Legal Newsletter 3 – The 20-Minute Legal Developments Review

By January 13th, 2017

Legal Newsletter No. 3
Recent California Legal Developments
Business, Contracts, and Real Property Law
“The 20-Minute Legal Developments Review”

The following is a summary of recent statutory enactments and judicial decisions affecting California or California-based businesses, contracts, and real property. Except in rare instances, the scope of my Newsletters is limited to transactional matters — business, contracts, and real property law, and only California laws and cases are referenced. However, legislation and rulings from other jurisdictions are sometimes noted if they may have immediate or future applicability to California businesses or if they may serve as useful reminders or cautions.

These enactments and decisions are only briefly summarized below. Since most of these enactments and decisions are both blessed and burdened with numerous exceptions and conditions, their applicability to any specific matter should be closely examined. The following matters are not presented in any order of priority, and please know that your comments are always welcomed.

Use of Due Diligence Checklist for Commercial Real Estate Acquisitions

Especially in the context of commercial real estate acquisitions, the methodical use of a due diligence (“DD”) checklist is important. In many instances, for example, it is prudent to require that the contract-specified DD period not commence until the seller delivers to the prospective buyer a list of DD documents.

The specific components of any such DD documents list will vary depending upon many factors such as the jurisdictional location of the property, the existing or intended use of the property, and the size of the transaction. However, the following checklist sets forth at least some of the DD documents which a prospective buyer may want to require in the context of larger commercial real property transactions:

  1. Most recent title policy or title commitment and legal description of property;
  2. ALTA survey and construction blueprints;
  3. Copy of (i) Zoning Compliance Certificate, (ii) all permits and certificates of occupancy, and (iii) all notices received from any governmental agency within last X years;
  4. All applicable CC&Rs or any other reservations, easements or exceptions to title and affecting the Property;
  5. Environmental Reports (including at least a Phase 1 Report);
  6. Copies of all (i) written leases and lease guaranties, if any, and (ii) service contracts;
  7. Accounting of (i) all rent and other income, all security deposits or other advance payments and (ii) all costs and expenses of or relating to the property.
  8. Copies of last 3 years’ real estate tax bills or any governmental charges or assessments;
  9. Schedule of any seller- or third-party-owned personal property in or on the property;
  10. Copy of existing insurance policies and any pending claims;
  11. Copy of any pending or known imminent litigation affecting the property.

Representations of Square Footage in Real Property Transactions

Litigation based upon alleged misrepresentations relating to square footage remains relatively common in the context of buyer claims against both sellers and their real estate agents. This is especially so when the real estate agent serves as a “dual agent” for both seller and buyer. In these cases, there may exist a duty to both learn and disclose any and all material facts relating to the property – including square footage. Mere reliance upon public records may be insufficient. The party’s normally must disclose that which they know (including any variant measurements). However, it is also recommended that the seller and the seller’s agent require the buyer to independently verify the square footage and, relatedly, to cause to be completed any and all inspections which the buyer wishes to make – albeit at buyer’s expense and with an indemnity with respect to any damage to the property caused by such investigations.

Avoid Being Required to Obtain License as a “Finance Lender” in California

The California Finance Lenders Law (the ‘CFLL”) sets forth certain compliance and licensing requirements applicable to all parties deemed under the CFLL to be a “finance lender.” The law defines a “finance lender” as any person who makes or brokers consumer or commercial loans. For years, there has been an exemption for someone making five or fewer commercial loans in a 12-month period if the loans are incident to the person’s business. Effective January 1, 2017, a new law also exempts a person who makes only one commercial loan in a 12-month period from regulation under the CFLL.

False Advertising

A retailer who advertises sales products in comparison with other seller’s supposedly regular prices must be prepared to prove that the subject product was, in fact, offered by a third-party at such other regular price within the last three months. Last month, Los Angeles prosecutor filed false advertising and unfair competition charges against four national retailers for allegedly misleading shoppers by falsely over-stating the supposed original prices of designated products. State law prohibits advertising a former price unless it was “the prevailing market price” for the product within three months prior to the advertisement being so challenged. 

The Four Reminders for Construction Contractors (and Sub-Contractors)

Construction is an almost definitionally challenging business due to, among other things, (i) the nearly inevitable (and sometimes unavoidable and un-ending) requests for design changes which are made by the property owner, (ii) the mid-construction discovery of unforeseen conditions, and (iii) sometimes the unavailability of certain construction materials. At a minimum and in order to protect the contractor, the following four recommendations are offered:

1 – Condition all bids upon the execution of a formal construction contract in form and substance mutually acceptable to the property owner and the contractor;

2 – Promptly document (at a minimum by email, photos, or daily reports) all change orders;

3 – Comply with all contractual notice requirements with respect to such change orders; and

4 – Pay all subcontractors promptly. NOTE: Although not required in California, in some states the failure to pay subcontractors and suppliers within a designated number of days can trigger an obligation to pay 18% interest surcharge plus legal fees.

Facts of the Day

U.S. Net Exports of Natural Gas

For the first time in 60 years, the U.S. in 2016 exported more natural gas than it imported. The Department of Energy expects the U.S. to become the third-largest exporter of liquefied natural gas within about four years – behind only Australia and Qatar.

Holiday Bonuses

According to The Wall Street Journal and based upon a survey of 500 HR departments of firms of various sizes, approximately 75% of companies in the U.S. (up from 67% in 2015) planned to give workers holiday bonuses in 2016 — up from 67% in  2015. While median data would have been more meaningful, the average amount of such bonuses was expected to be about $1,100.

Legal Newsletter – Recent California Legal Developments – Commercial Real Estate Acquisitions Due Diligence – Square Footage Representations – California Finance Lender Law – False Advertising of Competitor’s Prices

Blog 69

January 15, 2017

By Mack W. Borgen
Santa Barbara, California
Copyright © 2017. Mack W. Borgen. All rights reserved. University of California at Berkeley (Honors, Economics); Harvard Law School; Author, The Relevance of Reason – Business Politics (Volume 1) and —  Society and Cultue (Volume 2) – As Advertised in The New York Review of Books andRecipient of Four National Book Awards
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