A commercial acquisition fails differently from a home purchase. The contract is negotiated rather than filled in on a form, the seller owes you far fewer disclosures than a residential seller would, the diligence period is where the entire deal is won or lost, and a change of ownership resets the property tax assessment. Bay Legal, P.C. represents California buyers on the legal side of that work: purchase agreement, due diligence, title, entity structure, and closing.
Definition: Commercial real estate is property held for business or investment use — office, retail, industrial, hospitality, and multi-family — rather than as a residence.
Jayson and Bay Legal helped me and my family out tremendously. We were having some issues with a very large commercial property landlord over a contract disagreement. Jayson was especially thorough explaining what was happening each step of the way. He was always quick to respond and extremely friendly helping us to resolve the issue. If you need a good lawyer and team to help with a contract, real estate or financial issue I highly recommend Jayson at Bay Legal.
This review reflects one client’s experience. Results depend on the facts and law of each individual case and do not guarantee or predict a similar outcome in your matter.
What does a commercial buyer’s attorney do?
Four things, and the first two decide the deal.
- Negotiates the purchase agreement. There is no standard form here. Representations and warranties, the diligence period and its extensions, deposit release schedule, casualty and condemnation, assignment rights, and remedies on default are all negotiated terms. Under Civil Code section 1624, the agreement must be in writing, which means every protection you want has to be drafted in.
- Runs legal due diligence. Title and survey, existing leases and estoppels, service contracts, permits and certificates of occupancy, zoning and code compliance, environmental reports, and pending litigation. The diligence period is a contractual right to walk away, and it is the last moment the deposit is fully yours.
- Structures the acquiring entity. Who takes title matters for liability, financing, tax, and any future exchange. Getting it wrong is expensive to unwind after recording.
- Closes it. Escrow instructions, lender documents, lease and contract assignments, and recording with the county recorder.
What a buyer’s attorney does not do is find the property, price it, or tell you whether the investment is a good one. Those are the broker’s and the appraiser’s work, and the analyst’s.
What must a commercial seller disclose in California?
Much less than a residential seller, and buyers are regularly surprised by this. The Real Estate Transfer Disclosure Statement that governs home sales applies to residential property of one to four units. Civil Code section 1102.2 sets the exclusions, and commercial property falls outside the regime. There is no statutory form, no natural hazard disclosure statement, and no obligation to itemise known defects on a checklist.
What survives is the common-law duty not to conceal. A seller who actively hides a known material defect, or answers a direct question falsely, remains exposed to fraud and misrepresentation claims. That is a much weaker protection than a statutory form, and it is why the diligence period does the work on a commercial deal that disclosures do on a residential one.
One statutory disclosure does apply. Under Health and Safety Code section 25359.7, an owner who knows of a release of hazardous substances on or beneath the property must give the buyer written notice before the sale. Failure to do so exposes the seller to the buyer’s damages. On industrial property, former gas stations, dry cleaners, and auto shops, a Phase I environmental assessment is standard and a Phase II follows if the first one flags anything. The Department of Toxic Substances Control maintains the state’s contaminated sites data.
Why does a commercial purchase change your property tax?
Because a change in ownership triggers reassessment. Under Revenue and Taxation Code section 60 and following, a transfer of the present beneficial interest in real property resets the assessed value to current market value, and the new tax bill follows from that rather than from what the seller was paying.
Buyers who model their returns from the seller’s operating statement without adjusting the tax line get a nasty surprise in the first bill. Where the property is held in an entity and the deal is structured as a transfer of entity interests rather than the real property itself, the reassessment analysis becomes considerably more complicated and turns on how much control changes hands. Raise it early. It is a legal and tax question together, and it should be settled before the diligence period closes.
What should due diligence actually cover?
- Title and survey. Preliminary report, every Schedule B exception, and an ALTA survey. On commercial property, lenders effectively require extended ALTA coverage.
- Leases and estoppels. If the property is tenanted, the leases are the asset. Read every one, then get estoppel certificates from tenants confirming the terms, the rent, and that no defaults exist.
- Zoning and permits. Confirm the current and intended use are permitted, and that improvements were built with permits and have a certificate of occupancy. Unpermitted work is common and becomes yours at closing.
- Environmental. Phase I as a baseline; Phase II if it identifies a recognised environmental condition.
- Service contracts and operations. Which agreements survive closing, which can be terminated, and on what notice.
- Accessibility. Whether the property has been inspected by a Certified Access Specialist. Civil Code section 1938 requires a commercial property owner to state CASp status in a lease. If you will be leasing the space out, you inherit that obligation and the compliance exposure that comes with it.
- Litigation and liens. Pending actions, mechanic’s liens, and recorded notices affecting the property.
How is a commercial purchase different from a residential one?
| Residential (1–4 units) | Commercial | |
|---|---|---|
| Contract | Standard association form | Negotiated from scratch |
| Seller disclosure | Statutory TDS, natural hazard, and more | No statutory form; common-law duty only |
| Buyer protection | Disclosures plus inspection contingency | Due diligence period and negotiated representations |
| Title coverage | CLTA often sufficient | ALTA extended, plus survey |
| Typical down payment | Varies widely by loan programme | Substantially higher; lender-driven |
| Property tax | Reassessed on change of ownership | Reassessed on change of ownership; entity transfers add complexity |
Who handles commercial acquisitions at Bay Legal?
Robert Brian Ponziano, a senior attorney and licensed California realtor, leads real estate transactions and sees both the legal and brokerage sides of a commercial deal. Clarence Olson handles real estate matters alongside him. Where an acquisition produces a dispute — a seller who will not close, a concealed defect, a lease that was not what the estoppel said — the file moves to the litigation group. Stephan Moses and Jason Rose focus on construction and real estate litigation, with managing attorney Jayson R. Elliott and lead litigation attorney Evan Livingstone.
Bay Legal, P.C. represents buyers statewide from offices in Palo Alto and Los Angeles, on property from the Bay Area through the Central Valley to Los Angeles and Orange County.
I recently had the pleasure of working with Jayson Elliot, and I cannot recommend their services highly enough. They took the time to thoroughly understand my situation and provided clear, concise guidance every step of the way. Jayson was always accessible and responsive, promptly addressing any questions or concerns I had. Their in-depth knowledge of the law, combined with a strategic approach to my case, made me feel confident and secure throughout the entire process.
This review reflects one client’s experience. Results depend on the facts and law of each individual case and do not guarantee or predict a similar outcome in your matter.
Frequently Asked Questions
Do I need a lawyer to buy commercial property in California?
In practice, yes. There is no standard commercial purchase form, the seller owes you almost no statutory disclosure, and the due diligence period is a negotiated contractual right rather than an automatic protection. Unlike a residential purchase, there is no safety net drafted by anyone other than your own counsel.
What disclosures does a commercial seller have to make?
Far fewer than a residential seller. The statutory transfer disclosure regime under Civil Code section 1102 applies to residential property of one to four units and excludes commercial property. The seller still may not conceal a known material defect or answer a direct question falsely, and must disclose a known hazardous substance release under Health and Safety Code section 25359.7.
How long does commercial due diligence take?
Commonly 30 to 60 days, and it is negotiated rather than fixed. Deals involving environmental review, many tenants, entitlement questions, or unpermitted improvements need longer. The length of the diligence period and the terms on which it can be extended are among the most consequential things in the purchase agreement.
Will my property taxes go up after I buy?
Almost certainly. Under Revenue and Taxation Code section 60 and following, a change in ownership triggers reassessment to current market value, so the tax bill reflects your purchase price rather than the seller’s basis. Model the new figure rather than the seller’s operating statement, and get advice early if the deal is structured as an entity transfer.
What is an estoppel certificate, and why does it matter?
A signed statement from a tenant confirming their lease terms, rent, deposit, and that no defaults or side agreements exist. On a tenanted property the leases are what you are actually buying, and an estoppel is how you verify that the rent roll matches reality before you close.
Related Questions
Should I buy the property or the entity that owns it?
It depends on liabilities, transfer taxes, and reassessment. Buying entity interests can avoid some transfer costs but takes on the entity’s history and obligations. The reassessment analysis differs sharply between the two, so decide before the diligence period closes.
What is a Phase I environmental site assessment?
A records and inspection review identifying recognised environmental conditions on a property. It is standard on industrial sites and on former gas stations, dry cleaners, and auto shops. If it flags something, a Phase II involves actual sampling.
Can I assign my purchase contract to another entity?
Only if the agreement permits it. Assignment rights are negotiated, and buyers who intend to take title in a yet-to-be-formed entity should secure that right in the contract rather than assume it.
Does my lender decide the title coverage?
Effectively, on most commercial deals. Lenders generally require an ALTA extended policy with a survey, and buyers usually take owner’s coverage on the same basis because the off-record risks are real on commercial property.
Talk to a California commercial real estate attorney
The purchase agreement and the diligence period decide the deal, and both are negotiated before you are committed. To have a Bay Legal attorney review a letter of intent, a purchase agreement, or a diligence package, call the office nearest you or email intake.
The whole process was as painless as a legal situation can be. Communication was great, and Jayson really went the extra mile.
This review reflects one client’s experience. Results depend on the facts and law of each individual case and do not guarantee or predict a similar outcome in your matter.
Bay Legal, P.C. — serving California statewide
Northern California office
667 Lytton Ave Ste 3, Palo Alto, CA 94301
Southern California office
3211 Cahuenga Blvd W Ste 212, Los Angeles, CA 90068
Intake: intake@baylegal.com
Fax: (650) 963-0041
Website: https://baylegal.com
This page is general information about California law and does not constitute legal advice or create an attorney-client relationship. For advice on your specific situation, contact a licensed California attorney.