A commercial seller in California owes the buyer far less than a home seller does — there is no statutory disclosure form for commercial property — but the exposure that remains is concentrated and expensive. Environmental history, the accuracy of your rent roll, whether the improvements were permitted, and what you represent in the purchase agreement are where sellers get sued after closing. Bay Legal, P.C. represents California commercial sellers on the agreement, the disclosure position, and the closing.
Definition: A commercial sale transfers property held for business or investment use, governed by negotiated contract rather than by California’s residential disclosure statutes.
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.
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 seller actually have to disclose?
Less than most sellers expect, and the gap surprises people who have only sold a home. The Real Estate Transfer Disclosure Statement regime applies to residential property of one to four units; Civil Code section 1102.2 excludes commercial property. There is no statutory checklist, no natural hazard disclosure statement, and no obligation to itemise known defects on a form.
Three duties survive, and they are where the litigation lives.
- Do not conceal. Actively hiding a known material defect, or answering a direct buyer question falsely, supports fraud and misrepresentation claims regardless of the absence of a statutory form.
- Environmental. Under Health and Safety Code section 25359.7, an owner who knows of a release of hazardous substances on or beneath the property must notify the buyer in writing before the sale. Failure exposes you to the buyer’s damages.
- Accessibility, on tenanted property. Under Civil Code section 1938, a commercial property owner must state in a lease whether the premises have been inspected by a Certified Access Specialist. A buyer taking assignment of your leases inherits that position and will diligence it.
The practical point: your protection as a commercial seller comes from what the purchase agreement says, not from what a statute excuses. Representations and warranties, their survival period, and any cap on liability are negotiated. An “as-is” clause allocates repair responsibility; it does not defeat a fraud claim.
What are you actually selling if the property is tenanted?
The income stream, in the buyer’s eyes. Which means the leases, the rent roll, and the estoppel certificates your tenants sign are the substance of the deal, and a discrepancy between what the estoppels say and what the leases say will surface during diligence and cost you price.
Get ahead of it: reconcile the rent roll against the actual leases, identify every side agreement and unwritten concession, confirm which service contracts survive closing and which can be cancelled, and locate the permits and certificates of occupancy for any improvements. Unpermitted work is common on older commercial buildings, and it is far cheaper to price it in than to have a buyer discover it in week three of diligence.
What comes out of the proceeds at closing?
California withholding applies to commercial sales as it does to residential. Under Revenue and Taxation Code section 18662, generally 3⅓% of the total sale price is withheld and remitted through escrow to the Franchise Tax Board. The principal-residence exemption that many sellers rely on does not apply here. Non-resident sellers should assume withholding applies, and foreign sellers face a separate federal obligation under FIRPTA on top of it.
If the property is being sold together with the business operating on it, Commercial Code section 6101 and following may bring bulk sales notice requirements into the transaction. Whether they apply turns on the nature of the seller’s business and the composition of the assets, and it is worth settling early because the notice periods affect the closing timeline.
How does a commercial sale close?
- Assemble the file before listing. Leases, estoppels, rent roll, service contracts, permits, certificates of occupancy, and any environmental reports you already hold.
- Negotiate the letter of intent. Non-binding on price, but it sets the diligence period and the deposit structure you will live with.
- Sign the purchase agreement. Representations, warranties, survival, liability caps, and remedies are negotiated here. This is the document that determines your post-closing exposure.
- Survive due diligence. The buyer inspects, reviews leases and title, and orders environmental work. Expect a retrade attempt on anything they find.
- Deposit goes hard. Once the diligence period ends and the deposit becomes non-refundable, your position improves substantially.
- Close and record. Deed, lease and contract assignments, withholding remitted, and recording with the recorder in the county where the property sits.
Who handles commercial sales at Bay Legal?
Robert Brian Ponziano, a senior attorney and licensed California realtor, leads real estate transactions. Clarence Olson handles real estate matters alongside him. Where a sale produces a claim against you after closing — a concealed-defect allegation, an environmental claim, a dispute over a representation — the matter moves to the litigation group. Stephen 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 sellers statewide from offices in Palo Alto and Los Angeles.
Frequently Asked Questions
Do commercial sellers have to complete a disclosure statement in California?
No. The transfer disclosure statement regime under Civil Code section 1102 covers residential property of one to four units, and section 1102.2 excludes commercial property. You still may not conceal a known material defect or answer a direct question falsely, and you must disclose a known hazardous substance release under Health and Safety Code section 25359.7.
Does an ‘as-is’ sale protect me from claims after closing?
Only partly. An as-is clause allocates who pays for repairs and defeats claims about condition the buyer could have discovered. It does not defeat a fraud claim based on active concealment or a false answer to a direct question. Your real protection is the representations and warranties section and its survival and cap provisions.
How much is withheld from my sale proceeds?
California generally withholds 3⅓% of the total sale price under Revenue and Taxation Code section 18662, remitted through escrow to the Franchise Tax Board. The principal-residence exemption does not apply to commercial property. Non-resident sellers should assume it applies, and foreign sellers face separate federal FIRPTA withholding.
What is an estoppel certificate, and why does the buyer want one?
A signed statement from each tenant confirming lease terms, rent, deposit, and the absence of defaults or side agreements. On tenanted property the buyer is purchasing the income stream, so estoppels are how they verify your rent roll. Discrepancies found during diligence usually turn into a price reduction.
Will selling trigger a property tax reassessment?
For the buyer, yes — a change in ownership resets the assessed value to market value. That does not cost you directly, but a sophisticated buyer will model the higher tax bill and it can affect what they will pay. Where the deal is structured as a transfer of entity interests, the analysis is more complicated.
Related Questions
Can I sell the property with the business on it?
Yes, and it changes the transaction. The business assets are valued separately, an assignment of rights is needed for what transfers, and bulk sales notice requirements under Commercial Code section 6101 may apply depending on the business and the assets involved.
Should the buyer and I use the same attorney?
No. Buyer and seller have directly adverse interests on representations, diligence, and remedies, which makes joint representation a conflict. Each side needs its own counsel.
What happens if the buyer walks during due diligence?
If the diligence period is still open, they generally take their deposit back and you relist. That is why the length of that period and the point at which the deposit goes hard are the terms worth negotiating hardest.
Do I need to disclose unpermitted improvements?
If you know about them and they are material, concealing them is a fraud risk even without a statutory disclosure form. A buyer will usually find them in diligence anyway, and finding them yourself first lets you price them rather than defend them.
Talk to a California commercial real estate attorney
Your post-closing exposure is written into the purchase agreement, and it is negotiated before you sign. To review a letter of intent, a purchase agreement, or a disclosure position with a Bay Legal attorney, call the office nearest you or email intake.
Its been great to work with Jayson and his office. Very professional individuals who care about their clients.
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.