The Practical Real Lawyer

CALIFORNIAPURCHASEANDSALEISSUESFOR BUYERS

By Stevens A. Carey*

Based on an article published in the July 2016 issue of The Practical Real Estate Lawyer

______* Stevens A. Carey is a partner with Pircher, Nichols & Meeks, a real estate firm with offices in Los Angeles and Chicago. The author thanks Rob Krapf (DE), Fred Klein (DC), Marty Schwartz (FL), Josh Kamin (GA), Gene Leone (IL), Kevin Shepherd (MD), John Sullivan (MA), Joshua Stein (NY), and John Nolan (TX) for their input regarding their respective jurisdictions (as indicated parenthetically), Jeff Brown for his input regarding litigation matters, Michael Caplinger for his input regarding sales and use tax matters, Michelle Hickey for her input regarding statutory seller disclosure requirements, Michael Soejoto for his input regarding tax matters, John Cauble and Richard MacCracken for providing comments on a prior draft of this Article, and Kaleb Keller and Tim Durkin for cite-checking. This Article is not intended to provide legal advice. The views expressed (which may vary depending on the context) are not necessarily those of the individuals mentioned above, Pircher, Nichols & Meeks or the publication. It is important to remember that every transaction is different and what is appropriate for one transaction may not be appropriate for another. Any errors are those of the author.

10892265.21 CALIFORNIA PURCHASE AND SALE ISSUES FOR BUYERS

By Stevens A. Carey*

Sales of California real estate are typically governed by California law and customs. While there are exceptions to this rule, a buyer may find it difficult to deviate from the norm and, in the author’s experience, most buyers do not even try. So what does this mean for the prudent commercial buyer? Aren’t the and customs for commercial real estate purchases basically the same throughout the United States? The answer is no, and sometimes the variance can be significant, especially in an outlier state like California. As noted by one author, “California sometimes operates like its own country, with laws that aren’t like anyone else’s.” Zimmermann, Three Things To Know About Doing Business in California,XCONOMY.COM (Jan. 28, 2016), available at http://tinyurl.com/z9tu8nw. Consequently, it is important to understand the local rules and to seek the advice of local experts to make an informed purchase. While not intended to be exhaustive, this Article will highlight some of the local matters for a buyer to keep in mind when entering into a California commercial real property purchase agreement.

CAPSULE SUMMARY Page # 1. Recitals. In California, recitals are conclusively presumed to be accurate so the buyer 1 should be careful about what is recited in the purchase agreement.

2. Due Diligence Termination Right. Seemingly broad due diligence termination rights may 1 yield unexpected results based on California case law: the buyer’s discretion to terminate during the due diligence period may not be as unlimited as the buyer thinks; and if it is unlimited, there is a risk that the purchase agreement may be subject to challenge as an illusory if it is not supported by .

3. Title Insurance and Escrow. California title insurance forms and rates are more flexible 1 than some states (e.g., Texas, Florida and New York) but less flexible than others (e.g., Illinois). Unlike some states (e.g., Florida), the buyer should not expect any recourse against the title company in California if the title report it obtains is inaccurate, even if the title company has been negligent in preparing the report. Also, attorneys do not act as title agents in California as they do in some states (e.g., Florida and Georgia) and, although allowed by California law, generally do not act as escrow agents in the author’s experience (other than relatively informal arrangements between counsel to hold signature pages while counterparts are collected pending delivery).

4. Closing Procedure. The customary forms of several closing documents in California may 3 be different from the forms in other states (e.g., the form of deed, state tax withholding certificate, preliminary change of ownership report, and local transfer tax statements). The customary closing cost allocations in California may vary not only from the customs in other states but may also vary depending on the location in California.

5. Certain Remedies and Defenses. California has a statute governing liquidated damage 5 clauses in real property purchase agreements, and statutes indicating that a liquidated damage provision does not eliminate the possibility of by the seller. California also has some conflicting case law regarding survival limits, numerous statutory seller disclosure requirements, a broad concept of fraud, limitations on waivers of fraud, conflicting case law regarding the survival of fraud if a buyer closes the purchase

10892265.21 - i - with knowledge of the fraud (and the contract is silent as to this circumstance), and special rules regarding jury trial waivers, arbitration, judicial reference and attorneys’ fees clauses.

6. Special Qualifiers (, Best Efforts and Knowledge). In California, the terms 12 “good faith” and “best efforts” and the various “knowledge” qualifiers that are frequently used in purchase agreements may not always mean what the buyer expects.

7. Supplementing and Modifying the Written Agreement. It may be easier in California than 13 some other states for courts to expand upon and sometimes even change what is set forth within the four corners of the written purchase agreement.

8. Timing. “Time is of the essence” clauses are sometimes enforced in California, but 14 sometimes they are not. Also, California has statutes addressing business days and time zones, some of which may be surprising.

9. Entity, Property, Transfer and Sales Taxes. California taxes may be relevant in 15 determining the form of the buyer, the price, and the structure of the transaction.

10. Property and Transaction Specific Matters. Numerous other California laws and customs 22 may be relevant depending on the nature of the property and the structure of the transaction.

A more detailed discussion follows.

10892265.21 - ii - 1. RECITALS

Most purchase agreements begin with recitals, which may tell the story behind the deal (to establish the background and create a framework for the agreement). In California, buyers may prefer to keep this story short. According to the California Code:

The facts recited in a written instrument are conclusively presumed to be true as between the parties . . . . Cal. Evid. Code § 622.

With the exception of a recital of consideration (which may be questioned), this statute estops the parties to deny the truth of the recitals. See, e.g., 13 WITKIN, SUMMARY OF CALIFORNIA LAW § 193(1)(c) at 531–32 (10th ed. 2015). Many California legal practitioners were surprised in 2000 when a California court, relying on this statute, found that a tenant was bound by an inaccurate termination date set forth in its certificate. Plaza Freeway Ltd. Partnership v. First Mountain Bank (Cal. App. 4th Dist. 2000) 81 Cal.App.4th 616. In the author’s experience, it is typically the buyer who wants to add, and the seller who wants to delete, information about the property (e.g., square footage) in the recitals. But query whether the buyer would be precluded from complaining if the information it added turns out to be wrong (e.g., the stated number of square feet overstated the actual number)? “An open question is whether placing contractual terms in a recital will safeguard the parties against claims of promissory fraud . . . .” CEB, CALIFORNIA REAL PROPERTY REMEDIES AND DAMAGES § 3.80 at 3-101 (2d ed. 2015). (But see Bruni v. Didion (Cal. App. 4th Dist. 2008) 160 Cal.App.4th 1272, 1291, which states that “section 622, however, does not bar an assertion of fraud or other grounds for rescission.”)

2. DUE DILIGENCE TERMINATION RIGHT

Buyers often, if not usually, want the right to decide during the due diligence period whether or not to proceed with the purchase without being second-guessed. The discretion given to the buyer to make this decision, namely whether to terminate the purchase agreement during this period, is key to determining whether the buyer’s decision may be challenged. For example, some commentators have suggested that “sole discretion” merely indicates whose discretion is being exercised and may not preclude the imposition of the implied covenant of good faith and fair dealing. And even “absolute discretion” might not be entirely free from doubt in California. But if this termination right (sometimes called a “free look”) is crystal clear, it may come at a cost if it is not supported by independent consideration: the purchase agreement may be subject to attack as an illusory contract. Thus, there are two concerns when the buyer expects to have an ironclad termination right during the due diligence period: (1) making sure the buyer has unfettered discretion to exercise the termination right; and (2) making sure there is consideration to avoid an illusory contract. To address these two points, many California purchase agreements (1) provide that the buyer may decide whether to proceed for any or no reason, and (2) require the buyer to pay the seller some amount (often $100) of independent consideration that may be part of the deposit that is deposited in escrow, but ultimately goes to the seller under any and all circumstances, and is nonrefundable (and that obligation survives any termination of the purchase agreement). For more background (including a discussion of some of the relevant California case law), see Carey, Cauble & MacCracken, The “Free Look” in California—You Get What You Pay For, 33 REAL PROP. L. REP. 89 (July 2010).

3. TITLE INSURANCE AND ESCROW

3.1 Regulation of Forms and Rates. “In California, the types of forms and the rates the industry may charge are largely unregulated. The Insurance Code, however, does set forth general rate guidelines and requires that all rates be filed with the Department of Insurance. California also requires that each title insurer file with the Insurance Commissioner any policy form it intends to use on a regular basis . . . .” CEB, CALIFORNIA TITLE INSURANCE PRACTICE § 6.8 at 6-13 (2d ed. 2015). In the author’s

10892265.21 1 experience, title insurance companies in California seem to have considerably more flexibility regarding the forms of and rates for endorsements (than they have for the basic policy).

3.2 Customary Forms of Policy and Endorsements. “There are essentially two types of title insurance policies available in California for owners of real property interests—CLTA policies and ALTA policies. CLTA policies insure primarily against defects in title that are discoverable through an examination of the public record. ALTA policies [may] provide greater coverage in that they [may] also insure against [certain] off-record defects . . . .” Ibid. § 6.10 at 6-15. Although a CLTA form is available, and its cost may be relevant for the allocation of closing costs, in the author’s experience, buyers in commercial real estate purchases typically obtain a 2006 ALTA extended coverage owner’s policy. A 2006 ALTA standard coverage owner’s policy in California includes the so-called “Western Regional Exceptions” and provides coverage comparable to a CLTA owner’s policy. Ibid. § 7.21 at 7-20. In California, as in many states, the CLTA endorsement forms are used along with the ALTA endorsement forms and customized forms that may be negotiated with the title insurance company.

3.3 Preliminary Reports and Title Commitments. It is common in California, as in many states, for the buyer to obtain a preliminary report. This report is sometimes referred to in purchase agreements as a “preliminary title report,” although the name was changed in California by statute effective January 1, 1982. Cal. Ins. Code § 12340.11. The deletion of the word “title” was intended to distinguish a preliminary report from a title abstract, because (unlike a title abstract) a preliminary report is not intended to create any duty or liability for the title insurance company. Although the preliminary report appears to be a report of the status of title, it is loaded with disclaimers (including a statement that there may be other title exceptions) to make clear that a buyer relies upon it at its own risk. By statute, it is not to be construed as a title representation. Cal. Ins. Code § 12340.11. And case law has made clear that “[a] party that seeks to hold an insurer liable for negligently providing title information upon which the party relied must obtain an abstract of title . . . . In short, there are two ways in which an interested party can obtain title information upon which reliance may be placed: an abstract of title or a policy of title insurance.” Soifer v. Chicago Title Company (Cal. App. 2d Dist. 2010) 187 Cal.App.4th 365, 374. Sometimes, the buyer will obtain a commitment rather than a preliminary report, but commitments may fare little better because the statute refers to both preliminary reports and commitments. Cal. Ins. Code § 12340.11. “Until a contract to issue a policy is created . . . , the commitment carries with it the same statutory protections as the preliminary report.” CEB, CALIFORNIA TITLE INSURANCE PRACTICE, supra, § 5.31 at 5-29. Commitments can create a binding obligation to issue a policy, but they often do not reach that stage because, for example, they may not include the name of the buyer or the liability amount or the commitment fee has not been paid. See ibid. § 5.33 at 5-30.

3.4 Property Tax Liens. Generally, the tax lien for each fiscal year (July 1–June 30) in California arises on the immediately preceding January 1. Cal. Rev. & Tax. Code § 2192; Cal. Gov. Code § 29001. The lien for government improvement special assessments (for assessment districts or community facilities districts) arises when a notice of assessment or notice of special tax lien is recorded. Cal. Sts. & Hy. Code §§ 3114–3115. The 2006 ALTA form owner’s policy generally covers any liens for taxes or assessments that are due or payable and are unpaid and are not specified on Schedule B. See paragraph 2(b) of the Covered Risks. But what if the voters approve a local special assessment for public improvements and the government has not yet levied an assessment and the lien does not attach until after the deed is recorded? This special assessment is not likely to be covered by the 2006 ALTA title insurance policy because of paragraph 3 of the Exclusions From Coverage: “Defects, liens, encumbrances, adverse claims, or other matters . . . (d) attaching or created subsequent to Date of Policy.” And what happens if the purchase is not expected to result in a reassessment? See infra part 9.2. Might there be some assessments specific to the property that have not been processed and could increase the property taxes for the period after closing? See Cal. Rev. & Tax. Code § 75.54(c) for proration of supplemental assessments between seller and buyer and Cal. Rev. & Tax. Code § 531.2 for potential proration between seller and buyer of escape assessments.

10892265.21 2 3.5 Escrows. California real estate purchases often, if not usually, involve an escrow, both to hold the deposit and to consummate the closing. The most common closing alternative, namely a “table” closing (in which the parties meet face to face to close the transaction), is rarely used to close a California purchase agreement. See 3 FRIEDMAN ON AND CONVEYANCES OF REAL PROPERTY § 13:4 at 13- 26–13-29 (7th ed. 2015) for a description of a table closing. See also CEB, CALIFORNIA TITLE INSURANCE PRACTICE, supra, §§ 10.3–10.4 at 10-3–10-4. (Sometimes a table closing is referred to as a “New York style closing”, but the words “New York style closing” are used by some to refer to a “gap closing”, which is a relatively common arrangement under which the funds are disbursed before the deed is recorded and the title insurance company insures the gap, usually based on a gap from the seller. Even in New York, the table closing has largely become a part of history. Most real estate purchase closings occur through escrow, although they are often gap closings.) Although independent escrow companies are occasionally used in Southern California, many, if not most, practitioners in California prefer to use an escrow agent that is affiliated with the title company. See ibid. § 10.3 at 10-3.

3.6 Role of Attorneys. In California, unlike some states (e.g., Florida and Georgia), attorneys are not used as title agents and, although allowed, typically do not function as escrow agents (although arrangements between counsel to hold executed signature pages or counterparts pending closing or further instruction are common). See, e.g., NAIC TITLE INSURANCE TASK FORCE, SURVEY OF STATE INSURANCE LAWS REGARDING TITLE DATA AND TITLE MATTERS (Mar. 22, 2010), available at http://tinyurl.com/gv6q7jk; Bernhardt, Attorneys as Escrow Agents, 29 REAL PROP. L. REP. 342, 344 (Sept. 2006) (“California not only allows attorneys to serve as escrow agents, it makes it easy to do so by waiving [certain] license requirements . . . . The best thing we might do for ourselves is to get that exemption repealed.”).

4. CLOSING PROCEDURE

4.1 Closing Documents.

4.1.1 Form of Deed. In California, the custom is to use grant deeds. The statutory form is set forth in Cal. Civ. Code § 1092. Unless otherwise provided, the following are implied covenants under a grant deed in California:

1. That previous to the time of the execution of such conveyance, the grantor has not conveyed the same estate, or any right, title, or interest therein, to any person other than the grantee;

2. That such estate is at the time of the execution of such conveyance free from encumbrances done, made, or suffered by the grantor, or any person claiming under him.

Cal. Civ. Code § 1113. For more information regarding California deed requirements, see CEB, CALIFORNIA REAL PROPERTY SALES TRANSACTIONS Ch. 10 (4th ed. 2015).

4.1.2 Tenant Notices. A buyer may wonder why a seller in California cares about how tenant notices are delivered. The reason is to ensure that the seller is released from further liability with respect to the security deposits. Under Cal. Civ. Code § 1950.7(d), the seller (landlord) is relieved of further liability with respect to a security deposit under a commercial lease upon transferring the deposit to the buyer (successor landlord) and thereafter notifying the tenant “by personal delivery or certified mail of the transfer, of any claims made against the . . . deposit, and of the transferee’s name and address. If the notice is made by personal delivery, the tenant shall acknowledge receipt of the notice and sign his or her name on the

10892265.21 3 landlord’s copy of the notice.” See Cal. Civ. Code § 1950.5(h) for the corresponding requirements that apply to a residential lease.

4.1.3 State Tax Withholding Certificate. The purchase agreement should require the seller to deliver any required state tax withholding or non-foreign status certificate. Although not necessary, for clarity, consider specifying the applicable California form of tax withholding certificate (currently, California State Form 593-C).

4.1.4 Preliminary Change of Ownership Report. In California, the buyer typically prepares and files a preliminary change of ownership report (PCOR) to put the county assessor on notice of the change in ownership resulting from the buyer’s purchase. The PCOR is a brief questionnaire requesting information on the property, principals involved in the transfer, type of transfer, purchase price and terms of sale, if applicable, and other pertinent data. The county recorder may charge an additional $20 recording fee if the PCOR is not filed with the deed. The buyer is still obligated to file a Change in Ownership Statement (COS) with the county assessor within the time limits set forth in Cal. Rev. & Tax. Code § 480 (typically 90 days of the date of transfer for commercial transactions). Many California purchase agreements do not address the PCOR.

4.1.5 Transfer Tax Statements. Many buyers and sellers would prefer not to disclose the price in the public record. So, for many years in California, a separate statement of documentary transfer tax was delivered (rather than indicating the amount of the transfer tax on the deed). This practice was once permitted by Cal. Rev. & Tax. Code § 11932. However, the law was changed as of January 1, 2015 to require disclosure of the amount of the transfer tax on the face of the deed. Cal. Rev. & Tax. Code §§ 11932–11933. Many counties also require a separate transfer tax affidavit. Check with the title company to determine whether one is required by the county where the property is located.

4.2 Closing Cost Allocation. The custom for allocating closing costs varies between Southern and Northern California and, in some cases, among counties. In Southern California, (1) the seller pays (a) transfer taxes (which are discussed in part 9.3 below), except that the custom for allocating municipal transfer taxes varies (i.e., some sellers argue that city transfer taxes should be split equally or at least that the allocation is negotiable in larger transactions), (b) the premium for a CLTA title insurance policy, and (c) 50% of any escrow fees; and (2) the buyer pays (a) possibly all or a portion of the municipal transfer taxes as noted above, (b) the additional costs to obtain an ALTA title insurance policy and any endorsements, and (c) 50% of any escrow fees. Unlike Southern California, Northern California does not have a single custom for allocating closing costs. For example, it is often stated that, in several Northern California counties, including San Francisco, the buyer pays the entire title insurance premium. In other Northern California counties, the base title insurance premium may be split between the seller and the buyer 100/0, 75/25 or 50/50, depending on the county. The allocation of escrow charges may also vary from county to county in Northern California. The customary allocation (arguably other than for municipal transfer taxes) is often determined by visiting most national title insurance company websites. See, e.g.,COMMONWEALTH LAND TITLE COMPANY, REAL ESTATE LAWS & CUSTOMS BY STATE (May 2014), available at http://tinyurl.com/jsk22qs; FIRST AMERICAN TITLE, YOUR GUIDE TO REAL ESTATE CUSTOMS BY STATE (Sept. 2014), available at http://tinyurl.com/zpsv9c2. But since dollars are fungible, it is possible to use different allocations, which happens from time to time (particularly in large deals involving one or more out-of-state parties). This practice has added to the lack of uniformity in Northern California (especially in San Francisco). To add to the confusion, the author has encountered purchase agreements (prepared by or for Southern California professionals) that use Southern California customs to sell Northern California real estate (especially in San Francisco). Indeed, real estate professionals may be able to point to past transactions that have consistently used an allocation (e.g., having the seller pay all or a portion of the base premium in San Francisco) that is contrary to the custom published on the title insurance company websites.

10892265.21 4 4.3 Property Tax Prorations. Unlike some states (e.g., Illinois and Florida), property taxes in California are generally not paid more than six months in arrears. See Carey, Prorations: Watch Out for Real Estate Taxes Paid in Arrears,REAL EST. FIN. J., Spring 1993, at 11. With the exception of a few cities, property taxes in California for each half of the year are paid partially in advance and partially in arrears: property taxes for each July 1–June 30 tax year are assessed as of the preceding January 1 and are due in two equal installments; the first is due on November 1 (becoming delinquent on December 10) and the second is due on February 1 (becoming delinquent on April 10). See, e.g.,WHITNEY, ED., GUIDEBOOK TO CALIFORNIA TAXES ¶ 1708 at 790 (2015).

5. CERTAIN REMEDIES AND DEFENSES

5.1 . Many, if not most, California real property purchase agreements provide that, if the buyer breaches its obligation to close, then the deposit is forfeited to the seller as liquidated damages.

5.1.1 General Rule. With some exceptions, liquidated damage clauses are generally valid in California “unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made.” Cal. Civ. Code § 1671(b). Consequently, it is relatively common in California to see statements intended to support the reasonableness of the manner in which the liquidated damages were determined.

5.1.2 Real Property Purchase Agreement. With the exception of certain residential purchase agreements (i.e., involving not more than four residential units, at least one of which the buyer intends to occupy), the general rule stated in part 5.1.1 above applies to a California real property purchase agreement (that liquidates damages if the buyer breaches its obligation to close) subject to the following additional requirements (Cal. Civ. Code § 1676):

 A provision in a California real property purchase agreement liquidating damages if the buyer fails to close is invalid unless “[t]he provision is separately signed or initialed by each party.” Cal. Civ. Code § 1677(a).

 “If the provision is included in a printed contract, it [must be] set out either in at least 10-point bold type or in contrasting red print in at least eight-point bold type.” Cal. Civ. Code § 1677(b).

The latter statutory requirement is probably intended to apply to so-called “preprinted” contracts rather than the typical contract prepared through word processing and then printed on an office printer. To be safe, many buyers (and sellers) in California use at least 10-point bold type.

5.2 Specific Performance by Seller. Most sophisticated buyers in California also insist that the seller’s right to liquidated damages is the sole and exclusive remedy (and not merely the sole and exclusive right to damages) if the buyer breaches its obligation to close (without limiting, however, certain obligations that survive termination). Their concern is that otherwise the seller may be able to bring an action for specific performance despite the existence of a liquidated damage clause. Cal. Civ. Code §§ 1680 (“Nothing in this chapter affects any right a party to a contract for the purchase and sale of real property may have to obtain specific performance.”) and 3389 (“A contract otherwise proper to be specifically enforced, may be thus enforced, though a penalty is imposed, or the damages are liquidated for its breach, and the party in default is willing to pay the same.”); see also CEB, CALIFORNIA REAL PROPERTY SALES TRANSACTIONS, supra, § 4.143 at 4-132–4-134; Schaefer, A Seller’s Specific Performance Remedy in a Residential Real Estate Transaction, 40 MARIN LAW. 3 (Feb. 2009).

10892265.21 5 5.3 Survival Limits. In California, as in other states, the amount of time, if any, a buyer may have after closing to make a claim for the seller’s breach of a real property purchase agreement may depend on a number of factors including (1) the doctrine of merger, (2) the applicable statute of limitations, and (3) contractual limits.

5.3.1 Merger. “Absent fraud, , agreement or other special circumstances, the buyer’s acceptance of the deed at closing results in a merger of prior negotiations and agreements . . . . However, matters collateral to the conveyance (i.e., those that ordinarily do not become part of the deed) are not merged . . . .” CEB, CALIFORNIA REAL PROPERTY SALES TRANSACTIONS, supra, § 4.109 at 4-106. See also MILLER & STARR,CALIFORNIA REAL ESTATE § 8:4 at 8-23–8-24 (4th ed. 2015) (emphasizing that the application of the merger doctrine depends upon the intent of the parties); POWELL ON REAL PROPERTY §§ 81.01[3][a] at 81-15; 81.03[6][h] at 81-153–81-155; 81.05[11][d] at 81-247; 81A.07[1][d] at 81A-135– 81A-137 (2015). Exactly what obligations are encompassed by the concept of merger may not always seem clear.

 Some practitioners believe that, without a survival provision, representations and warranties do not survive closing because they merge with the deed. Support for this view may be found in some secondary reference materials both in California and elsewhere. See, e.g., citations in Herring v. Teradyne Inc. (S.D. Cal. 2002) 256 F.Supp.2d 1118, 1127 (which was reversed by the Ninth Circuit as to a related but different issue). For example, GREENWALD & BANK, CALIFORNIA PRACTICE GUIDE: REAL PROPERTY TRANSACTIONS ¶ 11:92.1 (2015) states: “Absent a ‘survival clause’ . . . representations and warranties in a purchase and sale agreement merge into the deed and are thereby extinguished by the closing; after the conveyance, they have no independent existence.” [citations omitted]. Ostensible support for this broad merger concept may be found in Western Filter Corp. v. Argan, Inc. (9th Cir. 2008) 540 F.3d 947, 952, a case involving a stock purchase agreement governed by California law, in which the Ninth Circuit stated that: “Unless the parties agree to a survival clause—extending the representations and warranties past the closing date—the breaching party cannot be sued for damages post-closing for their later discovered breach.”

 But “[t]he rule that prior expressions are merged into the deed is not as broad and absolute as some abbreviated statements of the doctrine might indicate.” Szabo v. Superior Court (Cal. App. 2d Dist. 1978) 84 Cal.App.3d 839, 843 (delivery of deed did not necessarily preclude enforcement of a representation and warranty in the purchase agreement that the property complied with zoning laws). Indeed, there are often qualifications that may easily be overlooked. Consider the impression that would have been created had the quote at the beginning of this part 5.3.1 been limited to the first sentence. Similarly, the language quoted above from the GREENWALD & BANK CALIFORNIA PRACTICE GUIDE is qualified with an admonition to see Ram’s Gate Winery, LLC v. Roche (Cal. App. 1st Dist. 2015) 235 Cal.App.4th 1071, 1079–1081, which states a much narrower rule: “[W]e agree with those courts which have limited application of the merger doctrine to circumstances where the contractual terms are inconsistent with the deed, or where the parties clearly intend to have all contractual obligations subsumed by the recitals of the recorded deed.” Ibid. at 1081. Moreover, the GREENWALD &BANK CALIFORNIA PRACTICE

10892265.21 6 GUIDE identifies only two cases to support the quoted statement in the prior paragraph, both of which involved survival clauses so merger was not an issue. One of them, Linden Partners v. Wilshire Linden Associates (Cal. App. 2d Dist. 1998) 62 Cal.App.4th 508, 524, does not mention the merger doctrine at all. The other one, the Western Filter case discussed above, may not be given great weight because its statement of the merger doctrine was not only dicta, it was also stipulated by the parties.

But most buyers try to avoid any doubt that representations and warranties (and sometimes other obligations) are intended to survive closing (and delivery of the deed) for some survival period. While many, if not most, covenants in the purchase agreement may be “collateral” agreements that are not subject to the doctrine of merger, sellers sometimes want to provide that nothing survives the closing unless expressly provided to the contrary. The buyer may want to take the position (and provide) that all obligations survive for some period after closing.

5.3.2 Statute of Limitations. The statute of limitations for breach of a written contract varies from state to state. See, e.g.,TWOMEY, JENNINGS & GREENE, BUSINESS LAW: PRINCIPLES FOR TODAY’S COMMERCIAL ENVIRONMENT § 18-4d at 328 (5th ed. 2017) (“The time limitation provided by state statutes of limitations varies widely.”). In California, the general rule for a written contract is four years. Cal. Code Civ. Proc. § 337. See also 3 WITKIN, CALIFORNIA PROCEDURE §§ 508–514 at 650–59 (5th ed. 2015). By contrast, the corresponding general rule (for a written contract) is, for example:

 three years in the District of Columbia, D.C. Code § 12-301(7), Maryland, Md. Cts. & Jud. Proc. Code § 5-101, and Delaware, 10 Del. Code § 8106(a);

 six years in New York, N.Y. Civ. Prac. Laws & Rules § 213(2); and

 ten years in Illinois, 735 Ill. Comp. Stat. 5/13-206.

As in other parts of the country, this time limit may not be relevant in commercial real property purchase agreements because of contractual time limitations that are typically included in the purchase agreement, which are discussed in part 5.3.3 below. But the author has encountered purchase agreements with provisions (e.g., a reciprocal brokerage indemnity) that are not the subject of any contractual modification of the statute of limitations. In such instances, the buyer may want to know not only the length of the limitation period but also when it begins. “A cause of action for ordinarily accrues at the time of breach, and the statute begins to run at that time regardless whether any damage is apparent or whether the injured party is aware of his or her right to sue.” WITKIN, CALIFORNIA PROCEDURE, supra, § 520 at 664; see also CEB, CALIFORNIA LAW OF CONTRACTS §§ 9.2–9.5 at 9-4–9-8 (2015). See also CEB, CALIFORNIA REAL PROPERTY REMEDIES AND DAMAGES, supra, § 4.60 at 4-88–4-89. For example, the cutoff may be longer than four years from closing (e.g., the breach of a post-closing brokerage indemnity where a broker makes a claim for indemnification after closing and the obligation to indemnify is not breached until that time). And, in some circumstances, the time period may not begin to run until after the breach. See, e.g., Cal. Code Civ. Proc. § 337.3 (if a rescission action is based on fraud or mistake “the time does not begin to run until the discovery . . . of the . . . fraud or mistake”); WITKIN, CALIFORNIA PROCEDURE, supra, §§ 520–21 at 664–67, § 529 at 678–80.

5.3.3 Shortening the Period. As in other states, sellers in California typically try to limit the survival of any claims against the seller to a period that is much shorter than the applicable statute of limitations. And, as in many other states, such limitations have been permitted when tested by the courts if they are not unreasonable. See, e.g., CEB, CALIFORNIA LAW OF CONTRACTS, supra, § 9.5 at 9-7; Capehart v.

10892265.21 7 Heady (Cal. App. 1st Dist. 1962) 206 Cal.App.2d 386 (three-month period in real property lease); see also 15 CORBIN ON CONTRACTS § 83.8 at 287 (rev. ed. 2003) (shortening the statutory period “assists the public policy behind statutes of limitations: preventing stale claims.”). However, the law in California is not entirely consistent regarding the relevant public policy and some California courts have looked upon contracts that shorten the statutory period with disfavor and have strictly construed them. Compare, e.g., (x) Lewis v. Hopper (Cal. App. 1st Dist. 1956) 140 Cal.App.2d 365, 367 (“‘[C]ontractual stipulations which limit the right to sue to a period shorter than that granted by statute, are not looked upon with favor because they are in derogation of the statutory limitation. Hence, they should be construed with strictness against the party invoking them.’” [citations omitted]), which was followed by the 9th Circuit (applying California law) in Western Filter Corp., supra, at 952, with (y) Zalkind v. Ceradyne (Cal. App. 4th Dist. 2011) 194 Cal.App.4th 1010, 1030, which declined to follow Lewis.

5.3.4 Extending the Period. In some states, the statute of limitations for a breach of contract may be extended by opting into a longer statute of limitations for contracts under seal. For example, a contract under seal is subject to a statute of limitations of:

 12 years in Maryland, Md. Cts. & Jud. Proc. Code § 5-102(a)(5), and the District of Columbia, D.C. Code § 12-301(6); and

 20 years in Georgia, Ga. Code § 9-3-23, and Massachusetts, Mass. Gen. Laws ch. 260, § 1.

This option is not available in California, which has no separate statute of limitations for contracts under seal. But what if the parties simply agree to a longer statute of limitations? Corbin suggests that a contractual extension of the statute of limitations for breach of a written contract may be of dubious value:

Because the purpose of a statute of limitations is “to prevent the bringing and enforcement of stale claims, involving extra danger of fraud and mistake,” courts do not enforce parties’ agreements to lengthen the limitations period.

CORBIN ON CONTRACTS, supra, § 83.8 at 289–90 [citations omitted]. On the other hand, according to Witkin:

In some jurisdictions . . . a waiver or contractual extension [of the statute of limitations] is void; in others it is valid if the duration is reasonable.

WITKIN, CALIFORNIA PROCEDURE, supra, § 468 at 593 [citations omitted]. For example, prior to enactment of Cal. Code Civ. Proc. § 360.5 in 1951, “California courts, stressing the theory of ‘personal privilege’ . . . took the extreme position [subject to potential public policy exceptions] that a permanent waiver (or its practical equivalent, a waiver for 99 years) [of the statute of limitations] was valid.” Ibid. Some state legislatures have also taken a more permissive approach. For example, in Delaware (a case from which is cited to support the above quote from CORBIN), the legislature has recently taken action: Delaware previously allowed the parties to opt into a 20-year statute of limitations by using a contract under seal, Whittington v. Dragon Group, L.L.C. (Del. 2009) 991 A.2d 1, 10; and in late 2014, Delaware enacted a statute allowing for contractual extensions for most contracts (involving at least $100,000) of up to 20 years without requiring a seal. 10 Del. Code § 8106(c). By contrast, California’s statute appears to be less permissive than the California case law that preceded it, and unlike the Delaware statute (which refers to “a period specified” in the contract), the California statute refers to a “waiver” of the statute of limitations. While California does not allow unlimited waivers, it does appear to allow certain more limited extensions, including an initial extension for four years. Cal. Code Civ. Proc. § 360.5. As stated by Witkin:

10892265.21 8 Although the section is somewhat complicated, it seems clear that (a) it abolishes perpetual and longtime waivers in the original instrument; but (b) it permits a provision extending the period (up to 4 years for written contract) by an additional 4 years; and (c) it allows any number of successive but separately executed renewal agreements for additional periods of up to 4 years.

WITKIN, CALIFORNIA PROCEDURE, supra, § 468 at 594. See also California First Bank v. Braden (Cal. App. 2d Dist. 1989) 216 Cal.App.3d 672, 676 (“We conclude that the plain language of the statute provides that a written waiver executed prior to the running of the applicable statute of limitations shall be effective for a period of four years from the commencement of the running of the statute of limitations.”). Consequently, a buyer should not assume that a provision in a California purchase agreement stating that a particular representation or covenant “survives indefinitely” will operate to extend the statutory period for more than four years.

5.4 Requirements and Limits for Seller Disclosures; Fraud.

5.4.1 Seller Disclosures. There are numerous statutory disclosure requirements imposed upon sellers in California depending on the type of transaction, including disclosures regarding: (a) releases of hazardous substances under Cal. Health & Saf. Code § 25359.7; (b) natural hazards (e.g., seismic hazard zones under Cal. Pub. Resources Code § 2694, delineated earthquake fault zones under Cal. Pub. Resources Code § 2621.9, earthquake safety for certain buildings under Cal. Gov. Code §§ 8875.6 & 8893.2, special flood hazard areas under Cal. Gov. Code § 8589.3, areas of potential flooding under Cal. Gov. Code § 8589.4, very high fire hazard severity zones under Cal. Gov. Code § 51183.5, and certain wildland areas that may contain substantial forest fire risks and hazards under Cal. Pub. Resources Code § 4136); and (c) meth lab cleanup orders under Cal. Health & Saf. Code § 25400.28. There were energy use disclosure requirements under Cal. Pub. Resources Code § 25402.10, but they were phased out on December 31, 2015; new energy use disclosure requirements are expected to be implemented in California by 2017. CALIFORNIA ENERGY COMMISSION, BUILDING ENERGY USE BENCHMARKING AND PUBLIC DISCLOSURE PROGRAM, available at http://tinyurl.com/jj5bo7e; A.B. 802, ch. 590 (Statutes of 2015). Additional statutory disclosure requirements that will take effect in the future include: compliance with water-conserving fixtures statutes (to take effect on January 1, 2019), Cal. Civ. Code § 1101.5(e); and the presence of mold in certain buildings (to take effect on the first January 1 or July 1 that is at least six months after the California State Department of Health Services adopts the relevant standards), Cal. Health & Saf. Code § 26140. There may also be local (e.g., municipal) and federal disclosure requirements. Many, if not most, sellers try to turn the statutory disclosure requirements on their head to make them the buyer’s problem. The key here for most buyers in California is to be on the lookout for disclosures of actual problems relating to the property and to make sure that the disclosure language does not inadvertently undercut any express representations or impose anything more than an acknowledgement of the absence of seller liability.

5.4.2 As-Is Provisions and Other Disclaimers: Fraud. In California, “[a]ll contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud” are unlawful. Cal. Civ. Code § 1668. (See Cal. Civ. Code § 1667 for definition of unlawfulness.) In a purchase agreement, “an ‘as-is’ clause does not relieve the seller of the and statutory duties of disclosure or liability for fraud.” CEB, CALIFORNIA REAL PROPERTY SALES TRANSACTIONS, supra, § 6.9 at 6-13. Fraud is broadly defined in California. For example, California “case law has long held that negligent is included within the definition of fraud.” Blankenheim v. E. F. Hutton & Co. (Cal. App. 6th Dist. 1990) 217 Cal.App.3d 1463, 1472–73. See also Cal. Civ. Code §§ 1572(2), 1572(5), 1573 and 1710(2). However, the seller’s common law disclosure obligations may not extend to matters that are apparent upon inspection, and (although the law in California is not completely clear) the buyer’s failure to conduct a reasonable, permitted inspection may even hamper its ability to rely on the express representations

10892265.21 9 of the seller. See, e.g., 1 MILLER & STARR,CALIFORNIA REAL ESTATE, supra, § 1:156 at 1-654 (duty to disclose material facts known only to the seller and not reasonably accessible to the buyer), § 1:160 at 1-675 (there is “no lesser duty . . . when the property . . . is . . . commercial . . . rather than residential . . . .”), § 1:168 at 1-721 (“An express right of investigation may limit the buyer’s right to rely [on the seller’s representations], but the law is uncertain on this issue.”); 1 CEB, CALIFORNIA REAL PROPERTY SALES TRANSACTIONS, supra, § 4.49 at 4-46 (The seller is obligated to disclose material facts “that would not be apparent to the buyer on inspection.”), § 4.70 at 4-68 (“The buyer is charged with constructive notice of matters discoverable by inspection of the property”). So the buyer should take steps to discover whatever is reasonably discoverable.

5.4.3 Releases. If a California purchase agreement contains a release, there is often a reference to Civil Code section 1542. This statute provides:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

The seller’s counsel usually tries to waive the benefits of this statute with a so-called “1542 waiver.” There is no statutory form for this waiver. “Furthermore, mere recital, as in the release signed by plaintiffs, that the protection of Civil Code section 1542 is waived, or that the release covers unknown claims or unknown parties is not controlling. Whether the releaser intended to discharge such claims or parties is ultimately a question of fact.” Leaf v. City of San Mateo (Cal. App. 1st Dist. 1980) 104 Cal.App.3d 398, 411. To make it clear that the parties intend to waive this statute, a 1542 waiver typically recites the statute and states the waiver with all capital letters and bold type. Sometimes it is separately initialed too. A 1542 waiver is relatively standard in California. Consequently, the buyer should carefully consider the scope of claims being released and what, if any, claims should be preserved. See, e.g., Belasco v. Wells (Cal. App. 2d Dist. 2015) 234 Cal.App.4th 409, 421–23 (waiver of Civ. Code § 1542 was effective to release the builder from claims for latent defects discovered in the future); San Diego Hospice v. County of San Diego (Cal. App. 4th Dist. 1995) 31 Cal.App.4th 1048, 1053–54 (waiver of Civ. Code § 1542 was effective to release the seller from claims for environmental contamination discovered in the future).

5.4.4 Defense Based on Buyer Knowledge (Anti-Sandbag). What if a buyer learns of a seller’s fraud or breach of a representation before the closing and proceeds to closing? Does the closing waive the buyer’s claim? There are California cases holding that seller fraud discovered after the contract and prior to closing is waived by closing, e.g., Kazerouni v. De Satnick (Cal. App. 2d Dist. 1991) 228 Cal.App.3d 871, and other California cases holding the opposite, e.g., Jue v. Smiser (Cal. App. 1st Dist. 1994) 23 Cal.App.4th 312. One commentator has stated that “[t]he decisions are divided [in California] . . . . The weight of California case law supports the rule that a party to an executory contract does not waive his or her right to recover damages caused by the fraud of the other party by completing the transaction after the fraud has been discovered. . . . However, there is contrary authority . . . .” MILLER & STARR, CALIFORNIA REAL ESTATE, supra, § 1:171 at 1-747–1-748. Corporate merger and acquisition agreements often provide contractual support for, and seldom provide contractual support to negate, this rule (i.e., which allows a buyer’s fraud claim to survive closing despite the buyer’s knowledge) in the context of representations and warranties. Whitehead, Sandbagging: Default Rules and Acquisition Agreements, 36 DEL. J. CORP. L. 1081 (2011); see also West & Shah, Debunking the Myth of the Sandbagging Buyer: When Sellers Ask Buyers to Agree to Anti-Sandbagging Clauses, Who is Sandbagging Whom?, 11 M&ALAW. 3 (Jan. 2007). By contrast, sellers in real property purchase agreements often include a so-called “anti-sandbag” provision (under which claims known to the buyer prior to closing are waived by closing). Whether it is appropriate to resist or accept such a provision may depend on the facts and the relative bargaining power of the parties. Whether it will change the ultimate result under California law in the absence of such a provision will also depend on the facts and perhaps the relevant court. For example, in Jue v. Smiser, the court based its holding on the fact that

10892265.21 10 reliance was established at the time the purchase agreement was signed, noting that “reliance must be established at the time the initial contract is struck [and it] is not necessary that a claimant establish continuing reliance until the contract is fully executed in order to maintain an action for damages”; but the court also seemed influenced by the fact that “no evidence was presented . . . that further investigation of the validity of the representations . . . was contemplated by anyone.” Jue v. Smiser, supra, 317 and 318 at n.6. Indeed, the court stated: “When [a due diligence] examination is contemplated by the parties at the time the original purchase agreement is struck, a buyer will face a difficult burden of establishing that he, in fact, relied on a seller’s representations when the original agreement was struck.” Jue v. Smiser, supra, 318 at n.6. See MILLER & STARR,CALIFORNIA REAL ESTATE, supra, § 1:168 at 1-721 (“[T]here is a conflict in the authorities as to whether [a due diligence inspection] provision precludes the buyer’s reliance on the representations of the seller . . . .”).

5.5 Dispute Resolution (Jury Trial, Arbitration, Judicial Reference and Attorneys’ Fees).

5.5.1 Jury Trial Waiver. In California, pre-dispute jury trial waivers are unenforceable, but the parties may agree to arbitration (Cal. Code Civ. Proc. § 1281) or judicial reference (Cal. Code Civ. Proc. § 638) to avoid going to trial. See Grafton Partners v. Superior Court (Cal. 2005) 36 Cal.4th 944, 964; Block & Paal, Trial by Jury in Real Property Cases, 32 CAL. REAL PROP. J. 3, 15 (2014); but see MILLER & STARR, CALIFORNIA REAL ESTATE, supra, § 45:5 at 45-12 (4th ed. 2015) (“In some cases, courts have declined to enforce a judicial reference agreement due to concerns about the efficiency of a jury trial waiver.” [citations omitted]).

5.5.2 Arbitration. If an is included in a California real property purchase agreement, it must be clearly titled “ARBITRATION OF DISPUTES” and the arbitration provision must be set out in capital letters if the contract is typed (and there are special rules for printed contracts requiring eight-point type in bold or contrasting red). Cal. Code Civ. Proc. § 1298(a). It must also contain a statutory all-cap form of notice that is initialed by the parties, which must also be in capital letters if the contract is typed (and there are special rules for printed contracts requiring 10-point bold type or eight-point contrasting red type). Cal. Code Civ. Proc. § 1298(c). Another point to consider when there is an arbitration clause in a California purchase agreement is the interplay between the arbitration clause and the recording of a lis pendens. See, e.g., Cart & Lanphear, The Lis Pendens: Strategies and Pitfalls, 33 CAL. REAL PROP. J. 28 (2015).

5.5.3 Arbitration vs. Judicial Reference. In deciding whether to use an arbitration clause or a judicial reference clause in California, the buyer should consider the following points.

 Privacy: arbitration may be more private, especially if the participants agree to confidentiality restrictions; see, e.g., Cal. Evid. Code § 703.5 imposing restrictions on the arbitrator’s testifying regarding the arbitration; judicial reference hearings are open to the public, CHERNICK, HALDEMAN & BETTINELLI, CALIFORNIA PRACTICE GUIDE, ALTERNATIVE DISPUTE RESOLUTION § 6:213 at 6-65 (2015).

 Predictability: arbitrators are less predictable, CEB, A LITIGATOR’S GUIDE TO EFFECTIVE USE OF ADR IN CALIFORNIA § 9.20 at 374 (2008); Mercury Ins. Group v. Superior Court (Cal. 1998) 19 Cal.4th 332, 345 (“contractual arbitration generally frees the arbitrator from making a decision strictly in accordance with the law”), and some litigants complain that arbitrators simply “split the baby”; a judicial referee must follow the law; see MILLER & STARR, CALIFORNIA REAL ESTATE, supra, § 45:6 at 45-13

10892265.21 11 (referencing Cal. Code Civ. Proc. § 645); CHERNICK, HALDEMAN & BETTINELLI, CALIFORNIA PRACTICE GUIDE, supra, § 6:254 at 6-75.

 Finality: arbitration awards are generally not subject to appellate review, CEB, A LITIGATOR’S GUIDE TO EFFECTIVE USE OF ADR IN CALIFORNIA, supra, § 9.9 at 370; a judicial reference is subject to appeal, Cal. Code Civ. Proc. §§ 644(a), 904.1.

 Rules of Evidence: the California rules of evidence do not apply to an arbitration, unless the parties so agree, CEB, A LITIGATOR’S GUIDE TO EFFECTIVE USE OF ADR IN CALIFORNIA, supra, § 9.18 at 373; the California rules of evidence do apply to a judicial reference, Cal. Evid. Code § 300.

 Enforceability: as noted in part 5.5.1 above, some California courts have expressed reservations about enforcing agreements providing for a judicial reference under certain circumstances. See, e.g., Tarrant Bell Properties v. Superior Court (Cal. 2011) 51 Cal.4th 538 (Cal. Code Civ. Proc. § 638 gives the court discretion to refuse to allow a judicial reference; case involved numerous mobile homeowners); and Treo @ Kettner Homeowners Association v. Superior Court (Cal. App. 4th Dist. 2008) 166 Cal.App.4th 1055 (CC&Rs are not a “contract” within the meaning of Cal. Code Civ. Proc. § 638; case involved homeowners association). However, in the context of a commercial real property purchase agreement between two sophisticated parties, it seems unlikely that there will be enforceability issues with either an arbitration or judicial reference provision.

In the author’s experience, some parties favor arbitration simply because they desire more privacy, whereas a number of litigators prefer judicial reference because it may make the outcome more predictable. As observed by the California Supreme Court, “‘[p]rivate arbitration is a process in which parties voluntarily trade the safeguards and formalities of court litigation for an expeditious, sometimes roughshod means of resolving their dispute.’ . . . The parties accept the bad with the good.” Brennan v. Tremco (Cal. 2001) 25 Cal.4th 310, 315–17 [citation omitted].

5.5.4 Attorneys’ Fees Clause. California generally makes unilateral attorneys’ fees clauses reciprocal in favor of the prevailing party. Cal. Civ. Code § 1717; Hoffman, Attorney Fee Clauses in California Contracts, 21 CAL. BUS. L. PRAC. 82 at 84–85 (Summer 2006). See also Bright, Unilateral Attorney’s Fees Clauses: A Proposal to Shift to the Golden Rule, 61 DRAKE L. REV. 85 (2012), for a discussion of the varying approaches taken by different states.

6. Special Qualifiers (Good Faith, Best Efforts and Knowledge)

6.1 Good Faith. The meaning of the term “good faith” is not always clear in California. It may vary depending on the context and the court interpreting its usage (and could involve, for example, a subjective test, an objective test, or both). See Carey, Cauble & MacCracken, supra, at 99. If a California purchase agreement uses the term “good faith,” the buyer may want to define it.

6.2 Best Efforts. Many practitioners prefer not to use the term “best efforts” because of the varying interpretations in different states over the years ranging from an illusory obligation to an extremely onerous one. See, e.g., Fisher, The Dangers of a “Best Efforts” Clause in a Real Estate Agreement, 1 PRAC. REAL EST. LAW. 43 (Mar. 1985); Adams, Understanding “Best Efforts” and Its Variants (Including Drafting

10892265.21 12 Recommendations), 50 PRAC. LAW. 11, 15 (Aug. 2004) (“Best Efforts and its variants are vague.”). An intermediate California court has stated that “California courts have . . . not defined the term ‘best efforts’” and held that, when a contract does not define the term, a “best efforts” obligation “is different than a promise to act in ‘good faith’ . . . but the obligation is framed within the bounds of reasonableness.” California Pines Property Owners Association v. Pedotti (Cal. App. 3d Dist. 2012) 206 Cal.App.4th 384, 392 and 395 [citation omitted]. Many buyers avoid using the term “best efforts” in a California purchase agreement.

6.3 Knowledge. Some of the seller’s representations and warranties may be subject to knowledge qualifiers, the most common of which refer to “knowledge,” “actual knowledge” or “best knowledge.” The author is not aware of any law in California that establishes the meaning of these terms in a real property purchase agreement when they are not defined. Indeed, there is not an immense amount of law (in California or elsewhere in the country) interpreting these quoted terms, and what there is may be irrelevant (because the context is, more often than not, so different) and sometimes may be surprising. See, e.g., Levin, “Best” Is Not Always Best When It Comes to Knowledge?, 30 PROB.& PROP. 44 at 45, 47 (Jan./Feb. 2016) (“Many commercial lawyers believe that . . . ‘best knowledge’ . . . implies that the knowledge . . . is based on . . . investigation . . . . But most reported cases . . . have reached the opposite conclusion . . . .” And quoting from the Maryland Revised Uniform Partnership Act, “A person has notice of a fact if the person . . . (2) Has received a notification of it; or (3) Has reason to know it exists from all of the facts known to the person at the time in question.” Md. Corp. & Ass’ns § 9A-102(b)); Hexter v. Pratt (Tex. Comm’n App. 1928) 10 S.W.2d 692, 693 (which stated, in a different context, that “actual knowledge embraces those things of which the one sought to be charged has express information and likewise those things which a reasonably diligent inquiry and exercise of the means of information at hand would have disclosed”); Peterson, The Effective Use of Representations and Warranties and Selected Provisions Relating to Income Properties in Commercial Real Estate Contracts, ACREL PAPERS, Fall 1999, at 103; ABA Model Rules of Professional Responsibility, Comment on Rule 4.2 ¶ [8], available at https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_c onduct/rule_4_2_communication_with_person_represented_by_counsel/comment_on_rule_4_2.html (“ . . . actual knowledge may be inferred from the circumstances. See Rule 1.0(f). Thus, the lawyer cannot evade the requirement . . . by closing eyes to the obvious”); Notaro, Sales Contract Tug of War—Representations and Warranties,NOTARO LAW, available at http://tinyurl.com/jdybzn8 (stating, without citation, that “[s]ome courts will construe actual knowledge to include a duty to inquire where ‘.. with no duty of inquiry’ is missing.”); see also Kuney, To the Best of Whose Knowledge, 22 CAL. BUS. L. PRAC. 58 (Spring 2007); Adams, To the Best of Its Knowledge,ADAMS ON CONTRACT DRAFTING (posted Apr. 22, 2007), available at http://tinyurl.com/zcw7wdb. A buyer may want to expressly define the knowledge qualifier to include the agreed-upon level of diligence required (e.g., by adding, if and to the extent it reflects the understanding of the parties, “after reasonable inquiry” or “without any obligation to investigate”).

7. SUPPLEMENTING AND MODIFYING THE WRITTEN AGREEMENT

7.1 Integration Clause. California takes a liberal approach under its : it may be easier in California (than in some other states) to allow evidence that is extrinsic to the purchase agreement to be admitted even if the contract contains an integration clause (stating that the entire agreement of the parties is set forth in the purchase agreement). See Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association (Cal. 2013) 55 Cal.4th 1169, 1174 (which held that extrinsic evidence could be admitted under certain circumstances even though there was “no dispute in this case that the parties’ agreement was integrated”); see also Carey, Cauble & MacCracken, supra, at 91. Some commentators have suggested that integration clauses in California should be made more conspicuous (e.g., “in all caps, bolded, and/or separately initialed”). See, e.g., Di Geronimo, Not Worth the Paper It’s Printed On?, 25 MILLER & STARR REAL EST. NEWSALERT 193, 197 (Jan. 2015); but see Hot Rods, LLC v. Northrop Grumman Sys. Corp. (Cal. App. 4th Dist. 2015) 242 Cal.App.4th 1166 (upholding integration clause with express prohibition

10892265.21 13 of extrinsic evidence in a judicial reference). However, the ineffectiveness of an integration clause could be a benefit to a buyer who feels it has been misled in a purchase transaction.

7.2 Implied Covenant of Good Faith and Fair Dealing. A California court may imply provisions under the implied covenant of good faith and fair dealing to effectuate the presumed intent of the parties as to matters that are not expressly addressed. For example:

 Consents and Approvals. Absent an express standard for granting or withholding a required approval, a California court might impose a standard requiring subjective good faith, objective reasonableness or otherwise. See discussion of approvals in Carey, Cauble & MacCracken, supra, at 97–99.

 Closing Conditions. A closing condition may be subject to a good faith obligation to take steps to allow the condition to be satisfied. See, e.g., Jacobs v. Tenneco West, Inc. (Cal. App. 5th Dist. 1986) 186 Cal.App.3d 1413 (agreement subject to board of director’s approval is subject to a good faith obligation to have the board consider the agreement).

Consequently, many California buyers try to be explicit about any rights or obligations which are important (especially when the implied covenant of good faith and fair dealing might otherwise lead to an undesirable result).

7.3 Oral Modifications. An oral modification of a California purchase agreement may be enforceable absent a provision prohibiting oral modifications. See Cal. Civ. Code § 1698. However, it would be unusual if such a provision did not appear in a California purchase agreement.

8. TIMING

8.1 Time of the Essence. California courts “may . . . decide not to strictly enforce a ‘time is of the essence’ clause because money damages usually compensate the parties for any harm resulting from delayed performance. However, a ‘time is of the essence’ provision is sometimes given effect.” CEB, CALIFORNIA REAL PROPERTY SALES TRANSACTIONS, supra, § 4.152 at 4-141. See also Cal. Civ. Code § 3275 (“Whenever, by the terms of an obligation, a party thereto incurs a forfeiture . . . by reason of his failure to comply . . . , he may be relieved therefrom, upon making full compensation to the other party, except in case of a grossly negligent, willful, or fraudulent breach of duty.”). It may be difficult to predict whether a California court would strictly enforce a time is of the essence clause or grant relief (under this statute or otherwise). The California case law is not clear. See, e.g.,MILLER & STARR, CALIFORNIA REAL ESTATE, supra, § 1:108 at 1-438–1-447.

8.2 Business Days. Purchase agreements often include a provision to address the possibility that a deadline lands on a nonbusiness day. In California, failure to include such a provision (and define “business day”) can be particularly treacherous. California does have a statute to address deadlines that occur on nonbusiness days. In fact, it has two.

 One is in the California Civil Code (the “Civil Code Statute”): Cal. Civ. Code § 11 (“Whenever any act [with some exceptions] is appointed by law or contract to be performed on a . . . holiday, it may be performed upon the next business day . . . .”).

 The other is in the California Code of Civil Procedure (the “CCP Statute”): Cal. Code Civ. Proc. § 12a(a) (“If the last day for the performance of any act provided or

10892265.21 14 required by law to be performed . . . is a holiday, then that period is hereby extended to . . . the next day that is not a holiday.”).

But somewhat surprisingly, holidays do not include Saturdays in the Civil Code Statute, as they do in the CCP Statute.

 Cal. Civ. Code § 7 (“Holidays within the meaning of this code are every Sunday and such other days as are specified or provided for as holidays in the Government Code of the State of California”); Cal. Civ. Code § 9 (“All other days than those mentioned in Section 7 are business days for all purposes . . . .”).

 Cal. Code Civ. Proc. § 12a(a) (“For purposes of this section, ‘holiday’ means all day on Saturdays, all holidays specified in . . . .”).

In other words, contrary to common usage, Saturday is not a holiday and is therefore a business day in California under the Civil Code Statute. Gans v. Smull (Cal. App. 2d Dist. 2003) 111 Cal.App.4th 985, 989– 90 indicates that the Civil Code Statute is the relevant statute for (and the CCP Statute does not apply to) acts governed solely by contractual provisions. Consequently, many buyers in California define “business day” to exclude Saturdays.

8.3 Time Zones.

8.3.1 Standard Time. In a California purchase agreement, the words “standard time” (lower case) mean the time then in effect, whether “Standard Pacific Time” or “Daylight Saving Time.” Miracle Auto Ctr. v. Superior Court (Cal. App. 1st Dist. 1998) 68 Cal.App.4th 818, 822 (case involving a general commercial liability insurance policy but noting the more general rule provided for under the Government Code); Cal. Gov. Code §§ 6807-2–6807-4.

8.3.2 Notices. If one of the parties is east of the Pacific time zone, it may want to provide that notices must be received before 5:00 p.m. “local time where received.” However, the buyer usually has local people involved in the purchase and may want to be able to utilize the full local business day (i.e., until 5:00 p.m. Pacific Time) to meet certain deadlines (e.g., a deadline for delivering a termination notice).

9. ENTITY, PROPERTY, TRANSFER AND SALES TAXES

A buyer may want to consider how local taxes in California will add to the costs of the transaction and the buyer’s future operations and whether the structure of the transaction and the form of the buyer entity (or the entity that will take title to the property) can be tailored to reduce these costs. Three key taxes typically worth checking are entity, property and transfer taxes. Sales taxes may also be relevant depending on the facts.

9.1 Entity Taxes. In most purchases of California real estate in which the author is involved, a special purpose entity (SPE) buyer is formed as a limited liability company or a limited partnership. In the author’s experience, the buyer entity is formed in Delaware rather than California, despite the additional Delaware costs, due to uniformity, predictability and flexibility concerns, and to facilitate any anticipated institutional financing. See, e.g., CEB, FORMING AND OPERATING CALIFORNIA LIMITED LIABILITY COMPANIES § 14.3 at 14-3–14-4 (3d ed. 2016). The buyer entity is then qualified to do business in California. The buyer should be informed about California entity taxes that may apply to this form of ownership:

9.1.1 Minimum Franchise Tax. The California corporate annual minimum franchise tax of $800 is imposed on limited partnerships and limited liability companies. Cal. Rev. & Tax. Code §§ 23153 (corporations), 17935 (limited partnerships), and 17941 (limited liability companies).

10892265.21 15 9.1.2 LLC Gross Receipts Tax. There is also a California annual gross receipts tax imposed on limited liability companies (ranging from $0 to approximately $12K per annum depending on the amount of annual gross revenues). Cal. Rev. & Tax. Code § 17942(a). If annual income is expected to be sufficiently high (and the asset will be owned for a significant time), some buyers may want to own the property through a limited partnership (which may be structured to be a disregarded entity for federal income tax purposes) to avoid or minimize the gross receipts tax.

9.2 Property Taxes. In 1978, Proposition 13 changed California’s property tax regime so that generally property taxes in California do not exceed 1% of acquisition value, with annual increases capped at 2% per year. Among other exceptions to the general rule, there may be additional tax rates to pay for “bonded indebtedness for the acquisition or improvement of real property approved . . . by two-thirds (55%, if related to school bonds) of those voting in a local election.” WHITNEY, 2016 GUIDEBOOK TO CALIFORNIA TAXES, supra, ¶ 1706 at 780. See also ibid. ¶ 1702 at 773. Moreover, reassessment is generally required as of the first day of the month following the “completion of new construction” (for the new construction) or a “change in ownership” (for the property as to which ownership has changed). See Cal. Rev. & Tax. Code §§ 75, 75.41(b).

9.2.1 Reassessments—Changes in Ownership. The buyer should understand that a purchase will generally constitute a “change in ownership” of the property, and cause the property to be reassessed at its full fair market value. However, there may be exceptions to this general rule depending on the nature of the property and the structure of the transaction. For example:

 The transfer of property subject to a ground leasehold estate with a remaining term (including renewal options) of 35 years or more is not a change in ownership. Cal. Rev. & Tax. Code § 62(g).

 Similarly, the transfer of a leasehold estate with a remaining term (including renewal options) of less than 35 years may not be a change in ownership. See Pacific Southwest Realty Co. v. County of Los Angeles (Cal. 1991) 1 Cal.4th 155.

 A direct or indirect transfer of ownership interests (in an entity that owns real estate) does not result in a change in ownership, subject to three exceptions. Cal. Rev. & Tax. Code § 64; Cal. Code Regs. (C.C.R.), tit. 18, § 462.180(c)–(d). First, there is a change in ownership of the real property owned by an entity when a change in control of that entity occurs (i.e., when a person or entity acquires more than 50%). Cal. Rev. & Tax. Code § 64(c)(1). Second, if there is an exempt transfer after March 1, 1975 under Cal. Rev. & Tax. Code § 62(a)(2) (the mere change in form exemption), then an additional exception springs into effect with respect to subsequent transfers of interests in the title-holding entity. When this exception applies, the owners (of the title-holding entity) immediately after the transfer are called the “original co-owners,” and there is a change in ownership if and when more than 50% of the ownership interests are transferred by the original co-owners in one or more transactions. Cal. Rev. & Tax. Code § 64(d). Third, there is an exception involving certain transfers of stock in a cooperative housing corporation. Cal. Rev. & Tax. Code § 61(i). The rules for entity ownership interest transfers become more complex in multitiered ownership structures.

10892265.21 16 9.2.2 Structure—Changes in Ownership. Although most purchases of California real estate result in a full reassessment, it is possible on occasion to take steps to avoid or reduce the reassessment. Some illustrations follow.

 If one is buying land subject to a ground lease, and the closing is scheduled for the first day that the remaining term (including renewal options) is less than 35 years, then by accelerating the closing date of such land purchase by only one day, a reassessment may be avoided.

 However, conditioning the closing of the purchase of a ground lessor’s interest on an extension of the ground lease so that the remaining term is then 35 years or more would be dangerous. More generally, a series of steps, none of which alone may trigger a reassessment, may be collapsed under the so-called step transaction doctrine, and result in a taxable event (if there would have been a taxable event had the end result been reached directly from the beginning). Compare, e.g., Shuwa Investment Corp. v. County of Los Angeles (Cal. App. 2d Dist. 1991) 1 Cal.App.4th 1635 (the parties unsuccessfully attempted to have only half the Arco Plaza in downtown Los Angeles reassessed when the entire property was sold using the following three steps: (i) a 50% interest in the owner was sold to the purchaser; (ii) the owner was then liquidated so that the purchaser acquired a 50% undivided interest in the property; and (iii) the remaining 50% undivided interest in the property was then sold, so that only the 50% of the property sold under the final step would be reassessed), with Dyanlyn Two v. County of Orange (Cal. App. 4th Dist. 2015) 234 Cal.App.4th 800 (the step transaction was held inapplicable to a sale by the ground lessor of property improved with a shopping center when, less than a month before the sale, the remaining ground lease term was extended from less than 35 years to more than 35 years, because there was no evidence that all the parties knew the sale would take place when the ground lease was extended).

 Perhaps the most talked about structuring technique to avoid a change in ownership involves the purchase of ownership interests in an entity rather than real estate when the original co-owner rules do not apply, by making sure that no one acquires more than 50%. This structure might be utilized, for example, by a JV buyer that has no owners with more than 50% by having each owner buy an equal percentage of the ownership interests in the seller (assuming the seller is not subject to the original co-owner rules). “In 2002, for example, wine barons E&J Gallo purchased 1,765 acres of vineyards in Napa and Sonoma from Louis M. Martini. But the deal avoided a reassessment, because 12 Gallo family members individually obtained minority interests.” Eskenazi, Prop 13: The Building-Sized Loopholes Corporations Exploit, SF WEEKLY (Jan. 4, 2012), available at http://tinyurl.com/zedvk9k.

 The most publicized example of this technique was the purchase by Michael Dell, the founder of the Dell computer company, of the Fairmont Hotel in Santa Monica in 2006. According to the Los Angeles Daily News, Dell used this technique by splitting ownership among his wife and investment advisers, and paid $200 million for the property, but the property taxes

10892265.21 17 continued to be based on the old valuation of $86 million, saving Dell and his co-owners more than $1 million of property taxes per year. Editorial, Anti-Prop. 13 Resolution Must Be Rejected by L.A. City Council, LOS ANGELES DAILY NEWS (Aug. 25, 2014), available at http://tinyurl.com/j7gnesz.

 The Dell transaction led to a public outcry that homeowners were bearing a disproportionate share of California property taxes. A bill (A.B. 2372) was introduced in the California legislature in 2014 that would have required reassessment any time 90% or more of the ownership was sold, but it failed to pass. See CALIFORNIA LEGISLATIVE INFORMATION, AB-2372 PROPERTY TAXATION: CHANGE IN OWNERSHIP, available at http://tinyurl.com/gqzswlg.

9.3 Transfer Taxes. The buyer may want to know whether the purchase will trigger transfer taxes and what they will be, especially if (as discussed in part 4.2 above) it will be expected to pay any of them.

9.3.1 Amount. Transfer taxes in California vary depending on the location of the property and, unless an exemption applies, may range from 0.11% in a county where there is no additional local tax to 2.5% in the City and County of San Francisco. Transfer taxes in California are often expressed as an amount per $500 or $1,000 of the value of the land (e.g., $0.55/$500 or $1.10/$1,000). See Cal. Rev. & Tax. Code § 11911. The relevant amount may be found on the same websites mentioned in part 4.2 above for closing cost allocations and on city and county websites. Additionally, most local jurisdictions (but not Oakland, San Francisco, San Jose and San Rafael) subtract any mortgage debt assumed by the buyer from the value of the property when determining the applicable transfer taxes. See, e.g., Cal. Rev. & Tax. Code § 11911; S.F. Bus. & Tax Regs. Code, art. 12-C, § 1102; Cruz, 2015 Update: Transfer Taxes in California, 33 CAL. REAL PROP. J. 5, 7 (2015).

9.3.2 Application. The sale of California real estate generally results in a transfer tax imposed by the applicable county and city. See Cal. Rev. & Tax. Code § 11911. And sometimes sales of direct or indirect interests in the owner of real estate are treated as sales of the real estate for purposes of the transfer tax. But there are exceptions to the general rule and often, if not usually, the sale of a minority interest in the owner of real estate will not trigger a transfer tax in California. For example:

 Although local ordinances might differ, for purposes of the state statute, the transfer of property subject to a ground leasehold estate with a remaining term (including renewal options) of 35 years or more may not trigger a transfer tax. Cruz, supra, at 17 & n.127.

 Similarly, although local ordinances might differ, for purposes of the state statute, case law has established that the “transfer of a leasehold interest in real property for a period of less than thirty-five years is not subject to transfer tax. The thirty-five year period is determined at any point in time by including the remaining primary term of the lease and all renewal options.” Cruz, supra, at 16 [citation omitted].

 A transfer of direct or indirect ownership interests in a partnership (or other entity treated as a partnership for federal income tax purposes) may be treated as a sale of the entire partnership property if the transfer results in a “termination” of the partnership under I.R.C. § 708 (which occurs when

10892265.21 18 “(A) no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership, or (B) within a 12-month period, there is a sale or exchange of 50 percent or more of the total interest in the partnership capital and profits.” I.R.C. § 708(b)). Cal. Rev. & Tax. Code § 11925(b). Thus, the sale of a majority interest (or even a 50% interest) in a partnership (or other entity treated asa partnership for federal income tax purposes) could result in a termination of the partnership under I.R.C. § 708(b)(1)(B) and therefore a transfer tax as though there were a sale of the real estate owned by the partnership (or such other entity). Even the sale of a minority interest could result in a termination under I.R.C. § 708(b)(1)(A), and therefore such a transfer tax, if purchased directly by the majority member in a two-member limited liability company that is treated as a partnership for federal income tax purposes (because, absent an election to be taxed as a corporation, a single- member limited liability company is a disregarded entity and, in particular, not a partnership, for federal income tax purposes; Treas. Regs. § 301.7701- 3(a), (b)(ii)).

 Many municipalities (e.g., Los Angeles, San Francisco and Oakland) also impose a transfer tax whenever there is a “change in ownership” (as discussed in part 9.2.1 above) of the entity that owns the property. While some cities (e.g., San Francisco) impose the tax pursuant to its local ordinances, Los Angeles and other cities and counties have simply asserted an interpretation that a transfer tax is due in connection with a change in ownership. This approach was upheld by the California Supreme Court in 926 North Ardmore Avenue, LLC v. County of Los Angeles (2017) ___ Cal.4th ___. In light of this decision, more cities and counties are likely to take a similar approach. However, there is a statutory (transfer tax) exemption for the transfer of an interest in a partnership or other entity treated as a partnership for tax purposes holding realty if (1) the entity is treated as a continuing partnership under I.R.C. Section 708 and (2) the entity continues to hold the realty concerned. Cal. Rev. & Tax. Code § 11925(a). If an entity interest transfer constitutes a change in ownership but this exemption applies, then presumably there will be no transfer tax. But will there be a fight? And if the realty is not owned directly by the entity, will the exemption be unavailable?

9.3.3 Structure. It may be possible on occasion to reduce or eliminate the transfer tax. For example:

 The acceleration of the closing date in the first example under part 9.2.2 above, to avoid a reassessment, would also avoid a transfer tax.

 If a buyer is acquiring a 50% interest in a partnership or a limited liability company (taxed as a partnership), then the same structuring that is commonly used to avoid an I.R.C. § 708 termination may avoid a transfer tax (e.g., buying only 49.9% and not buying the other 0.1% or waiting more than 12 months to do so). Cal. Rev. & Tax. Code § 11925(a).

 If a majority member in a two-member limited liability company that is treated as a partnership for federal income tax purposes is acquiring the

10892265.21 19 minority member’s interest, then it may be possible to avoid a transfer tax (that might otherwise result from a termination under I.R.C. § 708(b)(1)(A)) by using a separate taxpayer affiliate to acquire the minority member’s interest to prevent the limited liability company from “terminating.” Cal. Rev. & Tax. Code § 11925(a).

 If the property is subject to debt and (unlike San Francisco) the local jurisdiction subtracts the debt to determine the net value to which the transfer tax applies, then buying the property subject to the debt may reduce the transfer tax.

All available exemptions should be considered. However, in many cities (e.g., San Francisco and Los Angeles), the buyer may face a claim for a transfer tax unless it also avoids a reassessment, as discussed at the end of part 9.3.2 above.

9.4 Sales Taxes. The sales tax in California applies to “retail sales” by a “retailer” of tangible personal property. Cal. Rev. & Tax. Code § 6051.

9.4.1 Generally. A common misconception is that sales taxes do not apply in real property sale transactions in California. One might reach this conclusion by assuming that the seller is not a “retailer” or the sale is not a “retail sale.” But the statutory definitions of these quoted terms may not be what one would expect.

 A “retail sale” is defined as “a sale for any purpose other than resale in the regular course of business . . . .” Cal. Rev. & Tax. Code § 6007. The breadth of this definition makes it extremely likely, at least in the author’s experience, that the tangible personal property sale that is part of a typical real estate purchase (between real estate investment entities) is a “retail sale.”

 A “retailer” is defined to include “[e]very seller who makes any retail sale.” Cal. Rev. & Tax. Code § 6015(a)(1). On its face, the requirement that the seller be a retailer appears superfluous: if the sale is a retail sale, isn’t the seller automatically a “retailer” under this definition? Fortunately, the answer is no because there is a separate statute that defines “seller.” Cal. Rev. & Tax. Code § 6014, identifying what are normally considered wholesalers and retailers (“‘Seller’ includes every person engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are required to be included in the measure of the sales tax . . . whether or not tangible personal property is ever sold at retail . . . .”). Thus, a seller of an industrial building who uses the building to manufacture equipment may be a “retailer.” See, e.g., Davis Wire Corp. v. State Board of Equalization (Cal. 1976) 17 Cal.3d 761. And, of course, the owner of a hotel, resort or other real estate project involving some retail sale activity (e.g., operation of a bar, restaurant or gift shop) by the owner would also be a “retailer.”

These definitions of “retailer” and “seller” do not appear to be exclusive (using “includes” instead of “means”). Indeed, any owner of a real estate project—even an owner who is not a retailer or a wholesaler, as commonly understood—may be a “retailer” for purposes of the statute. Cal. Rev. & Tax. Code §§ 6019 (anyone “making more than two retail sales of tangible personal property during any 12-month period . . .

10892265.21 20 shall be considered a retailer”) and 6275 (e.g., anyone making a retail sale of a mobile home or vehicle that is subject to certain registration requirements). In sum, the potential application of a sales tax in connection with the purchase of a California real estate project will depend on the facts and an interpretation of the tortuous statutory framework. But, in the author’s experience, California sales tax issues typically arise (in a sale between real estate investment entities) only when the buyer is acquiring a hotel, resort or other project that includes some incidental retail sale activity (e.g., a bar, a restaurant or a gift shop).

9.4.2 Retail Sale Inventory. There are two sales tax issues to consider regarding retail sale inventory: (1) whether the seller has paid all required sales taxes on prior sales of retail sale inventory; and (2) whether sales tax is payable in connection with the buyer’s purchase of retail sale inventory.

 The buyer must withhold a portion of the purchase price to unpaid sales taxes on prior sales unless and until the buyer receives a tax clearance certificate. Cal. Rev. & Tax. Code § 6811. In practice, this issue may be addressed (at least until tax clearance certificate is obtained) by indemnification because the seller does not want any withholding but is not likely to have time to get a tax clearance certificate before closing.

 Even though the seller may be a retailer, the purchase of retail sale inventory is not a “retail sale” if, as discussed in part 9.4.1 above, the purpose of the sale is “resale in the regular course of business.” The seller has the burden of proving that the sale is not a “retail sale” unless it receives a resale certificate from the buyer. Cal. Rev. & Tax. Code § 6091. Consequently, sellers will usually require the buyer to provide a resale certificate. Note that the buyer may not issue a resale certificate until it has a seller’s permit. Cal. Rev. & Tax. Code § 6092. A resale certificate may be in any form, such as a note, letter or memorandum, but must contain certain specified information (e.g., the number of the buyer’s seller’s permit). Cal. Rev. & Tax. Code § 6093; 16 C.C.R. § 1668; CALIFORNIA STATE BOARD OF EQUALIZATION, USING A RESALE CERTIFICATE (2016), available at http://tinyurl.com/zgeg55j.

9.4.3 Related Tangible Personal Property. There will also be a sales tax on the capital assets (e.g., refrigerators used as minibars) used in connection with the retail sale business. See Davis Wire Corp., supra. According to the CALIFORNIA STATE BOARD OF EQUALIZATION, SALES AND USE TAX ANNOTATION ¶ 395.0071 (Aug. 30, 1991), available at http://tinyurl.com/j2svud2:

395.0071. Sale of Hotel Assets. In addition to the fixtures and equipment of the restaurant and cocktail lounge, in-room refrigerators stocked with bottled water, individual size liquors, and soft drinks are subject to sales tax when a hotel is sold. The sale of the other in-room furnishings is not made taxable because of the presence of the refrigerator in the room. The sale of the other assets of the hotel may be taxable if they are one sale of a series of sales sufficient in number, scope, and character to require the holding of a permit. 8/30/91.

9.4.4 Other Tangible Personal Property. For other tangible personal property (e.g., beds, furniture and other FF&E that is not used in connection with an incidental hotel retail sale business), the parties typically attempt to take advantage of the “occasional sale” exemption. Cal. Rev. & Tax. Code §§ 6006.5, 6367, which is discussed further below. The State Board of Equalization has tried (unsuccessfully) to argue that the retail sale activity taints all tangible personal property that is not held for

10892265.21 21 resale. Ontario Community Foundation Inc. v. California State Board of Equalization (Cal. 1984) 35 Cal.3d 811. In the Ontario case, the Board attempted to impose sales tax on all tangible personal property (including all hospital equipment and furniture) included in the sale of a hospital because it was also involved in incidental retail sales (cafeteria, hospital supply and pharmacy sales) for which it had a seller’s permit. The California Supreme Court stated that the Board’s position could not be reconciled with the occasional sale exemption, which “was designed expressly to exempt from the sales tax a one-time sale of tangible personal property which is not held or used by a seller in the course of activities for which it is required to hold a seller’s permit.” Ontario Community Foundation, supra, at 822–23.

9.4.5 Occasional Sale. There are actually two different occasional sale exemptions worth noting. One, which does not apply to the typical real property sale (to an unrelated third party), applies to a transfer when the ultimate ownership after the transfer is substantially similar to what it was before the transfer. Cal. Rev. & Tax. Code § 6006.5(b). The availability of the other occasional sale exemption depends on how the tangible personal property involved is used. It applies only to “property held or used in the course of an activity not requiring the holding of a seller’s permit.” 18 C.C.R. § 1595(a)(1). See also Cal. Rev. & Tax. Code § 6006.5(a). Thus, if a hotel, theater, hospital or similar service enterprise has incidental retail sale activities (such as a restaurant and bar in a hotel), the sales tax may apply only to the tangible personal property held or used in that retail sale activity (that are not acquired for resale). 18 C.C.R. § 1595(a)(5)(A)1; see Ontario Community Foundation, supra;CALIFORNIA STATE BOARD OF EQUALIZATION, SALES AND USE TAX MEMORANDUM OPINION ¶ 395.0071 (Aug. 20, 1991), available at http://tinyurl.com/z6lnqt2 (which is the memorandum opinion upon which the annotation quoted in part 9.4.3 is based). However, the exemption may not apply if the seller has engaged in more than two retail sales of the relevant property within 12 months. Cal. Rev. & Tax. Code § 6019; 18 C.C.R. § 1595(a)(1); see also Hotel Del Coronado Corporation v. State Board of Equalization (Cal. App. 2d Dist. 1971) 15 Cal.App.3d 612 (finding that the occasional sale exemption was not available for the FF&E in connection with a hotel resort sale because of a series of salvage sales of FF&E within 12 months prior to the sale of the hotel); CALIFORNIA STATE BOARD OF EQUALIZATION, SALES AND USE TAX MEMORANDUM OPINION PRATT NORTH PLAZA ASSOCIATES (Oct. 28, 1993), available at http://tinyurl.com/h8zls5s, and the associated CALIFORNIA STATE BOARD OF EQUALIZATION, SALES AND USE TAX ANNOTATION 21,260.10 (Oct. 28, 1993), available to RIA subscribers at http://tinyurl.com/jp69yfz (occasional sales exemption was not available for the FF&E in connection with a hotel resort sale because of a series of sales of furniture and equipment to hotel employees and others). Also, note that the occasional sale exemption (other than the substantially similar ultimate ownership exemption) does not apply to vehicles that are required to be registered with the Department of Motor Vehicles. Cal. Rev. & Tax. Code § 6367; 18 C.C.R. § 1595(c). See NIELSEN, CALIFORNIA SALES AND USE TAX ANSWER BOOK Q 8:19–Q 8:32 at 106–12 (2010).

A buyer should consult with a California tax expert with respect to sales tax issues (including the impact of any purchase price allocation to different types of personal property), as well as other local tax issues (e.g., transient occupancy taxes imposed at the municipal level).

10. PROPERTY AND TRANSACTION SPECIFIC MATTERS

Other California laws and customs may apply depending on the nature of the property and the structure of the transaction. For example:

10.1 Bulk Sale Requirements. Article 6 of the (Bulk Sales) was designed to protect against the seller defrauding its creditors (by disposing of all its inventory and then running off with the sale proceeds without paying its bills). However, the benefits of the statute have been questioned for many years due to, among other matters, advances in technology and more protective business practices adopted by creditors. Unlike most states, California did not follow the recommendation of the Uniform Law Commission to repeal the bulk sales law in Article 6. See, e.g., Balovich, Revised Article 6

10892265.21 22 Bulk Transfers,CREDITWORTHY NEWS (Aug. 4, 2011), available at http://tinyurl.com/gmjb74k;MANUAL OF CREDIT AND COMMERCIAL LAWS Vol. II, ch. 3, art. 6 at 3-16 (2014). Consequently, if a buyer fails to comply with California’s bulk sales law (which basically requires advance notice to the seller’s creditors), the buyer could be liable to a creditor for damages that would not have been suffered if the buyer had complied. Cal. Com. Code §§ 6104, 6105 & 6107(a). Buyers in California may therefore want to know if the bulk sales law applies. The key requirement is that the “seller’s principal business is the sale of inventory from stock, including those who manufacture what they sell, or that of a restaurant owner.” Cal. Com. Code § 6103(a)(1). In particular, California’s bulk sale requirements, Com. Code § 6103(a)(1), apply “if the seller’s principal business is ‘that of a restaurant owner.’ Although there appears to be no reported California appellate decision interpreting this provision in the sale of a hotel with a restaurant, bar, and banqueting business, an interpretation of this provision may exclude such a business from the [California] bulk sale laws.” CEB, CALIFORNIA REAL PROPERTY SALES TRANSACTIONS, supra, § 5.23 at 5-48. While the parties may not take any action regarding the California bulk sales laws, buyers in California often insist on an indemnity from the seller for noncompliance in transactions (such as hotel purchases) that a creditor might argue are subject to these laws.

10.2 Seller Guaranties. As in other states, the buyer may want some assurance that there is credit standing behind the obligations of the seller under the purchase agreement that survive the closing (because the seller is typically an SPE and may be liquidating shortly after closing). A seller guaranty is sometimes a solution to this problem (although sellers often resist providing any guaranties). While California has a number of statutory guarantor defenses in Cal. Civ. Code §§ 2787 to 2855, it also has a statute stating that a guarantor may waive these and certain other defenses and that a “contractual provision that expresses an intent to waive [these defenses] shall be effective . . . without regard to the inclusion of any particular language ....” Cal. Civ. Code § 2856(b). Indeed, it may come as a surprise that California, with all its debtor protections (e.g., the California anti-deficiency rules in secured lending transactions), may be viewed as creditor friendly when it comes to guaranties (or at least much less protective of guarantors than it can be of primary debtors). See, e.g., Hansen, Guaranties in California Trust Deed Financing—How Did “Secondarily Liable” Parties End Up With All of the Liability? (Part 1), 37 CEB REAL PROP. L. REP. 76 (July 2014), and (Part 2), 37 CEB REAL PROP. L. REP. 108 (Sept. 2014). (Cal. Civ. Code § 2856 came about to address lender concerns with certain secured real estate financing decisions, but the statute is not limited to that context.) However, buyers should not be overconfident when they obtain a guaranty in California. Despite the breadth of Cal. Civ. Code § 2856, there remain some defenses that may not be waived by a general waiver (e.g., equitable or public policy defenses). See, e.g., California Bank & Trust v. Del Ponti (Cal. App. 4th Dist. 2014) 232 Cal.App.4th 162; Geier, Here We Go Again: The Vicissitudes of Public Policy and Guarantor Liability for California Real Estate Loans,MILLER & STARR REAL EST. NEWSALERT at 3 (Sept. 2015).

10.3 Seller Financing. If the purchase involves seller financing secured by the real estate, then California’s one action and anti-deficiency rules may be relevant. See, e.g., CEB, CALIFORNIA MORTGAGES, DEEDS OF TRUST, AND FORECLOSURE LITIGATION Chs. 4–5 (4th ed. 2016); CALIFORNIA REAL PROPERTY SALES TRANSACTIONS, supra, ch. 9. Seller financing secured by the real estate is generally not recourse to the buyer in California. Cal. Code Civ. Proc. § 580b. But the buyer should not get too comfortable because there are exceptions to this rule. Moreover, if the buyer is required to provide a guaranty (from a guarantor who is not an alter ego of the buyer), then it may be enforceable. (See discussion of seller guaranties in part 10.2 above.)

10.4 Subdivision Map Act. If the legal description of the property does not reference a recorded subdivision, the buyer may want to inquire with the local jurisdiction within California to confirm compliance with California’s Subdivision Map Act. Cal. Gov. Code § 66410 et seq. Noncompliance could render the purchase agreement void unless compliance is a closing condition. See CEB, CALIFORNIA REAL PROPERTY SALES TRANSACTIONS, supra, § 4.31 at 4-31. See also Cal. Gov. Code § 66499.35(a) (“Any [buyer] . . . may request, and a local agency shall determine, whether the real property complies with the provisions of this

10892265.21 23 division and of local ordinances enacted pursuant to this division. If a local agency determines that the real property complies, the city or the county shall cause a certificate of compliance to be filed for record with the recorder of the county in which the real property is located.”).

10.5 Other. Other areas of California law and custom may be relevant depending on the facts (e.g., California liquor license issues and California labor issues). If so, California counsel specializing in such areas should be consulted. The approach in California may be very different from other states. For example, California has particularly strict rules limiting noncompetition agreements. See, e.g.,BECK REED RIDEN LLP, 50 STATE NONCOMPETE CHART (updated as of March 25, 2016), available at http://tinyurl.com/jpg7s4w.

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10892265.21 24 BIBLIOGRAPHY PNM Doc. No.

A. ARTICLES

Journals

1. Adams, To the Best of Its Knowledge,ADAMS ON CONTRACT DRAFTING 10906160 (posted Apr. 22, 2007), available at http://tinyurl.com/zcw7wdb (http://www.adamsdrafting.com/best-of-its-knowledge) 2. Adams, Understanding “Best Efforts” and Its Variants (Including 10906160 Drafting Recommendations), 50 PRAC. LAW. 11, 15 (Aug. 2004) 3. Balovich, Revised Article 6 Bulk Transfers,CREDITWORTHY NEWS 11102299 (Aug. 4, 2011), available at http://tinyurl.com/gmjb74k (http://www.creditworthy.com/3jm/articles/cw80411.html) 4. Bernhardt, Attorneys as Escrow Agents, 29 REAL PROP. L. REP. 342, 344 5955654 (Sept. 2006) 5. Block & Paal, Trial by Jury in Real Property Cases, 32 CAL. REAL PROP. 10129556 J. 3, 15 (2014) 6. Bright, Unilateral Attorney’s Fees Clauses: A Proposal to Shift to the 9225650 Golden Rule, 61 DRAKE L. REV. 85 (2012) 7. Carey, Prorations: Watch Out for Real Estate Taxes Paid in Arrears, 514051 REAL EST. FIN. J., Spring 1993, at 11 8. Carey, Cauble & MacCracken, The “Free Look” in California—You Get 8889783 What You Pay For, 33 REAL PROP. L. REP. 89, 91, 97–99 (July 2010) 9. Cart & Lanphear, The Lis Pendens: Strategies and Pitfalls, 33 CAL. REAL 10928963 PROP. J. 28 (2015) 10. Cruz, 2015 Update: Transfer Taxes in California, 33 CAL. REAL PROP. J. 10708830 5, 7, 16–17 & n.127 (2015) 11. Di Geronimo, Not Worth the Paper It’s Printed On?, 25 MILLER &STARR 10261085 REAL EST. NEWSALERT 193, 197 (Jan. 2015) 12. Fisher, The Dangers of a “Best Efforts” Clause in a Real Estate 5798318 Agreement, 1 PRAC. REAL EST. LAW. 43 (Mar. 1985) 13. Geier, Here We Go Again: The Vicissitudes of Public Policy and 10674229 Guarantor Liability for California Real Estate Loans,MILLER & STARR REAL EST. NEWSALERT at 3 (Sept. 2015) 14. Hansen, Guaranties in California Trust Deed Financing—How Did 9918520 “Secondarily Liable” Parties End Up With All of the Liability? (Part 1), 37 CEB REAL PROP. L. REP. 76 (July 2014), and (Part 2), 37 CEB REAL PROP. L. REP. 108 (Sept. 2014) 15. Hoffman, Attorney Fee Clauses in California Contracts, 21 CAL. BUS. L. 5940629 PRAC. 82 at 84–85 (Summer 2006)

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16. Kuney, To the Best of Whose Knowledge?, 22 CAL. BUS. L. PRAC. 58 10929052 (Spring 2007) 17. LaMance, Statute of Limitations for Breach of Contract Actions, 10958690 LEGALMATCH LAW LIBRARY (Aug. 2, 2012), available at http://tinyurl.com/h2nmnmg (http://www.legalmatch.com/law- library/article/statute-of-limitations-for-breach-of-contract-actions.htm) 18. Levin, “Best” Is Not Always Best When It Comes to Knowledge, 10929267 30 PROB.& PROP. 44 at 45, 47 (Jan./Feb. 2016) 19. Notaro, Sales Contract Tug of War—Representations and Warranties, 10933970 NOTARO LAW, available at http://tinyurl.com/jdybzn8 (http://www.notarolaw.com/Articles/Reps_and_Warranties.pdf) 20. Peterson, The Effective Use of Representation and Warranties and 10932942 Selected Provisions Relating to Income Properties in Commercial Real Estate Contracts, ACREL PAPERS, Fall 1999, at 103 21. Schaefer, A Seller’s Specific Performance Remedy in a Residential Real 10924952 Estate Transaction, 40 MARIN LAW. 3 (Feb. 2009) 22. West & Shah, Debunking the Myth of the Sandbagging Buyer: When 10906944 Sellers Ask Buyers to Agree to Anti-Sandbagging Clauses, Who Is Sandbagging Whom?, 11 M&A LAW. 3 (Jan. 2007) 23. Whitehead, Sandbagging: Default Rules and Acquisition Agreements, 36 10906890 DEL. J. CORP. L. 1081 (2011) 24. Zimmermann, Three Things To Know About Doing Business in California, 11113242 XCONOMY.COM (Jan. 28, 2016), available at http://tinyurl.com/z9tu8nw (http://www.xconomy.com/national/2016/01/28/three-things-to-know- about-doing-business-in-california) Newspapers

25. Editorial, Anti-Prop. 13 Resolution Must Be Rejected by L.A. City Council, 10930519 LOS ANGELES DAILY NEWS (Aug. 25, 2014), available at http://tinyurl.com/j7gnesz (http://www.dailynews.com/opinion/20140825/anti-prop-13-resolution- must-be-rejected-by-la-city-council-editorial) 26. Eskenazi, Prop 13: The Building-Sized Loopholes Corporations Exploit, 10930512 SF WEEKLY (Jan. 4, 2012), available at http://tinyurl.com/zedvk9k (http://www.sfweekly.com/sanfrancisco/prop-13-the-building-sized- loopholes-corporations- exploit/Content?oid=2183637&showFullText=true)

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B. BOOKS

1. CALIFORNIA LEGISLATIVE INFORMATION, AB-2372 PROPERTY 11111622 TAXATION: CHANGE IN OWNERSHIP, available at http://tinyurl.com/gqzswlg (http://leginfo.legislature.ca.gov/faces/billHistoryClient.xhtml?bill_id=201 320140AB2372) 2. CEB, A LITIGATOR’S GUIDE TO EFFECTIVE USE OF ADR IN CALIFORNIA 10926094 §§ 9.9 at 370; 9.18 at 373; 9.20 at 374 (2008) 3. CEB, CALIFORNIA LAW OF CONTRACTS §§ 9.2–9.5 at 9-4–9-8 (2015) 10958992

4. CEB, CALIFORNIA MORTGAGES, DEEDS OF TRUST, AND FORECLOSURE 11103318 LITIGATION Chs. 4–5 (4th ed. 2016) 5. CEB, CALIFORNIA REAL PROPERTY REMEDIES AND DAMAGES §§ 3.80 at 10926022 3-101; 4.60 at 4-88–4-89 (2d ed. 2015) 6. CEB, CALIFORNIA REAL PROPERTY SALES TRANSACTIONS §§ 4.31 at 4- 10885073 31; 4.109 at 4-106; 4.143 at 4-132–4-134; 4.152 at 4-141; 5.23 at 5-48; 6.9 at 6-13; ch. 9; ch. 10 (4th ed. 2015) 7. CEB, CALIFORNIA TITLE INSURANCE PRACTICE §§ 5.31 at 5-29; 5.33 at 10926034 5-30; 6.8 at 6-13; 6.10 at 6-15; 7.21 at 7-20; 10.3–10.4 at 10-3–10-4 (2d ed. 2015) 8. CEB, FORMING AND OPERATING CALIFORNIA LIMITED LIABILITY 10961540 COMPANIES § 14.3 at 14-3–14-4 (3d ed. 2016) 9. CHERNICK, HALDEMAN & BETTINELLI, CALIFORNIA PRACTICE GUIDE, 10925963 ALTERNATIVE DISPUTE RESOLUTION §§ 6:213 at 6-65; 6:254 at 6-75 (2015) 10. 15 CORBIN ON CONTRACTS § 83.8 at 287, 289–90 (rev. ed. 2003) 10958995

11. CUSHMAN, CUSHMAN & COOK, CONSTRUCTION LITIGATION: 10959071 REPRESENTING THE OWNER § 4.45 at 162 (Wiley 1990) 12. 3 FRIEDMAN ON CONTRACTS AND CONVEYANCES OF REAL PROPERTY 10925972 § 13:4 at 13-26–13-29 (7th ed. 2015) 13. GREENWALD & BANK, CALIFORNIA PRACTICE GUIDE: REAL PROPERTY 10974759 TRANSACTIONS ¶ 11:92.1 (2015) 14. MANUAL OF CREDIT AND COMMERCIAL LAWS Vol. II, ch. 3, art. 6 at 3-16 11106341 (2014) 15. MILLER & STARR, CALIFORNIA REAL ESTATE §§ 1:108 at 1-438–1-447; 10877648/ 1:168 at 1-721; 1:171 at 1-747–1-748; 8:4 at 8-23–8-24; 45:5 at 45-12; 10931532 45:6 at 45-13 (4th ed. 2015) 16. NIELSEN, CALIFORNIA SALES AND USE TAX ANSWER BOOK Q 8:19– 10919190 Q 8:32 at 106–12 (2010)

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17. POWELL ON REAL PROPERTY §§ 81.01[3][a] at 81-15; 81.03[6][h] at 10877695 81-153–81-155; 81.05[11][d] at 81-247; 81A.07[1][d] at 81A-135– 81A-137 (2015) 18. TWOMEY, JENNINGS & GREENE, BUSINESS LAW: PRINCIPLES FOR 10959582 TODAY’S COMMERCIAL ENVIRONMENT § 18-4d at 328 (5th ed. 2017) 19. WHITNEY, ED., 2016 GUIDEBOOK TO CALIFORNIA TAXES ¶¶ 1702 at 773; 10925939 1706 at 780; 1708 at 790 (2015) 20. 13 WITKIN, SUMMARY OF CALIFORNIA LAW § 193(1)(c) at 531–32 (10th 10925933 ed. 2015) 21. 3 WITKIN, CALIFORNIA PROCEDURE §§ 468 at 593–94; 508–514 at 650– 10961552 59; 520–21 at 664–67; 529 at 678–80 (5th ed. 2015) C. CASES

1. 926 North Ardmore Avenue, LLC v. County of Los Angeles (Cal. App. 2d 10885440 Dist. 2014) 229 Cal.App.4th 1335 2. Avco Community Developers v. South Coast Regional Commission (1976) 8428866 17 Cal.3d 785 3. Belasco v. Wells (Cal. App. 2d Dist. 2015) 234 Cal.App.4th 409, 421–23 10269611

4. Blankenheim v. E. F. Hutton & Co. (Cal. App. 6th Dist. 1990) 217 5241003 Cal.App.3d 1463, 1472–73 5. Brennan v. Tremco (Cal. 2001) 25 Cal.4th 310, 315–17 10932920

6. Bruni v. Didion (Cal. App. 4th Dist. 2008) 160 Cal.App.4th 1272, 1291 10892265

7. California Bank & Trust v. Del Ponti (Cal. App. 4th Dist. 2014) 10146595 232 Cal.App.4th 162 8. California First Bank v. Braden (Cal. App. 2d Dist. 1989) 216 Cal.App.3d 10974753 672, 676 9. California Pines Property Owners Association v. Pedotti (Cal. App. 3d 10928871 Dist. 2012) 206 Cal.App.4th 384, 392 and 395 10. Capehart v. Heady (Cal. App. 1st Dist. 1962) 206 Cal.App.2d 386 10961547

11. Davis Wire Corp. v. State Board of Equalization (Cal. 1976) 17 Cal.3d 761 10927056

12. Dyanlyn Two v. County of Orange (Cal. App. 4th Dist. 2015) 10928877 234 Cal.App.4th 800 13. Gans v. Smull (Cal. App. 2d Dist. 2003) 111 Cal.App.4th 985, 989–90 10885441

14. Grafton Partners v. Superior Court (Cal. 2005) 36 Cal.4th 944, 964 9949730

15. Herring v. Teradyne Inc. (S.D. Cal. 2002) 256 F.Supp.2d 1118, 1127 10974793

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16. Hexter v. Pratt (Tex. Comm’n App. 1928) 10 S.W.2d 692, 693 10925426

17. Hot Rods, LLC v. Northrop Grumman Sys. Corp. (Cal. App. 4th Dist. 11222080 2015) 242 Cal.App.4th 1166 18. Hotel Del Coronado Corporation v. State Board of Equalization 10904978 (Cal. App. 2d Dist. 1971) 15 Cal.App.3d 612 19. Jacobs v. Tenneco West, Inc. (Cal. App. 5th Dist. 1986) 186 Cal.App.3d 10928881 1413 20. Jue v. Smiser (Cal. App. 1st Dist. 1994) 23 Cal.App.4th 312, 317 and 318 11110243 at n.6 21. Kazerouni v. De Satnick (Cal. App. 2d Dist. 1991) 228 Cal.App.3d 871 10928887

22. Leaf v. City of San Mateo (Cal. App. 1st Dist. 1980) 104 Cal.App.3d 398, 10885444 411 23. Lewis v. Hopper (Cal. App. 1st Dist. 1956) 140 Cal.App.2d 365, 367 10885447

24. Linden Partners v. Wilshire Linden Associates (Cal. App. 2d Dist. 1998) 10972803 62 Cal.App.4th 508, 524 25. Mercury Ins. Group v. Superior Court (Cal. 1998) 19 Cal.4th 332, 345 10930848

26. Miracle Auto Ctr. v. Superior Court (Cal. App. 1st Dist. 1998) 10928891 68 Cal.App.4th 818, 822 27. Moreno v. Sanchez (2003) 131 Cal.Rptr.2d 684, 106 Cal.App.4th 1415 10968821

28. Ontario Community Foundation Inc. v. California State Board of 10927074 Equalization (Cal. 1984) 35 Cal.3d 811, 822–23 29. Pacific Southwest Realty Co. v. County of Los Angeles (Cal. 1991) 10885448 1 Cal.4th 155 30. Plaza Freeway Ltd. Partnership v. First Mountain Bank (Cal. App. 4th 470445 Dist. 2000) 81 Cal.App.4th 616 31. Ram’s Gate Winery, LLC v. Roche (Cal. App. 1st Dist. 2015) 10973266 235 Cal.App.4th 1071, 1079–1081 32. Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit 9014322 Association (Cal. 2013) 55 Cal.4th 1169, 1174 33. San Diego Hospice v. County of San Diego (Cal. App. 4th Dist. 1995) 10961536 31 Cal.App.4th 1048, 1053–54 34. Shuwa Investment Corp. v. County of Los Angeles (Cal. App. 2d Dist. 10928896 1991) 1 Cal.App.4th 1635 35. Soifer v. Chicago Title Company (Cal. App. 2d Dist. 2010) 10928977 187 Cal.App.4th 365, 374 36. Szabo v. Superior Court (Cal. App. 2d Dist. 1978) 84 Cal.App.3d 839, 843 10976056

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37. Tarrant Bell Properties v. Superior Court (Cal. 2011) 51 Cal.4th 538 10973329

38. Treo @ Kettner Homeowners Association v. Superior Court (Cal. App. 4th 10976106 Dist. 2008) 166 Cal.App.4th 1055 39. Western Filter Corp. v. Argan, Inc. (9th Cir. 2008) 540 F.3d 947, 952 10973274

40. Whittington v. Dragon Group, L.L.C. (Del. 2009) 991 A.2d 1, 10 10961549

41. Zalkind v. Ceradyne (Cal. App. 4th Dist. 2011) 194 Cal.App.4th 1010, 7964888 1030 D. SALES TAX ANNOTATIONS AND MEMORANDUM OPINIONS

1. CALIFORNIA STATE BOARD OF EQUALIZATION, SALES AND USE TAX 10933817 ANNOTATION ¶ 395.0071 (Aug. 30, 1991), available at http://tinyurl.com/j2svud2 (http://www.boe.ca.gov/lawguides/business/current/btlg/vol2/suta/395- 0000-all.html) 2. CALIFORNIA STATE BOARD OF EQUALIZATION, SALES AND USE TAX 10933838 ANNOTATION ¶ 21,260.10 (Oct. 28, 1993), available to RIA subscribers at http://tinyurl.com/jp69yfz (https://checkpoint.riag.com/app/main/doc?usid=2ab607x275e5b&DocID=i 5e805041626b62978b97c610a2a65ae2&collFilterId=104.ANNOTATIONS &collId=104.ANNOTATIONS&feature=tcheckpoint&lastCpReqId=32814 21&searchHandle=i0ad82d0800000152906855701615aeb2) 3. CALIFORNIA STATE BOARD OF EQUALIZATION, SALES AND USE TAX 10927413 MEMORANDUM OPINION ¶ 395.0071 (Aug. 20, 1991), available at http://tinyurl.com/z6lnqt2 (http://www.boe.ca.gov/sutax/annotations/pdf/395.0071.pdf) 4. CALIFORNIA STATE BOARD OF EQUALIZATION, SALES AND USE TAX 10932555 MEMORANDUM OPINION PRATT NORTH PLAZA ASSOCIATES (Oct. 28, 1993), available at http://tinyurl.com/h8zls5s (http://www.boe.ca.gov/lawguides/business/current/btlg/vol2/sutmo/sutmo- 39.html) E. STATUTES

1. A.B. 802, ch. 590 (Statutes of 2015)

2. Cal. Civ. Code §§ 7, 9, 11, 12a(a), 1092, 1101.5(e), 1102–1103.14, 1113, 1542, 1572(2), 1572(5), 1573, 1667–1668, 1671(b), 1676, 1677(a)–(b), 1680, 1698, 1710(2), 1717, 1938, 1940.7, 1950.5(h), 1950.7(d), 2079.10a, 2787–2856, 3275, 3389 3. Cal. Code Civ. Proc. §§ 12a(a), 337, 360.5, 580b, 638, 644(a), 904.1, 1281, 1298(a), 1298(c), 1542 4. Cal. Code Regs., tit. 14, div. 6, ch. 3, § 15000; tit. 18, §§ 462.180(c)–(d), 1595(a)(1), 1595(a)(5)(A)1, 1595(c), 1668

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5. Cal. Com. Code §§ 6103(a)(1), 6104, 6105 & 6107(a)

6. Cal. Evid. Code §§ 300, 622, 703.5

7. Cal. Gov. Code §§ 6807-2–6807-4, 8589.3–8589.4, 8875.6, 8893.2, 29001, 51183.5, 65864, 66410, 66498.1, 66499.35(a) 8. Cal. Health & Saf. Code §§ 13113.8, 17920.10, 18029.6, 25359.7, 25400.28, 25400.36, 26140 9. Cal. Ins. Code § 12340.11

10. Cal. Pub. Resources Code §§ 2621.9, 2694, 4125, 4136, 21000, 25402.10

11. Cal. Rev. & Tax. Code §§ 61(i), 62(a)(2), 62(g), 64, 75, 480, 531.2, 2192, 6006.5, 6007, 6014, 6015(a)(1), 6019, 6051, 6091–6093, 6275, 6367, 6811, 11911, 11925(b), 11932–11933, 17935 (limited partnerships), 17941 (limited liability companies), 17942(a), 23153 (corporations) 12. Cal. Sts. & Hy. Code §§ 3114–3115

13. D.C. Code §§ 12-301(6), (7)

14. 10 Del. Code § 8106(a), (c)

15. Ga. Code § 9-3-23

16. 735 Ill. Comp. Stat. 5/13-206

17. I.R.C. § 708

18. Mass. Gen. Laws ch. 260 § 1

19. Md. Corp. & Ass’ns § 9A-102(b)

20. Md. Cts. & Jud. Proc. Code §§ 5-101, 5-102(a)(5)

21. N.Y. Civ. Prac. Laws & Rules § 213(2)

22. S.F. Bus. & Tax Regs. Code, art. 12-C, § 1102

23. Treas. Regs. § 301.7701-3(a), (b)(ii)

F. WEBSITES (MISCELLANEOUS)

1. BECK REED RIDEN LLP, 50 STATE NONCOMPETE CHART (updated as of 11127149 March 25, 2016), available at http://tinyurl.com/jpg7s4w (http://www.beckreedriden.com/50-state-noncompete-chart/) 2. CALIFORNIA ENERGY COMMISSION, BUILDING ENERGY USE 11127151 BENCHMARKING AND PUBLIC DISCLOSURE PROGRAM, available at http://tinyurl.com/jj5bo7e (http://energy.ca.gov/benchmarking/)

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3. CALIFORNIA STATE BOARD OF EQUALIZATION, USING A RESALE 11127150 CERTIFICATE (2016), available at http://tinyurl.com/zgeg55j (https://www.boe.ca.gov/sutax/faqresale.htm) 4. COMMONWEALTH LAND TITLE COMPANY, REAL ESTATE LAWS & 11127152 CUSTOMS BY STATE (May 2014), available at http://tinyurl.com/jsk22qs (http://www.fntgemarketing.com/cltc/ebooks/Real_Estate_Laws_Customs) 5. FIRST AMERICAN TITLE, YOUR GUIDE TO REAL ESTATE CUSTOMS BY 11127153 STATE (Sept. 2014), available at http://tinyurl.com/zpsv9c2 (http://www.firstam.com/assets/commercial/real-estate-customs-guide/real- estate-customs-guide-by-state.pdf) 6. LEGISLATIVE ANALYST’S OFFICE, UNDERSTANDING CALIFORNIA’S 11127154 PROPERTY TAXES (Nov. 29, 2012), available at http://tinyurl.com/ljkr59b (http://www.lao.ca.gov/reports/2012/tax/property-tax-primer-112912.aspx) 7. NAIC TITLE INSURANCE TASK FORCE, SURVEY OF STATE INSURANCE 11127155 LAWS REGARDING TITLE DATA AND TITLE MATTERS (Mar. 22, 2010), available at http://tinyurl.com/gv6q7jk (http://www.naic.org/documents/committees_c_title_tf_survey_state_laws. pdf) 8. STATE BOARD OF EQUALIZATION, CALIFORNIA PROPERTY TAX—AN 11127156 OVERVIEW, Publication 29 (July 2015), available at http://tinyurl.com/2w6c6te (http://www.boe.ca.gov/proptaxes/pdf/pub29.pdf)

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