  8.82
    • Y.  Form: Right of First Refusal Agreement  8.83

9

Seller Financing

Alice L. Akawie

Lauren M. LaPietra

Peter S. Muñoz

W. Stephen Wilson

  • I.  INTRODUCTION
    • A.  Why Seller Financing?  9.1
    • B.  Lawyer’s Role
      • 1.  Financing  9.2
      • 2.  Structuring the Buyer  9.3
      • 3.  Standard of Care
        • a.  To Clients  9.4
        • b.  To Third Parties  9.5
    • C.  Usury Considerations
      • 1.  Seller Financing  9.6
      • 2.  Third Party Wraparound Financing  9.7
    • D.  Antideficiency Laws
      • 1.  Applicability of Antideficiency Protections  9.8
      • 2.  Exceptions to Antideficiency Protections  9.9
  • II.  DISCLOSURE REQUIREMENTS
    • A.  Seller’s Disclosures
      • 1.  Arranger of Credit  9.10
      • 2.  Balloon Payment  9.11
      • 3.  Appraisals  9.12
    • B.  Form: Seller Financing Addendum and Disclosure (CAR Form SFA)  9.13
  • III.  SELLER-FINANCING DEVICES
    • A.  Installment Land Contract  9.14
      • 1.  Distinguished From Purchase and Sale Agreement  9.15
      • 2.  Decline in Popularity; Disadvantages  9.16
      • 3.  Protective Statutory and Regulatory Provisions  9.17
    • B.  Lease With Option to Purchase
      • 1.  Reasons to Use  9.18
      • 2.  Hidden Security Device  9.19
      • 3.  Distinguishing Lease-Option From Hidden Security Device
        • a.  How Courts Distinguish  9.20
        • b.  How Tax Treatment Differs  9.21
    • C.  Promissory Note Secured by Mortgage or Deed of Trust  9.22
    • D.  Buyer’s Obligation to Comply With FIRPTA  9.23
  • IV.  POSTPONING SELLER’S INCOME TAX LIABILITY
    • A.  Installment Method of Reporting Gain  9.24
      • 1.  Statutory Requirements; Definitions  9.25
      • 2.  Computation Examples
        • a.  Typical Installment Sale  9.26
        • b.  Effect of Recapture  9.27
        • c.  Mortgage in Excess of Basis  9.28
      • 3.  Wraparound Financing  9.29
      • 4.  Seller’s Ability to Limit Prepayments
        • a.  Restrictions on Limitations on Prepayment  9.30
        • b.  Monetary Penalty on Prepayments  9.31
      • 5.  Treatment of Dealers  9.32
      • 6.  Disposition of Installment Obligations  9.33
      • 7.  Original Issue Discount and Imputed Interest  9.34
        • a.  Original Issue Discount  9.35
        • b.  Imputed Interest Rules  9.36
        • c.  Applicable Federal Rate  9.37
    • B.  Open-Ended or Contingent Sales Price  9.38
    • C.  Relationship to Buyer’s Financing Needs  9.39
  • V.  DEFERRING PAYMENTS; FORM PROVISIONS FOR PURCHASE AND SALE AGREEMENT
    • A.  Form: Cash Downpayment  9.40
    • B.  Form: Credit for Existing Encumbrances  9.41
    • C.  Promissory Note for Balance Due
      • 1.  Form of Loan Documents  9.42
      • 2.  Security; Title Insurance  9.43
      • 3.  Computation of Payments  9.44
      • 4.  Form: Note for Balance; First-Year Payments Limited  9.45
      • 5.  Form: Note for Balance; Annual Payments Limited  9.46
    • D.  Form: Acceleration on Default  9.47
  • VI.  RETAINING EXISTING ENCUMBRANCES
    • A.  Buyer’s Assumption of, or Sale Subject to, Existing Encumbrances  9.48
      • 1.  Due-on-Sale and Due-on-Encumbrance Clauses  9.49
        • a.  Enforceability of Clauses
          • (1)  Due-on-Sale Clauses  9.50
          • (2)  Due-on-Encumbrance Clauses  9.51
        • b.  Prohibition on Prepayment Penalties  9.52
        • c.  Impact on Buyer  9.53
      • 2.  Transferability of Government Financing  9.54
      • 3.  Impact of Antideficiency Laws  9.55
      • 4.  Restrictions on Foreclosure  9.55A
    • B.  All-Inclusive Note and Deed of Trust
      • 1.  Definition  9.56
      • 2.  Purposes and Uses
        • a.  Higher Effective Interest Rate  9.57
        • b.  Reporting Interest for Tax Purposes  9.58
        • c.  Seller’s Control Over Security  9.59
        • d.  Tax Considerations; Installment Reporting  9.60
      • 3.  Drafting All-Inclusive Instruments  9.61
        • a.  Consistency With Underlying Obligations and Encumbrances; Prepayments; Amortization  9.62
        • b.  Rights in Case of Default  9.63
        • c.  Foreclosure  9.64
      • 4.  Form: Provision in Purchase and Sale Agreement for All-Inclusive Financing  9.65
  • VII.  SELLER’S PARTICIPATION IN BUYER’S FINANCING
    • A.  “Loan Originators”  9.65A
    • B.  Subordination  9.66
      • 1.  Subordinating to Construction Loans
        • a.  Competing Factors  9.67
        • b.  Methods of Providing First Lien  9.68
          • (1)  Order of Recordation  9.69
          • (2)  Automatic Subordination; Subordination Agreement  9.70
        • c.  Risks to Seller  9.71
        • d.  Seller’s Benefits  9.72
      • 2.  Types of Subordination Agreements  9.73
        • a.  Executory Subordination Agreement  9.74
          • (1)  Enforceable: Certain and Reasonable  9.75
          • (2)  Required Terms  9.76
          • (3)  Form: Optional Terms  9.77
          • (4)  Form: Executory Subordination Provision in Purchase Agreement  9.78
          • (5)  Subordination Addendum
            • (a)  Information to Include in Subordination Addendum  9.79
            • (b)  Form: Subordination Addendum  9.80
            • (c)  Form: Subordination to Permanent Loan  9.81
            • (d)  Form: Execution of Additional Subordination Agreement  9.82
        • b.  Executed Subordination Agreement  9.83
          • (1)  Discrepancy Between Agreement and Loan  9.84
          • (2)  Misapplication of Funds  9.85
          • (3)  Automatic Subordination Agreement  9.86
          • (4)  Form: Automatic Subordination Agreement  9.87
        • c.  De Facto Subordination Agreement  9.88
      • 3.  Cautionary Language Required  9.89
        • a.  Automatic Subordination  9.90
        • b.  Security Instrument Permits Proceeds to be Used for Nonimprovement Purposes  9.91
        • c.  Agreement Causes Security Interest to Become Junior  9.92
        • d.  Agreement Permits Proceeds to be Used for Nonimprovement Purposes  9.93
        • e.  Right to Waive  9.94
      • 4.  Effect of Subordination on Antideficiency Rules
        • a.  Exemption From Antideficiency Protection  9.95
        • b.  Express Waiver Not Required  9.96
        • c.  Mere Promise to Subordinate Not Sufficient  9.97
        • d.  Nonconstruction Loan  9.98
        • e.  Relevance of Loan Amount  9.99
    • C.  Release and Partial Reconveyance  9.100
      • 1.  Requirement of Certainty and Fairness
        • a.  Impact on Specific Performance  9.101
        • b.  Impact on Damages  9.102
      • 2.  Subdivision Requirements
        • a.  Subdivision Map Act  9.103
        • b.  Subdivided Lands Act  9.104
      • 3.  Form: Partial Release of Determined Lots  9.105
      • 4.  Form: Partial Release (Lots Not Determined); Limiting Buyer’s Discretion  9.106
      • 5.  Form: Partial Release (Lots Not Determined); Adjustment of Release Price  9.107
      • 6.  Form: Unencumbered Conveyance at Close of Escrow  9.108
      • 7.  Form: Substituted Security for Releases  9.109
      • 8.  Form: Release on Condemnation Award  9.110

10

Deeds

Scott A. Sommer

  • I.  REQUISITES OF DEEDS
    • A.  Legal Definitions  10.1
    • B.  Types of Deeds
      • 1.  Grant Deed
        • a.  Features and Incidentals of the Grant  10.2
        • b.  Form: Statutory Grant Deed Form (CC §1092)  10.3
      • 2.  Quitclaim Deed  10.4
      • 3.  Warranty Deed  10.5
    • C.  Necessary Elements of Deeds  10.6
  • II.  COMPONENTS ANALYZED
    • A.  Form: Grant Deed  10.7
    • B.  Recording Information
      • 1.  “Recording Requested By”  10.8
      • 2.  Return Name and Address  10.9
      • 3.  Tax Statements  10.10
      • 4.  Documentary Transfer Tax
        • a.  Statutory Requirements  10.11
        • b.  Separate Statement of Documentary Transfer Tax  10.12
    • C.  Body of Deed
      • 1.  Consideration  10.13
      • 2.  Grantor Recitals  10.14
        • a.  Form: Grantor’s Name Different From Record Owner’s Name  10.15
        • b.  Form: Unincorporated Association  10.16
        • c.  Form: Partnership  10.17
        • d.  Form: Limited Partnership  10.18
        • e.  Form: Trustee  10.19
        • f.  Form: Corporation  10.20
        • g.  Form: Joint Venture  10.21
        • h.  Other Grantor Clauses  10.22
      • 3.  Words of Conveyance  10.23
      • 4.  Grantee
        • a.  Requirement of Capacity  10.24
        • b.  Requirement of Certainty  10.25
        • c.  Status of Grantee  10.26
        • d.  Other Required Elements  10.27
          • (1)  Nature of Estate  10.28
          • (2)  Nature of Ownership  10.29
          • (3)  Proportion of Interest  10.30
        • e.  Grantee Recitals
          • (1)  Form: Joint Tenancy  10.31
          • (2)  Form: Tenancy in Common  10.32
          • (3)  Form: Community Property  10.33
          • (4)  Form: Changing Title From Joint Tenancy to Community Property  10.34
      • 5.  Description  10.35
      • 6.  Exhibits and Riders  10.36
      • 7.  “Subject to” Clauses  10.37
      • 8.  Special Recitals  10.38
        • a.  Form: Spouse-to-Spouse Recital of Separate Property  10.39
        • b.  Form: Consent to Joint Tenancy Between One Spouse and Another Person  10.40
        • c.  Form: Deed in Lieu of Foreclosure  10.41
        • d.  Correcting, Removing, and Releasing Recitals
          • (1)  Form: Correcting or Clarifying Description of Property  10.42
          • (2)  Form: Removing Cloud on Title  10.43
          • (3)  Form: Release of Exception or Reservation  10.44
        • e.  Compliance With Obligation Recitals
          • (1)  Form: Conveyance in Performance of Sales Agreement  10.45
          • (2)  Form: Conveyance on Exercise of Option  10.46
          • (3)  Form: Conveyance on Distribution of Trust  10.47
        • f.  Termination Recitals
          • (1)  Form: Termination of Recorded Lease  10.48
          • (2)  Form: Elimination of Covenants, Conditions, and Restrictions  10.49
          • (3)  Form: Removal of Power of Termination  10.50
        • g.  Reservation Recitals
          • (1)  Form: Mineral Rights  10.51
          • (2)  Form: Life Estate  10.52
      • 9.  Revocable Transfer on Death Deed  10.52A
    • D.  Execution
      • 1.  Date of Execution  10.53
      • 2.  Definition  10.54
      • 3.  Requirements
        • a.  Who Signs  10.55
        • b.  Spouse’s Signature  10.56
        • c.  Homestead Declaration  10.57
        • d.  Termination of Joint Tenancy  10.58
      • 4.  Particular Executions
        • a.  Form: Mark of Executing Party  10.59
        • b.  Form: Signature of Attorney-in-Fact  10.60
        • c.  Form: Signature of Trustee  10.61
        • d.  Form: Signature of Guardian or Conservator  10.62
        • e.  Form: Signature of Executor or Administrator  10.63
        • f.  Form: Signature of Partner  10.64
        • g.  Form: Signature of Corporate Officer  10.65
        • h.  Form: Signature of Joint Venturer  10.66
    • E.  Acknowledgment
      • 1.  Legal Requirements  10.67
      • 2.  Documents That Need Not Be Acknowledged  10.68
      • 3.  Effect of Acknowledgment  10.69
      • 4.  Proof of Execution of Unacknowledged Documents  10.70
    • F.  Delivery  10.71
      • 1.  Unconditional Delivery Is Required  10.72
      • 2.  Rebuttable Presumptions on Delivery  10.73
      • 3.  Constructive Delivery  10.74
    • G.  Acceptance  10.75
  • III.  VALIDITY OF DEEDS
    • A.  Void Deeds  10.76
    • B.  Voidable Deeds  10.77

11

Descriptions of Property

Scott A. Sommer

  • I.  INTRODUCTION
    • A.  Historical Background  11.1
    • B.  Nature and Purpose of Descriptions  11.2
    • C.  The Lawyer’s Function
      • 1.  Review of Legal Description  11.3
      • 2.  Zoning and Subdivision Considerations  11.4
      • 3.  Forms of Ownership  11.5
      • 4.  Creation of Easements  11.6
      • 5.  Common Interest Developments  11.7
    • D.  Limitations on Lawyer’s Function  11.8
  • II.  FINDING CORRECT DESCRIPTIONS
    • A.  Deeds  11.9
    • B.  Preliminary Report or Title Insurance Policy  11.10
    • C.  Inspection of Premises  11.11
    • D.  Surveys and Engineering Studies  11.12
    • E.  Title Services  11.13
  • III.  READING DESCRIPTIONS
    • A.  Certainty Requirement  11.14
    • B.  Ambiguity  11.15
    • C.  Acreage Problems  11.16
    • D.  Reference to Government Surveys  11.17
      • 1.  Base and Meridian  11.18
      • 2.  Range and Township  11.19
      • 3.  Section  11.20
      • 4.  Quarters  11.21
    • E.  California Surveying Systems
      • 1.  California Coordinate System of 1927  11.22
      • 2.  Alternative Surveying and Mapping Systems  11.23
    • F.  Subdivision or Parcel Maps  11.24
    • G.  Reference to Other Recorded Instruments  11.25
    • H.  Metes and Bounds Descriptions  11.26
      • 1.  Natural Monuments  11.27
      • 2.  Artificial Monuments  11.28
      • 3.  Adjoining Lands  11.29
      • 4.  Streets and Public Rights-of-Way  11.30
      • 5.  Railroad Rights-of-Way  11.31
      • 6.  Courses and Distances
        • a.  Bearings and Degrees  11.32
        • b.  General Courses  11.33
        • c.  Curves  11.34
        • d.  Use of Symbols and Written Descriptions  11.35
        • e.  Monuments  11.36
        • f.  Measurements  11.37
      • 7.  Quasi Metes and Bounds  11.38
      • 8.  Designation of North  11.39
    • I.  Lot Division Description  11.40
    • J.  General or Common Description  11.41
  • IV.  MATTERS ALTERING OR AFFECTING DESCRIPTIONS
    • A.  Effect on Record Title  11.42
    • B.  Easements
      • 1.  Benefit and Burden  11.43
      • 2.  Rules of Construction and Interpretation  11.44
        • a.  Limitation to Specified Width or Use  11.45
        • b.  Right to the Use of Streets and Alleys Reflected on Subdivision Map  11.46
        • c.  Inclusion of Rights for Utilities  11.47
        • d.  Doctrine of Practical Location and Amendment of Written Descriptions by Actual Location  11.48
        • e.  Interpretation by Language of the Document and Extrinsic Evidence  11.49
        • f.  Accommodation of Future Needs  11.50
        • g.  Exercise of General Grant of Easement in a Particular Course or Manner  11.51
        • h.  Exclusivity of Easements  11.52
      • 3.  Off-Record Easements  11.53
        • a.  Easements by Implication  11.54
        • b.  Easements by Implied Reservation  11.55
        • c.  Easement of Necessity  11.56
        • d.  Easement by Prescription  11.57
      • 4.  Termination of Easements  11.58
        • a.  Termination by Merger  11.59
        • b.  Termination by Destruction of Servient Tenement  11.60
        • c.  Termination by Incompatible Use or Misuse  11.61
        • d.  Termination by Abandonment  11.62
        • e.  Termination by Nonuse of Easements Acquired by Prescription  11.63
        • f.  Termination by Adverse Possession  11.64
      • 5.  Identification of Dominant Tenement  11.65
      • 6.  Change in Burden on Servient Tenement  11.66
      • 7.  Appurtenant or in Gross  11.67
        • a.  Distinguishing Characteristics  11.68
        • b.  Transferability  11.69
      • 8.  Ambiguous Description  11.70
      • 9.  Uncertain Duration  11.71
      • 10.  Failure to Designate as Easement  11.72
      • 11.  Exception or Reservation  11.73
      • 12.  Failure to State All Purposes and Limitations  11.74
      • 13.  Precautions for Buyers  11.75
      • 14.  Precautions for Sellers  11.76
      • 15.  Adverse Possession, Prescription, and Implied Dedication  11.77
    • C.  Doctrines of Agreed Boundaries and of Practical Location
      • 1.  Doctrine of Agreed Boundaries  11.78
      • 2.  Doctrine of Practical Location  11.79
    • D.  Abandonment and Vacation  11.80
    • E.  Effect of Water on Land  11.81
      • 1.  High-Water Mark, Low-Water Mark  11.82
      • 2.  Thread or Middle of Lake or Stream  11.83
      • 3.  Islands  11.84
      • 4.  Formerly Navigable Waters  11.85
      • 5.  Avulsion  11.86
    • F.  Oil and Gas  11.86A
    • G.  Eminent Domain  11.87
    • H.  Merger of Parcels  11.87A
    • I.  Estoppel  11.88
  • V.  ELIMINATING DEFECTS IN DESCRIPTIONS
    • A.  Solutions to Typical Problems
      • 1.  Overlapping Descriptions  11.89
      • 2.  Failure to Close Metes and Bounds Description  11.90
      • 3.  Incomplete, Confusing, or Erroneous Descriptions  11.91
      • 4.  Reservation or Exception in Successive Descriptions  11.92
      • 5.  Fraudulent or Erroneous Surveys  11.93
    • B.  Drafting to Eliminate Defects
      • 1.  Drafting Principles  11.94
        • a.  Avoid Nonessential Language  11.95
        • b.  Avoid Ambiguity  11.96
        • c.  Use Precise Language  11.97
        • d.  Know Statutory Rules of Construction  11.98
      • 2.  Drafting Particular Descriptions  11.99
      • 3.  Form: Description by Reference to Subdivision Map  11.100
      • 4.  Form: Description by Reference to Rectangular Survey Map  11.101
      • 5.  Form: Description by Reference to Deed or Other Instrument  11.102
      • 6.  Description by Metes and Bounds  11.103
    • C.  Easements  11.104
      • 1.  Form: Reservation of Easement in Grantor  11.105
      • 2.  Form: Transfer of Appurtenant Easement  11.106
      • 3.  Form: Creation of Easement  11.107
      • 4.  Release of Easement  11.108
    • D.  Describing Multiple Parcels  11.109
    • E.  Eliminating Water Problems  11.110
    • F.  Contract Provision for Expressing Covenants in Deed  11.111
    • G.  Statutory Remedies
      • 1.  Quiet Title  11.112
      • 2.  Declaratory Relief  11.113
      • 3.  Good Faith Improver  11.114
      • 4.  Marketable Record Title  11.115
      • 5.  Expired Offers of Dedication  11.116
      • 6.  Destroyed Land Records  11.117
      • 7.  Cullen Earthquake Act  11.117A
  • VI.  DESCRIBING PERSONAL PROPERTY  11.118

12

Covenants of Title

Scott A. Sommer

  • I.  INTRODUCTION  12.1
    • A.  The Recording Act  12.2
    • B.  Modern Use of Title Insurance  12.3
  • II.  COVENANTS OF TITLE
    • A.  Contractual Covenants  12.4
    • B.  Implied Covenants in California Statutory Grant Deed (CC §1113)  12.5
    • C.  Covenant of Seisin and Good Title  12.6
    • D.  Covenant Against Encumbrances  12.7
    • E.  Covenant of Right to Convey  12.8
    • F.  Covenants of Quiet Enjoyment and Warranty  12.9
    • G.  Covenant for Further Assurance  12.10
    • H.  Lineal and Collateral Warranties  12.11
    • I.  Form: Warranty Deed Covenants  12.12
  • III.  REMEDIES FOR BREACH OF TITLE COVENANTS
    • A.  What Constitutes Breach
      • 1.  Of Covenant of Seisin and Right to Convey  12.13
      • 2.  Of Covenant Against Encumbrances  12.14
      • 3.  Of Covenant of Quiet Enjoyment  12.15
      • 4.  Of Covenant for Further Assurance  12.16
      • 5.  Of Covenant of Warranty  12.17
    • B.  Damages  12.18
    • C.  Parties
      • 1.  Who May Claim  12.19
      • 2.  Parties Liable  12.20
    • D.  Table: Statutes of Limitations  12.21
  • IV.  AVOIDING EFFECT OF TITLE COVENANTS
    • A.  Quitclaim Deed  12.22
    • B.  “Restrained” Grant Deed  12.23

13

Property Insurance

Timothy R. Sullivan

  • I.  SCOPE OF CHAPTER; ATTORNEY’S ROLE  13.1
  • II.  LOSS BEFORE TRANSFER OF TITLE: IS THE BUYER OR THE SELLER “ON THE RISK”?  13.2
    • A.  Liability Absent an Agreement: Uniform Vendor and Purchaser Risk Act (CC §1662)  13.3
    • B.  Material Loss Under CC §1662(a)
      • 1.  Law in Absence of Agreement  13.4
      • 2.  Form: Definition of “Material Loss”  13.5
    • C.  Who Bears Risk of Nonmaterial Loss Under CC §1662(a)
      • 1.  Law in Absence of Agreement  13.6
      • 2.  Form: Risk of Nonmaterial Loss  13.7
    • D.  Buyer’s Assumption of Risk or Agreement to Insure
      • 1.  Buyer’s Possession Before Transfer of Title  13.8
      • 2.  Form: Buyer’s Assumption of Risk  13.9
      • 3.  Form: Seller’s Assumption of Risk  13.10
      • 4.  Effect of Buyer’s Agreement to Insure  13.11
      • 5.  Negotiating Buyer’s Agreement to Insure  13.12
    • E.  Form: Code Governs Except as Expressly Agreed  13.13
    • F.  Effect of Material Loss After Breach by Buyer  13.14
  • III.  PERSONS WHO CAN INSURE THEIR INTEREST IN PROPERTY  13.15
    • A.  Insurable Interest  13.16
    • B.  Legal Title Is Not Required for an “Insurable Interest”  13.17
      • 1.  Buyer  13.18
      • 2.  Seller  13.19
      • 3.  Lessee  13.20
      • 4.  Mortgagee  13.21
      • 5.  Remainderman  13.22
    • C.  Insurable Interest Must Exist Both When the Policy Is Purchased and When the Loss Occurs  13.23
    • D.  Separate Interests Must Be Insured Separately  13.24
    • E.  Transfer of Seller’s Insurance to the Buyer  13.25
    • F.  Reformation  13.26
  • IV.  INSURING LENDERS AND MORTGAGEES
    • A.  Protecting Secured Lenders  13.27
    • B.  Loss Payable Clauses  13.28
      • 1.  Simple Loss Payable Clause  13.29
      • 2.  Standard Loss Payable Clause  13.30
    • C.  Effect of Insured’s Fraud  13.31
    • D.  Credit Bids and Full Credit Bids
      • 1.  Full Credit Bid Rule  13.32
      • 2.  Credit Bid Rule  13.33
  • V.  COMMON TYPES OF PROPERTY INSURANCE
    • A.  Noncommercial Property  13.34
      • 1.  Fire  13.35
      • 2.  Homeowners  13.36
      • 3.  Dwellings  13.37
      • 4.  Condominium Owners  13.38
    • B.  Commercial Property
      • 1.  Building and Personal Property  13.39
      • 2.  Businessowners Special Property  13.40
      • 3.  Boiler and Machinery  13.41
      • 4.  Theft, Disappearance, and Dishonesty  13.42
      • 5.  Robbery and Safe Burglary  13.43
      • 6.  Premises Burglary  13.44
    • C.  Builders’ Risk  13.45
    • D.  Pollution  13.46
    • E.  Earthquake Coverage  13.47
    • F.  Flood Insurance  13.48
    • G.  Ancillary Coverages for Commercial Risks  13.49
      • 1.  Business Interruption Coverage  13.50
      • 2.  Other Ancillary Coverages  13.51
  • VI.  HOW DO PROPERTY COVERAGES WORK?
    • A.  “Covered Property” Versus “Property Not Covered”  13.52
    • B.  Covered Causes of Loss  13.53
    • C.  Direct Physical Loss  13.54
    • D.  Exclusions  13.55
      • 1.  Exceptions  13.56
      • 2.  Burden of Proof on Insurer  13.57
    • E.  When a Loss Occurs  13.58
      • 1.  Episodic Loss  13.59
      • 2.  Continuous or Progressive Loss  13.60
        • a.  Manifestation Rule  13.61
        • b.  Fortuity  13.62
          • (1)  Requirement of Insured’s Knowledge  13.63
          • (2)  Inevitability Is Not Sole Test of Fortuity  13.64
        • c.  “Loss in Progress” Doctrine  13.65
          • (1)  Importance of Type of Insurance Policy  13.66
          • (2)  Impact of Initial Manifestation on Insurers’ Liability  13.67
      • 3.  Concurrent Causation and Efficient Proximate Cause  13.68
  • VII.  COMMON EXCLUSIONS  13.69
    • A.  Exclusions From Special Form (CP 10 30 10 12)  13.70
    • B.  Exclusions From Special Form (CP 10 30 10 12) and Broad Form (CP 10 20 10 12)  13.71
    • C.  Implied Statutory Exclusion for Willful Acts of “the Insured”  13.72
  • VIII.  WHAT TO DO WHEN A LOSS OCCURS: CONDITIONS
    • A.  Notice to Insurance Company  13.73
    • B.  Proof of Loss  13.74
    • C.  Insured’s Duty of Cooperation  13.75
    • D.  Insurer’s Duty to Produce “Claim-Related Documents”  13.76
    • E.  Examination Under Oath  13.77
    • F.  Compliance With Statute of Limitations
      • 1.  1-Year Limitations Period  13.78
      • 2.  Inception of the Loss  13.79
      • 3.  Accrual of Cause of Action for Failure to Obtain Insurance  13.80
    • G.  Insurer’s Duty to Notify Insured of Time Limitations  13.81
    • H.  Tolling  13.82
    • I.  Action “on the Policy”  13.83
    • J.  Arbitration or Appraisal  13.84
    • K.  California Residential Property Insurance Bill of Rights  13.85
  • IX.  HOW IS THE LIABILITY CALCULATED: MEASURE OF INDEMNITY  13.86
    • A.  Policy Limits
      • 1.  Amount of Coverage  13.87
        • a.  Commercial Policies  13.88
        • b.  Residential Policies  13.89
      • 2.  “Open” Versus “Valued” Policies  13.90
    • B.  Measure of Indemnity
      • 1.  Actual Cash Value  13.91
      • 2.  Replacement Cost Value  13.92
        • a.  Requirements for an Insurer’s Replacement Cost Estimate  13.92A
        • b.  Time Limits for Repair or Replacement—Commercial Property  13.93
        • c.  Procedure for Obtaining Replacement Cost  13.93A
        • d.  Time Limits for Replacement—Residential Property  13.94
      • 3.  Replacement Cost
        • a.  Basic Limited Replacement Cost  13.95
        • b.  Guaranteed Replacement Cost  13.96
        • c.  Extended Replacement Cost  13.97
    • C.  Inflation Guard  13.98
    • D.  Code-Mandated Repairs  13.99
      • 1.  Standard Form Fire Policy   13.99A
      • 2.  Ordinance or Law Exclusion  13.99B
        • a.  Authority That the Insurer Is Not Obligated to Pay  13.100
        • b.  Authority That the Insurer Is Obligated to Pay  13.101
        • c.  Insured’s Arguments for Requiring Insured to Pay  13.102
      • 3.  Insured’s Statutory Disclosure Requirements  13.103
      • 4.  Coverage Provisions in Recent ISO Commercial Property Building and Personal Property Coverage Forms  13.104
      • 5.  Optional Ordinance Or Law Endorsement  13.105
    • E.  Deductibles  13.106
    • F.  Coinsurance Clauses  13.107
    • G.  Value Reporting Clauses Regarding Inventory  13.108
  • X.  CLAIMS AGAINST THE INSURER  13.109
    • A.  Common Law Bad Faith  13.110
      • 1.  Subjective Versus Objective Bad Faith  13.111
      • 2.  Unreasonable Failure to Investigate/Unreasonable Delay in Providing Coverage  13.112
      • 3.  Damages for Bad Faith
        • a.  Damages Generally  13.113
        • b.  Emotional Distress  13.114
        • c.  Attorney Fees and Costs
          • (1)  Brandt Fees  13.115
          • (2)  Apportioning Fees Under Contingency Fee Agreements  13.116
          • (3)  Burden of Proof for Apportionment of Fees  13.117
        • d.  Consequential Economic Loss  13.118
        • e.  Punitive Damages
          • (1)  Clear and Convincing Evidentiary Standard  13.119
          • (2)  Applicability of “Clear and Convincing” Standard to Motions  13.120
          • (3)  Corporate Entities May Be Held Liable for Punitive Damages Based on the Acts or Omissions of a “Managing Agent”
            • (a)  Degree of Discretion Determines if Acting in Managerial Capacity  13.121
            • (b)  Managing Agent Under CC §3294  13.122
          • (4)  Requirement of Proof of Insurer’s Financial Condition  13.123
          • (5)  Guideposts for Constitutionality of Punitive Damages  13.124
          • (6)  Aggregate Disgorgement of Profits Theory Prohibited  13.125
          • (7)  Defendant’s “Ability to Pay”  13.126
    • B.  Defenses to Bad Faith Claims
      • 1.  Duty of Good Faith Is Mutual; No Cause of Action for “Reverse Bad Faith”  13.127
      • 2.  Genuine Dispute Doctrine  13.128
      • 3.  Advice of Counsel  13.129
      • 4.  No Cause of Action for Breach of Fiduciary Duty  13.130
    • C.  Other Common Law Tort Theories  13.131
  • XI.  STATUTORY CAUSES OF ACTION AGAINST INSURER
    • A.  Unfair Competition Claims Under Bus & P C §17200  13.132
      • 1.  Section 17200 Cause of Action  13.133
      • 2.  Standing Requirements  13.134
    • B.  Other Statutory Violations  13.135
  • XII.  EMERGING ISSUES REGARDING PROPERTY INSURANCE  13.136
    • A.  “Green Insurance”  13.137
      • 1.  “Green” Homeowners Insurance  13.138
      • 2.  ISO Commercial Property Green Endorsements  13.139
      • 3.  Potential Coverage Issues  13.140
    • B.  Chinese Drywall  13.141
    • C.  Terrorism  13.142
    • D.  Mold  13.143
    • E.  Sick-Building Syndrome  13.144

14

Liability Insurance: Selected Issues Pertinent to Sales

Timothy R. Sullivan

  • I.  INTRODUCTION
    • A.  Chapter Scope; Selecting Insurance Products  14.1
    • B.  ISO Forms Versus Manuscript Policies  14.2
    • C.  Types of Liability Insurance Pertinent to Real Property Sales
      • 1.  Commercial General Liability  14.3
      • 2.  Businessowners Liability  14.4
      • 3.  Owners and Contractors Protective  14.5
      • 4.  Architects and Engineers Professional Liability  14.6
      • 5.  Contractors Professional Liability  14.7
      • 6.  Real Estate Agent’s Errors and Omissions  14.8
      • 7.  Representations and Warranties Insurance  14.9
      • 8.  Homeowners  14.10
    • D.  Issues Arising Under Various Policies  14.11
  • II.  SPECIAL ISSUES: OCCURRENCE; CLAIMS MADE; AND CLAIMS MADE AND REPORTED POLICIES
    • A.  Occurrence Policies  14.12
    • B.  “Claims Made” Policies  14.13
    • C.  “Claims Made and Reported” Policies  14.14
    • D.  What Is a “Claim”?  14.14A
    • E.  Extended Reporting Period  14.15
    • F.  Retroactive Date  14.16
  • III.  SPECIAL ISSUES: COMMERCIAL GENERAL LIABILITY  14.17
    • A.  “Occurrence” or “Accident”  14.18
      • 1.  “Accidental” and “Negligent” Not Synonymous  14.19
        • a.  Examples of “Accidental” Conduct  14.20
        • b.  Examples of Non-“Accidental” Conduct  14.21
      • 2.  Failure to Disclose; Misrepresentations Upon Sale  14.22
      • 3.  Latent Defects  14.23
      • 4.  Negligent Construction; Negligent Design  14.24
    • B.  Property Damage; Defective or Faulty Materials  14.25
      • 1.  Damages  14.25A
      • 2.  Physical Injury to Other Property  14.26
      • 3.  No Physical Injury to Other Property  14.27
    • C.  Bodily Injury  14.28
      • 1.  Emotional Distress Without Physical Injury  14.29
      • 2.  Emotional Distress With Physical Injury  14.30
    • D.  Insured Parties  14.31
      • 1.  Named Insured; Additional Insured Distinguished  14.32
        • a.  Fictitious Names  14.33
        • b.  Partnerships  14.34
        • c.  “The Insured,” “An Insured,” or “Any Insured”  14.35
      • 2.  Additional Named Insureds  14.36
      • 3.  Additional Insureds  14.37
        • a.  Sole Negligence  14.38
        • b.  Does Duty to Defend Extend to Entire Action?  14.39
        • c.  Statutory Limits on Indemnity Provisions  14.40
          • (1)  Which Section Applies?  14.40A
          • (2)  Which Version Applies?  14.40B
          • (3)  2011 Statutory Restrictions on Indemnity Agreements  14.40C
          • (4)  Contract Provisions Requiring a Subcontractor to Procure Insurance for a Builder  14.40D
        • d.  Certificate of Insurance  14.41
        • e.  ISO Additional Insured Endorsements; Exclusions  14.42
          • (1)  “Arising Out of” Versus “Caused, in Whole or in Part, by”  14.43
          • (2)  “Ongoing Operations”  14.44
          • (3)  “Acts or Omissions”  14.45
          • (4)  Blanket Additional-Insured Endorsements  14.45A
          • (5)  The Former CG 20 09 Additional-Insured Endorsement  14.45B
          • (6)  Completed Operations Coverage for Additional Insureds  14.45C
          • (7)  Three Major Changes in ISO Additional Insured Endorsements for 2013  14.45D
            • (a)  Coverage Is Provided “Only to the Extent Permitted by Law”  14.45E
            • (b)  Coverage Provided Is “Not Broader Than” the Coverage Required by the Indemnity Contract  14.45F
            • (c)  Coverage Is Provided for No More Than the Amount Required by Contract or the Policy Limits, “Whichever Is Less”  14.45G
          • (8)  Primary and Noncontributory Endorsement  14.45H
        • f.  Manuscript Additional Insured Endorsements  14.46
    • E.  Effect of Stated Policy Period on Coverage  14.47
      • 1.  Continuous or Progressive Loss  14.48
      • 2.  Examples of Continuous and Progressive Damage  14.49
      • 3.  “Known Injury or Damage” (or “Anti-Montrose”) Provisions in Post-1998 ISO CGL Policies  14.49A
        • a.  ISO Policy Changes After Montrose II  14.49B
        • b.  Other Anti-Montrose II Provisions  14.49C
      • 4.  Number of Occurrences  14.49D
      • 5.  After-Acquired Property  14.50
    • F.  Liability Assumed by the Insured  14.51
    • G.  Duty to Defend  14.52
      • 1.  Broader Than Duty to Indemnify  14.53
      • 2.  Extends to Entire Claim  14.54
      • 3.  Extrinsic Evidence May Support Duty to Defend  14.55
      • 4.  Reimbursement of Defense Costs  14.56
    • H.  Products or Completed Operations Hazard  14.57
    • I.  Property Damage Exclusions  14.58
      • 1.  Property the Insured Owns, Rents, or Occupies  14.59
      • 2.  Alienated Premises  14.60
      • 3.  Property Loaned to Insured  14.61
      • 4.  Property Damage to Personal Property in Care, Custody, or Control of the Insured  14.62
      • 5.  Work Performed  14.63
      • 6.  Faulty Workmanship
        • a.  No Coverage for Defective Building Parts Caused by Work Incorrectly Performed  14.64
        • b.  Damage to Building Caused by Removal of Defective Materials and Faulty Workmanship Distinguished  14.65
      • 7.  Product Exclusion: Damage to Your Product  14.66
      • 8.  Work Completed Exclusion: Damage to Your Work  14.67
      • 9.  Damage to “Impaired Property”  14.68
    • J.  The “Pollution Exclusion”  14.68A
    • K.  Contractors Warranty Endorsements  14.68B
    • L.  Personal and Advertising Injury
      • 1.  Insuring Language  14.69
      • 2.  Exclusions  14.70
  • IV.  SPECIAL ISSUES: BUSINESSOWNERS LIABILITY  14.71
  • V.  SPECIAL ISSUES: REAL ESTATE AGENTS’ ERRORS AND OMISSIONS LIABILITY POLICY  14.72
    • A.  Claims Made  14.73
    • B.  Representative Insuring Clause  14.74
    • C.  Exclusions  14.75
  • VI.  SPECIAL ISSUES: REPRESENTATIONS AND WARRANTIES INSURANCE  14.76
    • A.  Representative Insuring Language  14.77
    • B.  Claims Made  14.78
    • C.  Exclusions  14.79
  • VII.  SPECIAL ISSUES: HOMEOWNERS LIABILITY
    • A.  Insuring Language  14.80
    • B.  Exclusions  14.81
      • 1.  Business  14.82
      • 2.  Professional Services  14.83
      • 3.  Noninsured Location  14.84
      • 4.  Arising Out of the Sale  14.85

15

Escrow and Closing the Sale

Peter Brian Bothel

Laura S. Lowe

  • I.  WHAT IS AN ESCROW?
    • A.  Definition  15.1
      • 1.  Who Can Be an Escrow Holder?  15.2
      • 2.  Who Regulates Escrow?  15.3
        • a.  Independent Escrow Companies  15.4
        • b.  Internet Escrow Agents  15.5
        • c.  Parties Exempt From Escrow Law  15.6
    • B.  How Is an Escrow Created?  15.7
    • C.  Northern California Versus Southern California Distinctions  15.8
  • II.  PARTIES TO ESCROW  15.9
    • A.  Escrow Officers  15.10
    • B.  Buyers and Sellers  15.11
    • C.  Attorneys  15.12
    • D.  Lenders  15.13
    • E.  Brokers  15.14
    • F.  Title Insurer  15.15
  • III.  FUNCTIONS OF ESCROW HOLDER
    • A.  Generally  15.16
    • B.  Residential and Commercial Transactions  15.17
  • IV.  ESCROW HOLDER’S DUTIES
    • A.  Limited Agency  15.18
    • B.  Fiduciary Responsibilities  15.19
    • C.  Disclosures to Parties  15.20
    • D.  Duty to Disclose Fraud  15.21
  • V.  LIABILITY OF ESCROW HOLDER
    • A.  Liability to Parties to Escrow  15.22
    • B.  Liability to Nonparties  15.23
    • C.  Accommodation Recordings  15.24
    • D.  Escheat  15.25
  • VI.  DEPOSIT INTO ESCROW AND ITS CONSEQUENCES
    • A.  Conditional Delivery  15.26
    • B.  Effect on Title and Possession
      • 1.  Before Conditions Are Satisfied  15.27
      • 2.  After Conditions Are Satisfied  15.28
      • 3.  Waiver of Conditions  15.29
  • VII.  THIRD PARTY DEMANDS  15.30
  • VIII.  ESCROW INSTRUCTIONS
    • A.  General Provisions  15.31
    • B.  California Association of Realtors® Contract  15.32
    • C.  Preparation of Escrow Instructions  15.33
      • 1.  Property Description  15.34
      • 2.  Deposit of Funds
        • a.  Good Funds Law  15.35
        • b.  Right of Escrow Holder to Commingle Funds  15.36
        • c.  Interest on Deposits  15.37
      • 3.  Drafting Documents  15.38
      • 4.  Leases and Intangibles  15.39
      • 5.  Title Insurance  15.40
      • 6.  Executing and Delivering Documents  15.41
      • 7.  Closing; Closing Costs  15.42
      • 8.  Prorations  15.43
        • a.  Real Property Taxes and Assessments  15.44
        • b.  Insurance Premiums  15.45
        • c.  Rent  15.46
      • 9.  Recordation; Priority  15.47
  • IX.  SUPPLEMENTAL ESCROW INSTRUCTIONS  15.48
    • A.  Buyer’s Supplemental Escrow Instructions  15.49
      • 1.  Form: Introduction  15.50
      • 2.  Form: Deposits by Buyer  15.51
      • 3.  Form: Conditions Precedent to Close of Escrow  15.52
      • 4.  Form: Title Insurance Requirements  15.53
      • 5.  Form: Estimated Closing Statement  15.54
      • 6.  Form: Procedure for Closing  15.55
      • 7.  Form: Time for Closing Escrow; Investment of Funds  15.56
      • 8.  Form: Prorations  15.57
      • 9.  Form: Authorized Disbursements; Costs  15.58
      • 10.  Form: Right to Withdraw Documents or Funds  15.59
      • 11.  Form: Document Approval  15.60
      • 12.  Form: Acknowledgment by Escrow Holder  15.61
    • B.  Seller’s Supplemental Escrow Instructions  15.62
      • 1.  Form: Introduction  15.63
      • 2.  Form: Deposits by Seller  15.64
      • 3.  Form: Conditions Precedent to Close of Escrow  15.65
      • 4.  Form: Procedure for Closing  15.66
      • 5.  Form: Time for Closing Escrow  15.67
      • 6.  Form: Prorations; Costs  15.68
      • 7.  Form: Authorized Disbursements; Costs  15.69
      • 8.  Form: Payment of Broker’s Commission  15.70
      • 9.  Form: Right to Withdraw Documents or Funds  15.71
      • 10.  Form: Document Approval  15.72
      • 11.  Form: Acknowledgment by Escrow Holder  15.73
    • C.  Lender’s Instructions  15.74
  • X.  TAX ISSUES
    • A.  California Withholding
      • 1.  Withholding Requirements  15.75
      • 2.  Individual Exemptions to Withholding Requirements  15.76
      • 3.  Nonindividual Exemptions to Withholding Requirements  15.77
      • 4.  No Waiver for Individuals  15.78
      • 5.  Buyer’s Obligations; Penalties  15.79
    • B.  FIRPTA
      • 1.  Withholding Requirements  15.80
      • 2.  Exemptions to Withholding Requirements  15.81
      • 3.  Form: Certification of Nonforeign Status by Corporation, Partnership, Trust or Estate  15.82
      • 4.  Withholding Certificate  15.83
      • 5.  Buyer’s Obligations; Penalties  15.84
  • XI.  CLOSING THE DEAL
    • A.  Why Record?  15.85
    • B.  Effect of Recording  15.86
    • C.  Defects or Exceptions to Constructive Notice  15.87
    • D.  Procedures for Recording
      • 1.  Form of Instrument  15.88
      • 2.  Acknowledgments  15.89
      • 3.  Place of Recording  15.90
      • 4.  Recorder’s Procedure  15.91
      • 5.  Timing of Recording  15.92
    • E.  Processing Documents; Disbursing Funds  15.93
    • F.  Real Estate Commissions  15.94
    • G.  Real Estate Settlement Procedures Act (RESPA) and TILA-RESPA Integrated Disclosures (TRID)  15.95
    • H.  Holdbacks  15.96
  • XII.  FAILED TRANSACTIONS
    • A.  Cancellation of Escrow  15.97
    • B.  Interpleader  15.98
  • XIII.  PRELIMINARY CHANGE OF OWNERSHIP REPORT  15.99

About the Authors of the Fourth Edition

RANDALL I. BARKAN, co-author of chapter 2, is the President of Realdispute Consulting & Expert Witness Services in Pacific Grove. Mr. Barkan received his A.B. from Harvard and his J.D. from the University of California, Berkeley, School of Law. He has had an extensive career as a business and real estate litigator, as an executive and corporate counsel in the commercial real estate industry (Coldwell Banker Commercial Group, Marcus & Millichap, and TRI Commercial Real Estate Services), and as an expert witness. He is a licensed California real estate broker and was the designated broker for over 250 sales agents in nine California offices. Mr. Barkan is a former Vice-Chair and Executive Committee member of the State Bar Real Property Law Section, and has been a panelist at numerous State Bar, CEB, and ABA programs on real estate, corporate counsel, and litigation issues.

JEFFREY H. BELOTE, co-author of chapter 2, is a partner of Carroll, Burdick & McDonough LLP, San Francisco, where he is the Co-Chair of the Real Estate and Construction Litigation Practice Group. He received his J.D. from the University of San Francisco School of Law and his B.A. from the University of Colorado at Boulder. Mr. Belote prosecutes and defends actions in commercial and real estate litigation and has successfully litigated, settled, and when necessary arbitrated and tried multiparty and complex litigation cases. Mr. Belote lectured for several years in Real Estate Law and Real Estate Concepts in the Masters Program at Golden Gate University, and guest lectured in banking law in the Masters Program. Mr. Belote has been a speaker for CEB, the National Business Institute, and California Land Title Association. He is co-author of Advanced Real Estate Law in California (1991), Easement and Boundary Disputes in California (1992), and Keys to Success in a Real Estate Transaction in California (1993). He was an editorial contributor for James Publishing in 1999 for its book entitled California Causes of Action.

PETER BRIAN BOTHEL, co-author of chapter 15, practices with the firm of Cassidy, Shimko, Dawson & Kawakami, San Francisco. His practice emphasizes real property acquisitions and financing, commercial leasing, and other real estate transactions. He was previously a partner in his own firm, where his practice emphasized real estate transactions and litigation, including title, title insurance coverage and escrow, foreclosures, easements, and real estate broker litigation. Mr. Bothel received his J.D. from Duke University School of Law in 1977 and his B.A. from Wheaton College in 1974.

TIMOTHY N. BROWN, author of chapter 5 and the co-author of chapter 4, retired from the San Francisco office of Reed Smith LLP. Mr. Brown practiced in the areas of real estate and environmental law, including the development of office and industrial properties and related land use entitlement matters; the acquisition and disposition of major real estate projects; lease transactions involving a wide variety of office, industrial, and retail properties; real estate finance matters representing lenders, borrowers, and institutional equity investors; and hazardous materials issues in connection with property sales, acquisitions, loans, and leases. Mr. Brown is a member of the American College of Real Estate Lawyers (ACREL), for which he has chaired the Land Use Committee and the Urban Land Institute. Before his retirement he was active in the Real Property, Probate and Trust Law (RPPTL) Section of the American Bar Association, for which he chaired two committees. He is a frequent speaker at programs sponsored by ACREL, the RPPTL Section, and CEB. He received his A.B. from Harvard College in 1964 and his LL.B from Harvard Law School in 1967.

GORDON K. ENG, co-author of chapters 4 and 8, is a shareholder with the firm of Brown Winfield Canzoneri Abram Inc., Los Angeles, where his practice emphasizes real estate acquisition, financing, and development. Mr. Eng is a past member of the Executive Committee of the Real Property Law Section of the State Bar of California and a member of the Financial Institutions Committee of the Business Law Section of the State Bar of California. Mr. Eng was also a member of the Board of Directors of Habitat for Humanity’s Greater Los Angeles affiliate. Mr. Eng received his J.D. from Fordham Law School in 1982 and his B.A. from Queens College in 1979.

SHERRY L. GEYER, co-author of chapter 4, is a Vice President at First Republic Bank. She was formerly counsel at Reed Smith LLP in San Francisco, where her practice focused on real estate and real estate finance. She represented clients in real estate acquisitions and dispositions, leasing, public and private development, and financing transactions. Ms. Geyer received her J.D. from Loyola Law School in 1988 and her B.A. from the University of California, Los Angeles, in 1971.

THEANI C. LOUSKOS, author of chapter 1, is a principal with the firm of Bartko, Zankel, Tarrant & Miller, San Francisco. She specializes in commercial real estate transactions, including the purchase and sale, financing, and leasing of office and retail properties. Ms. Louskos has handled major real estate acquisitions and sales on behalf of developers and REITs. She is a frequent speaker on real estate topics. Ms. Louskos received her J.D. from the University of California, Berkeley, School of Law in 1980.

LAURA S. LOWE, co-author of chapter 15, is underwriting counsel with Old Republic Title Company, San Francisco, and was formerly counsel with Miller, Starr, Regalia, Walnut Creek, and the West Region Agency Counsel for LandAmerica Financial Group, Inc. Ms. Lowe was in-house counsel for the title insurance industry from 1998 to 2008. Before that, she worked as a litigation attorney for various firms in the Bay Area. She is a member and past chair of the California Land Title Association’s (CLTA) Education Committee. Ms. Lowe has presented programs for CEB, the Real Property Section of the State Bar of California, the National Business Institute, and the CLTA, and has provided classes to various real estate companies, mortgage loan brokerages, and local real estate organizations. She is the co-author of two chapters in California Easements and Boundaries: Law and Litigation (Cal CEB 2008). Ms. Lowe graduated from the University of San Francisco School of Law in 1982 and received her B.S. in 1974 from Ohio State University.

PETER S. MUÑOZ, co-author of chapter 9, is a partner with Reed Smith, LLP in San Francisco. Mr. Muñoz’s clients consist of a mix of large, mid-size, and small banks, savings and loan companies, equipment leasing companies, mortgage companies, and private real estate and commercial financing entities. He generally represents creditors and lenders and equipment lessors in the documentation of complex credit transactions and in the restructuring and enforcement of such transactions both inside and outside the bankruptcy courts. Occasionally, he represents guarantors or borrowers in such transactions. He specializes in all forms of commercial and real estate finance transactions, asset-based loans, intellectual property financing, and agricultural lending. Mr. Muñoz writes and lectures extensively on issues of real and personal property lending and foreclosure, and a variety of UCC matters. He is the author of California Real Estate Finance Practice: Strategies and Forms, chap 7 (Cal CEB 2000), and he was a contributing editor to California Mortgage and Deed of Trust Practice (3d ed Cal CEB 2000). Mr. Muñoz is a member of the California Bankers Association Legal Affairs Committee and a member of the American College of Commercial Finance Lawyers. He received his J.D. from the University of California, Berkeley, School of Law and his B.A. and M.A. from the University of California, Berkeley.

HOWARD L. PEARLMAN, author of chapter 6, has practiced real estate law for 30 years. After 24 years as a principal at Bartko, Zankel, Tarrant & Miller, San Francisco, his practice now focuses on real estate consulting, expert witness services, and arbitration. Mr. Pearlman is an active member of the National Roster of Arbitrators of the American Arbitration Association. He has litigated, arbitrated, and mediated a wide range of matters involving purchase and sale transactions, nondisclosure and fraud claims, broker liability, construction contracts and defects, commercial leases, common interest developments, and adjoining landowner disputes. Mr. Pearlman also counsels clients on environmental aspects of real property transactions and has represented clients in environmental litigation and regulatory matters. He is a contributing author of California Basic Practice Handbook (Cal CEB) and Ground Lease Practice (2d ed Cal CEB 2009). He received his J.D., cum laude, from the University of California, Hastings College of the Law, and his B.A. from Reed College.

SCOTT A. SOMMER, author of chapters 10, 11, and 12, Law Office of Scott A. Sommer Professional Corporation, is Of Counsel to Larson O’Brien LLP, Los Angeles. His practice involves complex real property matters, including environmental law, land use, and land title issues. Mr. Sommer has been a frequent speaker at continuing legal education courses sponsored by CEB, and is a past co-author of Miller & Starr, California Real Estate (3d ed 2002). He received his J.D. from the University of California, Hastings College of the Law, and his B.A. from the University of California, Santa Barbara.

STEVE STWORA-HAIL, co-author of chapter 3, is a partner and chairs the Real Property Group at Downey Brand LLP, Sacramento. His transactional practice emphasizes leasing, acquisitions, financing, development, and land use. He is a past Chair of the Real Property Section of the State Bar of California, a past member of the Governing Committee of CEB, and has written, edited, and presented for CEB and the Real Property Law Section of the State Bar. Mr. Stwora-Hail received his B.A. from the University of Chicago and his J.D. from Santa Clara University.

TIMOTHY R. SULLIVAN, author of chapters 13 and 14, is a partner in the Fresno office of McCormick Barstow LLP, and serves as the Chair of the firm’s Insurance Coverage and Bad Faith Litigation Practice Group. Mr. Sullivan represents both insurers and insureds in a variety of insurance-related matters, including bad faith and declaratory relief actions. He is the Consulting Editor and co-author of Property Insurance: Law and Litigation (Cal CEB 2011), as well as co-author of California Real Estate Brokers: Law and Litigation (Cal CEB 2009); California Construction Contracts, Defects, and Litigation (Cal CEB 2008); California Title Insurance Practice (2d ed Cal CEB 1997); and Office Leasing: Drafting and Negotiating the Lease (Cal CEB 1996). Mr. Sullivan has been selected as a “Super Lawyer” in Insurance Coverage each year since 2008. He was the 2011 President of the Fresno County Bar Association, and is an Associate in the American Board of Trial Advocates, and a member of the Claims & Litigation Management Alliance. He received his J.D. and B.A. from the University of Missouri–Columbia.

WILLIAM D. WICK, co-author of chapter 7, is a partner with Wactor & Wick LLP, Oakland. Mr. Wick’s practice is devoted exclusively to environmental counseling and litigation, with a focus on hazardous site cleanup matters. He counsels and defends clients in real estate, regulatory, and enforcement matters, and serves as an expert witness on the law relating to hazardous site cleanup. He is rated “AV-Preeminent” (highest rating) by Martindale-Hubble; he has been consistently selected by other lawyers as a “Northern California Super Lawyer” in Environmental Law by Law & Politics and listed as one of “The Best Lawyers in America.” He is an advisor and former member of the Executive Committee of the Environmental Section of the State Bar of California, and is former Chair of the Environmental Section of the Bar Association of San Francisco. Before entering private practice, Mr. Wick served for 13 years as an attorney with the U.S. Environmental Protection Agency, where he was responsible for enforcement under all major federal statutes. He was the Chief of the Hazardous Waste Branch of the Office of Regional Counsel for Region IX for 6 years, supervising 30 attorneys responsible for hazardous site cases in Arizona, Nevada, California, Hawaii, and the Trust Territories. Mr. Wick was an Adjunct Professor at Golden Gate University School of Law, where he taught environmental law from 1981 to 1991. He is a frequent speaker and writer on environmental law topics, and has been a regular contributor to “The Practitioner” column on environmental law in the San Francisco Daily Journal and Los Angeles Daily Journal. Mr. Wick received his B.A. from Northwestern University in 1971 and his J.D. from Georgetown University Law Center in 1974.

About the 2018 Update Authors

MARK CARLSON, update co-author of chapter 2, is the founder of the Carlson Law Group, Inc. in Woodland Hills. Mr. Carlson handles real estate litigation and civil matters. He has represented major developers, appraisers, loan brokers, escrow companies, contractors, and other real estate professionals in a wide range of matters. Mr. Carlson has represented major land owners in premises liability cases and nationally known companies in complex multijurisdictional federal litigation. He has significant trial experience in both state and federal courts. Mr. Carlson received his B.A. degree from California Lutheran University and his J.D. from Southwestern University School of Law.

JOANNE L. DUNEC, update co-author of chapter 15, is Vice President, Underwriting Counsel with Old Republic Title Company, San Francisco. Before joining ORTC, she was a shareholder with Miller Starr Regalia, where she specialized in real property transactions and land use regulation and development, with a particular emphasis on public/private partnership transactions. Her work with developers and governmental entities includes adaptive reuse of underperforming assets, mixed-use development, military base reuse, and rehabilitation and preservation of historic properties. She is a frequent speaker and serves as an annual panelist and moderator of the Real Property Law Practice: Year in Review for CEB. Ms. Dunec was an advisor to CEB for California Easements and Boundaries: Law and Litigation (Cal CEB 2008) and for Ground Lease Practice (2d ed Cal CEB 2009). She received her J.D. from the University of California, Hastings College of the Law, in 1990 and her B.S. from the University of Arizona in 1977.

NEIL R. GUNNY, update co-author of chapter 2, is Senior Counsel with Klinedinst, PC, Los Angeles. Mr. Gunny is a successful litigator and has focused his practice exclusively on the defense of real estate professionals, accountants, corporate directors, and nonprofit corporations over the last 20 years. He is a member of the American Board of Trial Advocates (ABOTA) and has been regularly listed among Southern California Super Lawyers in the areas of real estate and civil litigation defense since 2005. Mr. Gunny received his J.D. from the University of Santa Clara in 1977 and his B.A. from the University of California, Los Angeles, in 1973.

LAURA S. LOWE, update co-author of chapter 15, is currently underwriting counsel with Old Republic Title Company, San Francisco; see biography in the About the Authors section of this book.

JOSE A. MENDOZA, update co-author of chapter 2, is a senior attorney at the Carlson Law Group in Woodland Hills. He has focused his practice on residential and commercial real estate transactions and litigation, and represents clients in construction defects, professional liability defense, commission disputes, and business litigation. Mr. Mendoza was formerly in-house counsel with Coldwell Banker and served as Judge Pro Tem at the Los Angeles Superior Court. He is a member of the California Association of Realtors’ Legal Affairs Forum and is an Advisor with the California State Bar’s Executive Committee for the Real Property Law Section. He received his J.D. from Loyola Law School in 1996 and his B.A. in Political Science from the University of California, Los Angeles.

HOWARD L. PEARLMAN is the update author of chapter 6; see biography in the About the Authors section of this book.

SCOTT A. SOMMER is the update author of chapters 10, 11, and 12; see biography in the About the Authors section of this book.

TIMOTHY R. SULLIVAN is the update author of chapters 13 and 14; see biography in the About the Authors section of this book.

WILLIAM D. WICK is the update author of chapter 7; see biography in the About the Authors section of this book.

MARY E. WORK, update co-author of chapter 2, is in private practice in Manhattan Beach. She focuses her practice on advising and representing real estate professionals who face licensing and regulatory problems. She is a member of the California Association of Realtors (CAR) Legal Affairs Forum. Ms. Work is a frequent speaker and panel member on numerous occasions for the State Bar of California Real Property Section, the CAR Legal Affairs Forum, and various local boards of realtors. Ms. Work is also a co-author of two chapters in California Real Estate Brokers: Law and Litigation (Cal CEB) (chapters 8 and 9). She received her J.D. from Southwestern University School of Law and her B.A. from Loyola Marymount University.

Selected Developments

February 2019 Update

Transfers between domestic partners. Effective September 29, 2018, AB 2663 (Stats 2018, chap 919) added new Rev & T C §62(q) to exclude from the definition of “change of ownership” any transfer, occurring on or after 1/1/2000 through 6/26/2015, between local registered domestic partners, as defined. The amendment also provides procedures for obtaining reversal of reassessments in violation of the provision. Reversals may be obtained through June 30, 2022.

Professional responsibility. The American Bar Association has updated its Profile of Legal Malpractice Claims: 2012–2015, ABA Standing Committee on Lawyers’ Professional Liability (Sept. 2016). See §1.3.

Rules of Professional Conduct. The California Supreme Court revised and renumbered the California Rules of Professional Conduct, effective November 1, 2018. See changes throughout chap 1.

Real estate broker cleanup legislation. The California Association of Realtors® (CAR) sponsored “clean up” legislation seeking to update the Real Estate Law to conform it to existing real estate practice in California. The legislation is set forth in two separate Assembly Bills, AB 1289 (Stats 2018, ch 907) and AB 2884 (Stats 2018, ch 285), with effective dates of January 1, 2019. CAR has announced changes to several of its forms to reflect the legislation. These changes are discussed throughout chaps 2, 6.

Department of Real Estate reinstituted. Under SB 173 (Stats 2017, ch 828), the California Bureau of Real Estate (CalBRE) was returned to the status of a department within the California state government effective July 1, 2018. The Bureau was renamed the Department of Real Estate (DRE) and placed within the oversight of the Business, Consumer Services, and Housing Agency. See §2.2.

Consideration of criminal convictions when granting real estate license. Under AB 2138 (Stats 2018, ch 995), the current version of Bus & P C §480 will become inoperative on July 1, 2020 and will be repealed as of January 1, 2021. The new version of Bus & P C §480 becomes effective on July 1, 2020 and will allow the DRE a 7-year look-back period with regard to criminal convictions or licensing discipline procedures, but it will also limit the DRE’s authority to deny a license to specified types of crimes. See §2.4.

Consideration independent of purchase price. Some parties to a conditional purchase agreement may wish to provide that the buyer will pay a separate, nonrefundable, and independent consideration for the right to enter into the agreement. See §§4.3, 4.170.

Building Energy Benchmarking Program. Owners of certain covered commercial and residential buildings are required to report their yearly energy usage to the California Energy Commission each year beginning June 1, 2018. See §4.49.

Vested rights after change in zoning. An appellate court has held that there is no vested right to construct or use property in violation of laws in effect at the time of issuance of the permit. See Attard v Board of Supervisors (2017) 14 CA5th 1066, discussed in §4.86.

CEQA and ministerial acts. A court has held that issuance of an erosion control permit that was subject to detailed and specific regulations on technical questions was a ministerial act and thus not subject to CEQA. Sierra Club v County of Sonoma (2017) 11 CA5th 11 (erosion control permit governed by detailed and specific regulations on technical questions was ministerial). See §4.95.

Proof of fraud and misrepresentation. In RSB Vineyards, LLC v Orsi (2017) 15 CA5th 1089, a court held that although knowledge of defective conditions by an agent can be imputed to a principal in certain situations, knowledge of construction professionals will only be attributed to an owner when the professionals are acting in the capacity of an agent. See §§4.147, 6.30.

Affirmative defenses and attorney fee awards. The California Supreme Court has held that although the attorney fee clause in an underlying purchase agreement dispute would not support a fee award, attorney fees could be awarded under a related option agreement raised as an affirmative defense. Mountain Air Enters. v Sundowner Towers (2017) 3 C5th 744. See §4.153.

Federal Arbitration Act and California statutory remedies. In McGill v Citibank, N.A. (2017) 2 C5th 945, the California Supreme Court has held that substantive state statutory remedies, such as the right to seek public injunctive relief, are not preempted by the FAA and such rights may not be waived. See §6.18.

New CAR forms. The California Association of Realtors® (CAR) has adopted a number of new forms in the past 18 months:

  • Residential Listing Ageement-Exclusive (CAR Form RLA). See §2.46.

  • Residential Listing Agreement-Open (CAR Form RLAN). See §2.49.

  • Buyer Representation Agreement—Exclusive (CAR Form BRE). See §2.53.

  • California Residential Purchase Agreement and Joint Escrow Instructions (CAR Form RPA-CA). See §6.24.

  • Back-Up Offer Addendum (CAR Form BUO). See §6.26B;

  • Seller License to Remain in Possession Addendum (CAR Form SIP). See §6.26C;

  • Statewide Buyer and Seller Advisory (CAR Form SBSA). See §6.27;

  • Notice to Buyer to Perform (CAR Form NBP). See §6.28.

  • REO Advisory (Car Form REO). See §6.118.

    In addition, CAR has discontinued the Natural Hazard Disclosure Statement (CAR Form NHD). See §§6.47–6.50.

Home inspection statutes.

  • The California legislature has enacted Bus & P C §7195.5, effective January 1, 2019, which provides that a home inspection report of residential real property may include an in-ground landscape irrigation system inspection report prepared by either a home inspector or a certified landscape irrigation auditor. See §6.77.

  • The legislature revised Bus & P C §7197, effective January 1, 2018, to exempt from the definition of unfair business practice any licensed roofing contractor who performs repairs pursuant to his or her inspection of a roof for the specific purpose of providing a roof certification, as defined, if specified conditions are met. See §6.79.

Hazardous waste.

  • A court of appeals has held that no special causation standard applies to claims brought under the Polanco Redevelopment Act against chemical manufacturers. City of Modesto v Dow Chem. Co. (2018) 19 CA5th 130. See §7.9.

  • In Otay Land Co. LLC v U.E. Ltd., L.P. (2017) 15 CA5th 806, an appellate court has held that spent lead and target debris on a shooting range became solid waste subject to CERCLA and the HSAA when left to accumulate. The court also reviewed contribution claims of the parties and rejected the trial court’s failure to allocate any cleanup and remediation costs to the defendants as an abuse of discretion. See §§7.9–7.10, 7.12, 7.16–7.17.

  • In Estuary Owners Ass’n v Shell Oil Co. (2017) 13 CA5th 899, the court held that the ongoing contamination of property was caused by the operation of a fuel terminal and not by any latent construction defects existing in the terminal. The court held that the 10-year statute of repose under CCP §337.15 was unavailable as a defense because it applies to damages arising from latent construction defects but not to damages caused by operations of a facility that are independent of the manner of its design and construction. See §7.20.

Options. In In re Fresh-G Restaurant Intermediate Holding, LLC (D Del 2017) 580 BR 103, a Delaware bankruptcy court applied California law to hold that under the anti-forfeiture defense of CC §3275 a timely lease renewal option was not rendered ineffective despite the tenants nonpayment of rent. See §§8.21, 8.33.

Homeowner Bill of Rights (HBOR). Many provisions of the HBOR that had sunsetted by their own terms on January 1, 2018, were revived by Stats 2018, ch 404 (SB 818), effective January 1, 2019. See §9.55A.

Voidable transactions. An appellate court ruled that the trial court erred in overruling a demurrer brought by a sham corporation owned and controlled by a property owner trying to shield his property equity from creditors. The transfer was subject to the former Uniform Fraudulent Transfer Act’s 7-year statute of repose and was not subject to forfeiture. PGA W. Residential Ass’n v Hulven Int’l Inc. (2017) 14 CA5th 156. See §10.13.

Rights-of-way. A federal appellate court has clarified that rights-of-way granted under the General Railroad Right-of-Way Act of 1875 (43 USC §§934–939) are construed to be easements, while pre-1871 federal railroad acts are construed to provide for conditional grants of fee title. Barahona v Union Pac. R.R. (9th Cir 2018) 881 F3d 1122. See §§11.31, 11.71.

Easements; adverse possession.

  • Hansen v Sandridge Partners, L.P. (2018) 22 CA5th 1020 (finding no equitable or prescriptive easement when encroaching party was aware of boundary dispute and negligently planted trees on disputed parcel). See §§11.43, 11.57, 11.77.

  • McBride v Smith (2018) 18 CA5th 1160 (existence of easement by grant does not preclude acquisition of greater rights by prescription; however, prescriptive use must violate terms of grant, be open and notorious, and arise only if owner had opportunity to protect his or her rights by taking legal action and failed to do so). See §§11.43, 11.57.

  • McLear-Gary v Scott (2018) 25 CA5th 145 (change in use in prescriptive easement to include vehicular as well as pedestrian traffic was impermissible; adverse possession requires timely payment of taxes). See §§11.66, 11.77.

  • Recording title to property. Proper indexing of a recorded easement by the county recorder’s office is required for the document to give constructive notice to persons subsequently acquiring an interest in the affected property; the intent of the parties with regard to the priority of recorded documents is controlling despite the actual sequence of recording by a recorder or the sequence of recording specified in instructions given to the recorder. MTC Fin., Inc. v Nationstar Mortgage (2018) 19 CA5th 811. See §12.2.

  • State response to urban wildfires. The California legislature adopted six new bills in response to the devastating fires that have ravaged areas of the state. See §§13.35, 13.78, 13.94.

Property Insurance.

  • Insurance policies are contracts and are governed by the rules of construction applicable to contracts. When a term is undefined, its meaning is derived from the context in which it is used in the policy. Tustin Field Gas & Food, Inc. v Mid-Century Ins. Co. (2017) 13 CA5th 220. See §13.70.

  • In Khorsand v Liberty Mut. Fire Ins. Co. (2018) 20 CA5th 1028, the appellate court reiterated that appraisal proceedings are a form of arbitration and is governed by the same rules that apply to arbitrations. See §13.84.

  • An appellate court has held that to the extent that the definition of “actual cash value” contained in Ins C §2051(b) differs from that in Jefferson Ins. Co. v Superior Court (1970) 3 C3d 398, the later-enacted statutory definition controls. California Fair Plan Ass’n v Garnes (2017) 11 CA5th 1276. See §13.91.

  • In Pulte Home Corp. v American Safety Indem. Co. (2017) 14 CA5th 1086, an appellate court ruled that after the lower court held that the insured was entitled to contract and punitive damages, the insured could not alter the contingency fee arrangement in effect during trial in order to manipulate the amount of Brandt fees recoverable. See §§13.116, 13.119, 13.122, 13.124.

  • The California Supreme Court has held that an employee’s intentional conduct in molesting a child on a construction site at a school does not preclude coverage for negligent supervision, hiring, and retention by his insured employer under a CGL policy. Liberty Surplus Ins. Corp. v Ledesma & Meyer Constr. Co. (2018) 5 C5th 216. See §§14.17–14.18, 14.20, 14.53.

  • Under a CGL policy, the standard faulty exclusion workmanship exclusion only applies when the insured is “physically present” and “performing operations.” Global Modular, Inc. v Kadena Pac., Inc. (2017) 15 CA5th 127. See §§14.63–14.64.

  • Hypothetical theories of coverage that are not supported by facts stated in the complaint, or by facts extrinsic to the complaint, do not trigger a duty to defend. In All Green Elec., Inc. v Security Nat’l Ins. Co. (2018) 22 CA5th 407, an insured’s argument that the insurer had a duty to defend because the impaired property could have resulted from vandals or an earthquake instead of from the insured’s negligent installation of equipment, which was excluded from coverage, failed because the insured pointed to no facts to support such theories. See §14.68.

  • In Energy Ins. Mut. Ltd. v Ace Am. Ins. Co. (2017) 14 CA5th 281, a policy that contained a professional liability services exclusion did not specifically define “professional services,” but the ordinary understanding of the term applied to bar coverage for the insured’s failure to mark an underground pipeline. In this case, mapping and marking underground installations were professional services excluded by the insurance policy’s professional liability exclusion. See §14.71.

Effect of Recording. The order in which simultaneously recorded deeds of trust are indexed does not necessarily determine their priority. In MTC Fin., Inc. v Nationstar Mortgage (2018) 19 CA5th 811, the larger mortgage loan was reasonably deemed to be senior to a smaller home equity line of credit recorded by the same lender on the same day. See §15.86.

Taxing Agencies. Effective July 1, 2017, the State Board of Equalization (BOE) was restructured into three separate agencies: the BOE, the California Department of Tax and Fee Administration (CDTFA), and the Office of Tax Appeals (OTA). The BOE retains authority only over the administration of the property tax, alcoholic beverage tax, and tax on insurers programs. See §15.99.

CALIFORNIA REAL PROPERTY SALES TRANSACTIONS

(4th Edition)

February 2017

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH01

Chapter 1

Lawyer’s Role in Real Property Sales

01-002A

§1.2A

Checklist: Attorney’s Services

CH02

Chapter 2

Real Estate Brokers

02-031

§2.31

Disclosure of Agency Relationship (CC §2079.16)

02-032

§2.32

Confirmation of Agency Relationship (CC §2079.17)

02-044

§2.44

Listing Agreement Checklist

CH03

Chapter 3

Letters of Intent

03-033

§§3.33–3.46

Letter Heading

 

§3.34

Introductory Clause

 

§3.35

Parties’ Intentions on Binding or Nonbinding Nature of Letter

 

§3.36

Description of Property

 

§3.37

Purchase Price and Payment of Purchase Price

 

§3.38

Deposits

 

§3.39

Purchase and Sale Agreement

 

§3.40

Buyer’s Contingencies

 

§3.41

Early Access for Inspections

 

§3.42

Seller’s Representations and Warranties

 

§3.43

Escrow

 

§3.44

Commissions

 

§3.45

Confidentiality

 

§3.46

Execution of Letter of Intent

CH04

Chapter 4

The Purchase and Sale Agreement

04-167

§§4.167–4.182

Title and Introductory Paragraph

 

§4.168

Recitals

 

§4.169

Agreement of Sale

 

§4.170

Purchase Price

 

§4.171

Buyer’s Contingencies

 

§4.172

Seller’s Preclosing Covenants

 

§4.173

Representations and Warranties

 

§4.174

Closing Conditions

 

§4.175

Closing

 

§4.176

Risk of Loss

 

§4.177

Remedies for Default

 

§4.178

General Provisions

 

§4.179

Signature

 

§4.180

Consent of Escrow Holder

 

§4.181

Table of Exhibits

 

§4.182

Allocation of Purchase Price

CH05

Chapter 5

Specialty Commercial Purchase and Sale Agreement Provisions: Hotels

05-009

§§5.9–5.29

Definitions

 

§5.11

Hotel Assets and Liabilities

 

§5.13

Due Diligence Documents

 

§5.15

Seller’s Pre-Closing Covenants

 

§5.17

Seller’s Representations and Warranties

 

§5.19

Employees

 

§5.21A

Estoppel Certificate From Hotel Operator

 

§5.25

Closing Conditions

 

§5.29

Escrow and Closing

CH06

Chapter 6

Residential Purchase and Sale Transactions

06-039

§6.39

Local Transfer Disclosure Statement (CC §1102.6a)

CH07

Chapter 7

Hazardous Waste Considerations

07-048

§§7.48–7.80

Definition of “Hazardous Materials”

 

§7.49

Absolute Representation

 

§7.50

Best of Knowledge

 

§7.51

Best of Knowledge (Specific Individuals)

 

§7.52

Best of Knowledge With Exception for Phase I Report

 

§7.57

Seller to Remediate De Minimis Contamination

 

§7.62

Broad Clause Releasing Seller

 

§7.63

Limited Clause Releasing Seller; Seller Retains Some Responsibilities

 

§7.65

Expanded “As Is” Clause

 

§7.68

Seller’s Limited Indemnification of Buyer

 

§7.70

Buyer’s Broad Form Indemnification of Seller

 

§7.80

Remediation Escrow Agreement

CH08

Chapter 8

Options, Rights of First Refusal, Puts, and Similar Rights

08-059

§§8.59–8.83

Introduction; Parties; Recitals

 

§8.60

Grant of Option

 

§8.61

Term of Option

 

§8.62

Consideration

 

§8.63

Successive Payments to Extend Option Term

 

§8.64

Exercise of Option

 

§8.65

Sequential Exercise of Option

 

§8.66

Covenants and Warranties of Optionor Concerning Property

 

§8.67

Condition of Title

 

§8.68

Investigation of Property

 

§8.69

Governmental Permits

 

§8.70

Assignment of Option

 

§8.71

Risk of Loss

 

§8.72

Condemnation

 

§8.73

Memorandum of Option to Be Recorded

 

§8.74

Broker’s Commission

 

§8.75

Time of Essence; Failure to Exercise

 

§8.76

Attorney Fees

 

§8.77

Notices

 

§8.78

Entire Agreement

 

§8.79

Waiver

 

§8.80

Captions; Signatures

 

§8.81

Memorandum of Option

 

§8.82

Right of First Offer Agreement

 

§8.83

Right of First Refusal Agreement

CH09

Chapter 9

Seller Financing

09-040

§§9.40–9.47

Cash Downpayment

 

§9.41

Credit for Existing Encumbrances

 

§9.45

Note for Balance; First-Year Payments Limited

 

§9.46

Note for Balance; Annual Payments Limited

 

§9.47

Acceleration on Default

09-065

§9.65

Provision in Purchase and Sale Agreement for All-Inclusive Financing

09-077

§§9.77–9.82

Optional Terms

 

§9.78

Executory Subordination Provision in Purchase Agreement

 

§9.80

Subordination Addendum

 

§9.81

Subordination to Permanent Loan

 

§9.82

Execution of Additional Subordination Agreement

09-087

§9.87

Automatic Subordination Agreement

09-105

§§9.105–9.110

Partial Release of Determined Lots

 

§9.106

Partial Release (Lots Not Determined); Limiting Buyer’s Discretion

 

§9.107

Partial Release (Lots Not Determined); Adjustment of Release Price

 

§9.108

Unencumbered Conveyance at Close of Escrow

 

§9.109

Substituted Security for Releases

 

§9.110

Release on Condemnation Award

CH10

Chapter 10

Deeds

10-003

§10.3

Statutory Grant Deed Form (CC §1092)

10-007

§10.7

Grant Deed

10-015

§§10.15–10.21

Grantor’s Name Different From Record Owner’s Name

 

§10.16

Unincorporated Association

 

§10.17

Partnership

 

§10.18

Limited Partnership

 

§10.19

Trustee

 

§10.20

Corporation

 

§10.21

Joint Venture

10-031

§§10.31–10.34

Joint Tenancy

 

§10.32

Tenancy in Common

 

§10.33

Community Property

 

§10.34

Changing Title From Joint Tenancy to Community Property

10-039

§§10.39–10.52

Spouse-to-Spouse Recital of Separate Property

 

§10.40

Consent to Joint Tenancy Between One Spouse and Another Person

 

§10.41

Deed in Lieu of Foreclosure

 

§10.42

Correcting or Clarifying Description of Property

 

§10.43

Removing Cloud on Title

 

§10.44

Release of Exception or Reservation

 

§10.45

Conveyance in Performance of Sales Agreement

 

§10.46

Conveyance on Exercise of Option

 

§10.47

Conveyance on Distribution of Trust

 

§10.48

Termination of Recorded Lease

 

§10.49

Elimination of Covenants, Conditions, and Restrictions

 

§10.50

Removal of Power of Termination

 

§10.51

Mineral Rights

 

§10.52

Life Estate

10-059

§§10.59–10.66

Mark of Executing Party

 

§10.60

Signature of Attorney-in-Fact

 

§10.61

Signature of Trustee

 

§10.62

Signature of Guardian or Conservator

 

§10.63

Signature of Executor or Administrator

 

§10.64

Signature of Partner

 

§10.65

Signature of Corporate Officer

 

§10.66

Signature of Joint Venturer

CH11

Chapter 11

Descriptions of Property

11-100

§§11.100–11.102

Description by Reference to Subdivision Map

 

§11.101

Description by Reference to Rectangular Survey Map

 

§11.102

Description by Reference to Deed or Other Instrument

11-105

§§11.105–11.107

Reservation of Easement in Grantor

 

§11.106

Transfer of Appurtenant Easement

 

§11.107

Creation of Easement

CH12

Chapter 12

Covenants of Title

12-012

§12.12

Warranty Deed Covenants

12-023

§12.23

“Restrained” Grant Deed

CH13

Chapter 13

Property Insurance

13-005

§§13.5–13.13

Definition of “Material Loss”

 

§13.7

Risk of Nonmaterial Loss

 

§13.9

Buyer’s Assumption of Risk

 

§13.10

Seller’s Assumption of Risk

 

§13.13

Code Governs Except as Expressly Agreed

CH15

Chapter 15

Escrow and Closing the Sale

15-050

§§15.50–15.61

Introduction

 

§15.51

Deposits by Buyer

 

§15.52

Conditions Precedent to Close of Escrow

 

§15.53

Title Insurance Requirements

 

§15.54

Estimated Closing Statement

 

§15.55

Procedure for Closing

 

§15.56

Time for Closing Escrow; Investment of Funds

 

§15.57

Prorations

 

§15.58

Authorized Disbursements; Costs

 

§15.59

Right to Withdraw Documents or Funds

 

§15.60

Document Approval

 

§15.61

Acknowledgment by Escrow Holder

15-063

§§15.63–15.73

Introduction

 

§15.64

Deposits by Seller

 

§15.65

Conditions Precedent to Close of Escrow

 

§15.66

Procedure for Closing

 

§15.67

Time for Closing Escrow

 

§15.68

Prorations; Costs

 

§15.69

Authorized Disbursements; Costs

 

§15.70

Payment of Broker’s Commission

 

§15.71

Right to Withdraw Documents or Funds

 

§15.72

Document Approval

 

§15.73

Acknowledgment by Escrow Holder

APP

Appendixes

Appendixes

APP-A

APP-A

Transfers Triggering Reappraisal

APP-B

APP-B

Buyer’s Comprehensive Commercial Property Acquisition and Due Diligence Checklist

APP-C

APP-C

Checklist of Due Diligence Materials to Be Delivered by Seller to Buyer in Sale Involving Commercial Leases

APP-D

APP-D

Board Resolution (Authorizing Purchase)

APP-E

APP-E

Limited Liability Company Certificate (Authorizing Purchase)

APP-G

APP-G

Grant Deed

APP-H

APP-H

Bill of Sale

APP-I

APP-I

Assignment of Leases

APP-J

APP-J

Assignment of Intangibles

APP-K

APP-K

Estoppel Certificate From Tenants

APP-L

APP-L

Tenant Letter

APP-M

APP-M

Spousal Waiver

APP-N

APP-N

Alternate Natural Hazard Conditions Disclosure

APP-O

APP-O

Access License and Indemnity Agreement

APP-P

APP-P

Hotel Purchase and Sale Agreement

 

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