Last Updated June 08, 2018

Law and Practice

Authors



Allen Matkins Leck Gamble Mallory & Natsis LLP is best known for representing clients in the real estate industry and clients for whom real estate is an important part of their success. It has a longstanding reputation as one of the leading real estate law firms in the United States, having assisted clients in the development, management, financing, acquisition and disposition of real property assets. Because Allen Matkins has one of the largest real estate departments on the West Coast – more than 100 attorneys – it can bring to every deal a vast network of resources and relationships with major players in the real estate industry. Key clients include global real estate owners, operators and developers, REITs, private equity firms, state pension funds, life insurance companies and Fortune 100 technology companies. The firm's five offices are located in four major metropolitan areas of California: Los Angeles (Downtown and Century City), Orange County, San Diego and San Francisco.

California is a contract law state. Unless restricted by public policy, all duties and obligations can be written into the contract. Unless the agreement contractually imposes specific representations and warranties, they do not otherwise exist, and the impact of breaches may be limited by maximum exposure limits and time periods. However, public policy prevents a contractual arrangement limiting liability resulting from an established fraud.

Typically, the seller will try to limit its representations and warranties to those items a diligent buyer cannot independently verify. Typical entity-level representations and warranties include that the seller has the authority to sell, and that no third party consents are required (unless otherwise disclosed) in order to effectuate the sale. The seller will also represent that it is not bankrupt or insolvent. Operational representations will relate to validating the income-producing potential of the property, for example, that true and correct copies of any contracts and the leases for all tenants have been shared, and that the seller has turned over all notices from any government agencies. Both seller and buyer will represent that they are in compliance with the Order of Foreign Asset Control (OFAC).

Lastly, a seller will represent that it will notify the buyer if any material changes occur to the representations or warranties during escrow. Typically, the parties will negotiate what constitutes a material change. When the buyer waives contingencies, much of the risk of change shifts from the seller to the buyer, and this shift is typically reflected in the contract.

If there is a breach of one or more of the representations and warranties, the buyer will have several options. It can terminate the contract and recoup some of its costs, such as attorney and consulting fees, pursue specific performance, or elect instead to close over the known breach. Sometimes, the parties will agree to toll the closing for a short period to the extent the breach is curable and the delay may allow time to remedy it. If a buyer discovers a breach after closing, it can choose to pursue a claim against the seller, within certain time limits and caps. There is a window of liability, which is negotiated; typically, this is six to 12 months (most often nine). Additionally, damages are capped, typically at 2-3% of the purchase price (the larger the value of the property, the smaller the percentage and vice versa). This is also negotiated.

Allen Matkins Leck Gamble Mallory & Natsis LLP

865 S Figueroa Street, Suite 2800
Los Angeles, CA 90017

(213) 622-5555

(213) 620-8816

communications@allenmatkins.com www.allenmatkins.com
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Authors



Allen Matkins Leck Gamble Mallory & Natsis LLP is best known for representing clients in the real estate industry and clients for whom real estate is an important part of their success. It has a longstanding reputation as one of the leading real estate law firms in the United States, having assisted clients in the development, management, financing, acquisition and disposition of real property assets. Because Allen Matkins has one of the largest real estate departments on the West Coast – more than 100 attorneys – it can bring to every deal a vast network of resources and relationships with major players in the real estate industry. Key clients include global real estate owners, operators and developers, REITs, private equity firms, state pension funds, life insurance companies and Fortune 100 technology companies. The firm's five offices are located in four major metropolitan areas of California: Los Angeles (Downtown and Century City), Orange County, San Diego and San Francisco.

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