Commercial Real Estate Purchase And Sale Transactions: Some Best Practices For Brokers, Buyers, And Sellers


    1. Purpose of Presentation:
      1. Help Keep the Focus on What’s Important. Modern commercial real estate Purchase Agreements are lengthy and complex, but not all terms are critical. Our goal is to help the parties to focus on what’s important.
      2. Suggest Some Best Practices. To suggest some practices that a broker can employ to improve the client’s position, and to reduce the broker’s potential liability in connection with real estate transactions.
    2. Ground Rules: Interrupt and ask questions!
  2. SOME BEST PRACTICES…THAT ARE OFTEN IGNORED. I have had the privilege to represent sophisticated Buyers and Sellers in transactions involving many hundreds of millions of dollars of sales in the past few years. I’ve noticed that even some of the smartest principals, lawyers, and brokers often handle certain aspects of the transaction in a less-than-optimal manner. What follows is my opinion as to how we can all do a better job in future transactions:
    1. Include a Liquidated Damages Provision in the LOI. Most sophisticated principals and CRE brokers know these days that it’s prudent to include “nonbinding” language in a letter of intent, so as to avoid unintentionally creating a contractual relationship. The best practice is to go a step further, and to limit the parties’ liability should a judge find that the LOI in fact was a contract, by including a liquidated damages provision, such as the following:



Initials _________                                       _________”


  1. Include a “Nonrefundable Consideration” Provision in the PSA. In Steiner v. Thexton the court found that a purchase agreement that grants the Buyer a “free-look” period—which is customary in California– is essentially an option (even after the Seller accepts) because the Buyer can terminate in its sole discretion during the due diligence period. In order to be irrevocable and enforceable by the Buyer, an option has to be supported by separate consideration, and often there’s no such separate consideration called for in the PSA. A sample provision is as follows:

“For good and valuable consideration, including the payment of _______________________ Dollars ($_____.00) by Buyer to Seller (the “Nonrefundable Consideration”), which is independent nonrefundable consideration to Seller with respect to the rights provided to Buyer under this Agreement, the receipt and adequacy of which are acknowledged, Buyer and Seller agree as follows:”

  1. Get the Parties to Agree on the Escrow Timeline/Checklist Promptly after the PSA Is Signed. It’s a good idea for the broker to create a comprehensive escrow timeline/checklist, and circulate it to both the Buyer and Seller for comment. It’s prudent for the drafter to include a liability disclaimer in the document, such as the following:

This Checklist is provided for informational purposes only.  Buyer and Seller acknowledge that they do not intend anything in this Checklist to be legally binding, and that neither party shall rely on this Checklist.  To the extent the information in this Checklist and the Purchase and Sale Agreement are inconsistent, the terms of the Purchase and Sale Agreement shall control.”

  1. Buyers Should Insist on Clean Estoppels as a Condition to Close. A surprising number of LOIs fail to address estoppel certificates at all, and often the PSA merely requires the Seller to seek the estoppels, but doesn’t necessarily condition the Buyer’s obligation to close on the receipt of those estoppels. The best practice is to require a provision such as the following:

“It shall be a condition of Closing that Seller shall have obtained an estoppel certificate in the form attached hereto as Exhibit __ (the “Tenant Estoppel Certificate”) from each Tenant and an estoppel certificate in the form attached hereto as Exhibit __ (the “Guarantor Estoppel Certificate”) from each Guarantor, and Seller shall use good faith efforts to obtain the same.”

Note that this provision requires the Seller to seek an estoppel from any Guarantors, which is rarely requested, in my experience. (And if the Guaranty document itself fails to require the Guarantor to sign an estoppel, the Guarantor will typically refuse to do so.)

  1. Some Other Provisions that Buyers Should Ask for include:
    1. Subordination, Non-disturbance Agreements (“SNDAs”). The Lender typically requires the existing Tenants to sign SNDAs, so it’s prudent to make the receipt of those SNDAs a condition to close.
    2. Buyer’s right to interview Tenants. Many clients have informed me that some of the best information they receive about a property comes from the Tenants. As such, we recommend that clients talk to existing Tenants and see what issues they may have with the property; the Seller may not allow that unless the PSA has the appropriate provision.
    3. Seller’s obligation to cooperate in the Buyer’s environmental due diligence (and to cause the Tenants to cooperate as well). The environmental consultant will ask the Seller and the Tenants to complete a questionnaire, so it’s a good idea to anticipate the issue in the PSA.
    4. Buyer’s right to assign, in order to facilitate a 1031 exchange, or the formation of a single-purpose entity.
    5. Meaningful Remedies for a Seller Breach. PSAs sometimes limit the Buyer’s remedies to termination and a return of the deposit, which hardly incentivizes the Seller to perform under the PSA. It’s prudent to insist (i) that the Seller pay for the Buyer’s due diligence expenses (often the Seller requires a cap in response), and (ii) that the Buyer retain the right of specific performance.
  2. Sellers Should Insist that Estoppels Run to the Seller’s Benefit—not Just to the Benefit of the Buyer and Lender. If the Seller can rely on the estoppel, it makes the likelihood of a post-closing claim from a Tenant less likely, and that benefits both the Buyer and the Seller.
  3. Sellers Should Include “Estoppel/No Defaults” Language in any PSA Amendment Benefitting the Buyer, and Use the Amendment as a Tool to Narrow the Outstanding Buyer Contingencies.
    1. Whenever a Seller agrees to extend a performance deadline (such as the expiration of the Due Diligence Period, or delay the Closing Date) or grant another concession, the Seller should insist that a provision such as the following (which is mutual, but it doesn’t have to be) be included in the Amendment to the PSA:

“__. No Defaults.  Each party hereby represents and warrants to the other that, to such party’s actual knowledge: (i) the other party is not in default under the Agreement, and (ii) it has no defense to the performance of its obligations under the Agreement, as amended by this Amendment, and (iii) it has no knowledge that any of the representations or warranties made by the other party under the Agreement are false or misleading in any material respect.  The terms of this Section are a material inducement for each party to enter into this Amendment.”

The Seller doesn’t want to find out after the Amendment is signed that the Buyer is claiming some breach by the Seller that actually preceded the signing of the Amendment (for example, that the Seller failed to provide the due diligence materials on a timely basis, which is a common claim).

  1. The Seller should also consider using the Amendment as a means to confirm key facts about the transaction (such as the fact that the Buyer has approved the title to the Property, or that the Buyer has waived certain other conditions to close). Use the Amendment as a means to narrow the contingencies that the Buyer can use to terminate the transaction. The language can be as simple as the following:

“Buyer has waived all of Buyer’s contingencies set forth in Article __ of the Agreement.”

  1. Buyers Need to Order Third-Party Reports in a Timely Manner. Many third-party reports, such as appraisals, ALTA Surveys, and environmental reports, have a surprisingly long lead time—in many cases those typical lead times are much longer than the 30-day or 45-day period that is now customary for a due-diligence period.  It is important that third-party reports be ordered early in the due diligence process to ensure that the reports, or at least a draft thereof, will be received prior to the expiration of the due diligence period.
  2. Buyers Should Be Advised to Obtain a Current ALTA Survey. ALTA surveys provide important information that is not disclosed in a mere title report, including the location of the subject property’s boundaries and easements, and improvements such as buildings, fences, trails, roads, rights of ways, and other features on the property that may affect ownership of the property and may require further investigation into the possibility of adverse rights.  An ALTA survey will also show means of access to the property, the zoning classification for the property, and the flood zone classification for the property.
  3. Brokers Shouldn’t Violate the Attorney-Client Privilege or the Duty of Confidentiality. In litigation, even seemingly innocent information can be subject to discovery. The best practice is to assume that any communications with your client and the clients’ attorney are either confidential or subject to the attorney-client privilege. In particular, never forward an email message from the client’s attorney without the attorney’s and client’s consent.
  4. Buyers Should Be Advised to Carefully Review All Leases. When purchasing improved property that is leased, you should advise the Buyer to have an experienced person review all leases and the rent roll.  In addition to the obvious economic analysis, the following items should be confirmed:
  • Tenants have not paid more than one month’s rent in advance.
  • Tenants have no options to purchase, rights of first refusal to purchase, or first offers to purchase.
  • Landlord does not have significant “executory” (that is to say, unperformed) obligations, such as to pay leasing commissions, tenant improvement allowances or refurbishing allowances.
  • Tenants do not have termination or offset rights.
  • The leases in a multi-tenant project do not state conflicting rights of expansion or rights of first refusal.
  • The leases contain a strong landlord exculpation provision.
  • Whether there are any caps on operating expenses.
  • Whether the tenants signing the leases are the parties actually in possession of the premises.
  • That the tenants are obligated to subordinate to any new financing that may be obtained for the property.
  • Whether tenants are obligated to sign estoppels.
  • Whether the landlord may be subject to a claim that it overcharged for operating expenses.


  1. Brokers Should Advise the Client to Retain a Lawyer–the Right Lawyer. Since PSAs are legal documents, it’s always prudent to remind the client that you are not a lawyer, and reiterate your recommendation that they retain experienced counsel—that is particularly important if you are placed in the position of having to draft or revise documents. Even if the client fails to follow your advice, such a recommendation may be helpful in avoiding a claim by the client based on a document you drafted. The overwhelming majority of practicing attorneys are not knowledgeable about commercial PSAs, and tend to focus on the aspects of the PSA that they do understand – those issues are often indemnity, liability, remedies, and insurance.  Some lawyers are just plain difficult, or slow in getting a deal done, but the issue here is often one of competence.  A good lawyer with specialized experience in real estate transactions can be a broker’s best friend in getting a deal done. Experience is the key – the least knowledgeable lawyer is often the most difficult to deal with and the one most likely to obstruct progress on the transaction by focusing on inappropriate issues.  Virtually everything that a lawyer needs to know in order to properly represent a party to a real estate transaction is learned after law school, “on the job.”  The benefits of a good lawyer’s involvement can include:
  • reduction in potential liability of the broker
  • keep the focus on what’s important
  • often (but not always) the best lawyers have more control over their clients — the clients tend to listen to these lawyers.
  • creative solutions to problems (such as inappropriate revisions requested by the other side).
    1. Brokers Should Make it Clear They Are Acting as Merely Conduits of Information. If you’re just conveying information that you haven’t independently verified, say so in the letter — make it clear you’re just a “conduit” (I doubt that the standard, preprinted disclaimer is sufficient to achieve this). You don’t want to make someone else’s statements your own.  For example, contrast the following two statements; the first statement may make the author liable for the Seller’s failure to disclose information that the Seller has in its possession but failed to share:
    2. i) “Enclosed is the Phase I Environmental Report dated August 30, 2014, prepared by XYZ Company on behalf of the Seller. The Seller has no further reports or information relating to the environmental condition of the Property.”
    3. ii) “Enclosed is the Phase I Environmental Report dated August 30, 2014, prepared by XYZ Company on behalf of the Seller. I have been advised by the Seller that the Seller has no further reports or information relating to the environmental condition of the Property.”
    4. Don’t Make Erroneous Assumptions About the Law. Common (and incorrect) assumptions include:
      1. Implied “Reasonableness” or “Fairness” Requirements. While there are a few circumstances in which the law will impose an obligation on a party to be reasonable (such as is the case in certain instances involving assignment, subletting, and change in use of the Premises under a Lease), there is no overriding principle that requires a party to a PSA to always act in a fair or reasonable way.
      2. Commonly Used Industry Terms Have Undisputed Meanings. Many such terms (including “rentable area,” “first class,” “cold shell,” “base building work,” and “NNN”) have been the subject of many disputes, and unfortunately, litigation.  Some common errors:

(i) Referring to “the BOMA Standard”—which is an inherently ambiguous standard, as BOMA has published its “Standard Method for Measuring Floor Area in Office Buildings” more than once (the most recent version is the 2010 version), and there are many kinds of ways of measuring buildings in the BOMA publication, including “gross building area,” “usable area,” “store area,” as well as “rentable area.” There are also now separate standards for retail and industrial buildings.

(ii) In a PSA, referring to a “gross” or “net” per-square-foot price, without clarifying what that means (does a “net” square footage calculation exclude, say, wetlands? public rights of way? areas subject to conservation easements?).

  1. Oral Agreements Outside the PSA Will Override the Written PSA, or Will “Fill in the Gaps” in the Written Document. While there are exceptions, the general rule is that the written terms will control over contrary oral terms.
  2. “Keep It Vague, and We’ll Interpret it in Our Favor Later.” A judge is guided by a number of rules when it comes to interpreting a PSA or other contract; one of them is that the party creating an ambiguity is not allowed to benefit from that ambiguity.
    1. AB 1103 (the California Nonresidential Energy Use Disclosure Program) has been suspended. There is currently no statewide energy disclosure requirement for 2016. The California Energy Commission will be preparing the infrastructure for a new statewide benchmarking program, as mandated by AB 802, likely to be effective in 2017. That program will require the utility companies to provide energy-consumption data upon request, but unlike AB 1103, will apparently not put the onus on the building owner. If you want current information, visit
    2. TITLE 24 2016 Non-Residential. California’s Building Energy Efficiency Standards are updated by the California Energy Commission on an approximately three-year cycle. The 2013 edition took many design professionals by surprise and disrupted entire sectors, particularly the lighting controls and retrofitters. The 2016 iteration of the Title 24 take effect on January 1, 2017. For the 2016 code, the CEC is focusing on moving toward a goal of zero net energy—by 2020 for all new residential buildings, and by 2030 for all new commercial buildings. For up to date information, see


The seminar presented today, as well as any written materials distributed to the participants, is being conducted to promote an open discussion of general legal issues of interest to the attendees.  This seminar is not intended to create an attorney-client relationship.

Neither the presentation nor any answers to specific questions nor any written materials shall be construed, in whole or in part, as legal advice to be relied upon by any person. 

For legal advice, please contact the attorney of your choice.



Tom Stewart has experience in all aspects of commercial real estate, but has concentrated his practice in the areas of property sales and leasing, having represented clients in thousands of such transactions over the years. He is one of the most experienced office-leasing attorneys in the state, and has handled some of the largest office-lease transactions in California.

Developers, owners and investors rely on Tom to represent them in the acquisition, sale and leasing of commercial property.  For more than 30 years, Tom has provided astute counsel for some of the largest commercial property owners and users in the state.

Publications and Speaking Engagements

Tom has served for many years on the Board of Advisors for the Commercial Tenant’s Lease Insider, the Commercial Lease Law Insider, and the Commercial Property Management Insider, which are monthly publications of national circulation. Tom is also a contributing author to California Continuing Education of the Bar’s Office Leasing book, and The Insider’s Best Commercial Lease Clauses book.

A frequent lecturer on leasing and other real estate law topics, Tom has made presentations to numerous professional real estate organizations including the Institute of Real Estate Management, the Building Owners and Managers Association of Sacramento (BOMA), the International Council of Shopping Centers (ICSC), the Sacramento Commercial Realtors organization, the Sacramento County Bar Association, the organization of Commercial Real Estate Women (CREW), and numerous brokerage companies. He has written several articles on commercial real estate topics for the Sacramento Business Journal.

Tom has been an instructor for two courses sponsored by the California Continuing Education of the Bar: the Advanced Course-Office Leasing program, and the Drafting and Negotiating Office Leases course. He has also taught BOMA’s college-level Law for Property Managers and Marketing courses in their Real Property Administrator (RPA) certification program.

Professional, Community and Pro Bono Involvement

  • Former Board Member, Recon Bay Area (which is a real estate and construction networking organization based in San Francisco)
  • Member, Lambda Alpha Land Economics Society
  • Member and Former Board Member, Association of Commercial Real Estate
  • Member, International Council of Shopping Centers (ICSC)
  • Member, Building Owners and Managers Association (BOMA)
  • Board Member, River Oak Center for Children
  • Active in the Fregoso Outdoor Foundation (which supports veterans and their families)
  • Former Board Member Sacramento Make-A-Wish Foundation
  • Former Board Member, The Sacramento Tree Foundation
  • Former Advisor, Pi Kappa Phi Fraternity
  • Represented a number of local nonprofit organizations on a pro bono basis


  • Lead attorney for the tenant in the Health Net lease transaction that received the Summit Award for the “Most Significant Lease Transaction” in Los Angeles from the Los Angeles Commercial Realty Association/BOMA Los Angeles.
  • Lead attorney for the University of the Pacific in a transaction that was recognized by the San Francisco Business Times as the “Best Office Sale/San Francisco” in 2011, and also represented the seller in a San Francisco transaction that was featured as one of the Wall Street Journal’s “Deals of the Week” in 2013.
  • Represented parties to land-sale transactions involving thousands of acres in California, including mining properties, ranches and residential lots.
  • Clients include Health Net (handled hundreds of transactions), Hines, Berkeley Land Co., Kaplan Education, SureWest, Buzz Oates Enterprises, Mariani Packing Company, Inter-Cal Real Estate Corporation, numerous real estate investors, and even a number of law firms.


Tom is an investor in many commercial real estate projects, which gives him a practical, real-world perspective that is uncommon for lawyers.


J.D., University of California, Hastings College of the Law, 1985
A.B., University of California at Berkeley, 1982