Real Estate Transactions Law
1. You may assume that Lumiere, Inc. and Steely Dan, Inc. successfully concluded negotiations for an entry into a Purchase and Sale Agreement. That Agreement contained language requiring the Seller to deliver to the Buyer the Property free and clear of any hazardous waste contamination and also to provide a history of the use of the Property. Seller and Seller’s broker knew that the depression in Parcel 4 was caused by an underground storage tank that was improperly removed and also improperly “shored up” after it was removed. Although Seller did not in fact remove the tank nor shore it up, the prior owner notified the Seller of this work. No discussion was had at that time about whether proper permits were taken out or whether any remediation work was done, either with the participation of the relevant regulatory agencies or just alone by the prior owner. What effect does this disclosure make on the overall sale? What steps should Lumiere, Inc. take in order to satisfy itself that no hazardous waste was released and that the property in fact is fit for the purpose they plan to put it to, the manufacture and distribution of ophthalmic prescription medications? What effect does the proximity of Parcel 4 to Parcel 2 and Parcel 3 have on this issue? What effect does this issue have on the property, its price, its suitability, and, going forward, are there any other issues that the Buyers would need to resolve? How would it affect a lender’s decision in determining how much to loan on the Property and what a likely income stream would be? What offsets or other steps can be taken before close of escrow to make the property more suitability? How would those steps affect time for closing?
2. Buyers, in doing their due diligence, have located the existence of an ingress and egress easement in the northwest corner of Parcel 2. (Shown with blue crosshatch marks.) Because of a drainage swale on the property line between Parcel 1 and Parcel 2, coupled with the lack of curb cuts or other points of entry into Parcel 2 or Parcel 3 from Dupont Drive, if Seller sells Parcel 2 and Parcel 3 to Buyer, the easement becomes critical to Parcel 1’s ability to exit and enter its own property. If they don’t have the easement, they are landlocked. The easement was recorded when the original subdivision map was created in 1977. Since that time, Dupont Drive has been widened and a group of midrise and high-rise office buildings have been built along it together with high density housing. Seller does not want to sell Parcels 2, 3 and 4 without maintaining the easement and without making sure that access to that area and passage over it will be unrestricted. Is the value of Parcel 2 lessened because of the existence of the easement? How does the easement affect the use of the land in Parcel 2 in terms of constructing anything on it? Does the easement’s existence affect Parcel 3? How would an ALTA survey that exactly plotted the easement help in determining other such an impediment exists and its extent? What kinds of information would you want to know from the surveyor? Are there soils or other issues that may also affect the easement’s validity and the improvement of Parcel 2? Are there maintenance, insurance, or other related issues if Lumiere eventually acquires Parcel 2? What are all those issues and how can they be resolved? If the transaction is successful, Lumiere will own Parcels 2, 3 and 4. Do you see any issues in the parcels being sold off separately to third party buyers? Please explain.
3. You may now assume that the purchase was successfully completed and Lumiere, Inc. now owns Parcels 2, 3 and 4. Lumiere has retained the architecture firm of Skidmore, Owings and Merrill to assist them in designing ophthalmic pharmaceutical manufacturing facilities to sit on Parcels 2, 3 and 4. SOM has extensive experience in designing commercial facilities of this type. You will be representing Lumiere in the negotiations and discussions about the architectural services agreement and its contents. The architects, by the terms of the proposed agreement, will have to give Lumiere a budget for what they think the likely cost of construction will be as well as how long it will take and what is involved. What parts of the B103 AIA Agreement will need to be negotiated carefully through the course of this discussion? What concerns do you have about time, cost and specifics of the design? What more do you want to know about the background and skill sets of this particular architectural firm? What are some of the architectural challenges that architects are going to face given the proximity to Parcel 1 and different use from Lumiere’s? A construction contract will have to be written as well and you will be negotiating that on behalf of Lumiere as well. What are the concerns that you have about budget, time, materials and scope? What are the most important issues that you think need to be negotiated in the construction contract for Lumiere?
4. Lumiere is approaching several lenders about borrowing sufficient money to construct and operate the buildings on Parcels 2, 3 and 4. You may assume that the lenders are all banks and normal construction lenders, not life insurance companies or other types of entities that lend money on real estate. What categories of analysis do you want to perform to determine the financial information the lenders are going to ask you for in determining whether they are going to want to lend money on this project? What specific assistance do you need in getting the information into a format that you can give to the lenders? What other questions do you think the lender will ask you in the course of making a loan determination for both construction lending and for permanent financing? What other types of decisions will Lumiere need to make in terms of securing financing? How will the appraisal affect the lending decision here and what kind of questions will you want to ask in assisting the lender with a favourable decision? What will the effect of working with the appraiser be on the lending decision and why?
Real Estate Transactions Law
Your Name
Subject and Section
Professor’s Name
March 23, 2023
1.
The disclosure of the presence of an improperly removed underground storage tank on Parcel 4 would significantly affect the overall sale. The Purchase and Sale Agreement required the Seller to deliver the Property free and clear of any hazardous waste contamination, and failure to do so could result in a breach of the agreement. Lumiere, Inc. may also have grounds for a legal claim against the Seller for misrepresentation or fraud if it is later discovered that hazardous waste was present on the Property.
To satisfy that no hazardous waste was released and that the property is fit for manufacturing and distributing ophthalmic prescription medications, Lumiere, Inc. should conduct a thorough environmental assessment of the Property. This would involve hiring an environmental consultant to conduct a Phase I Environmental Site Assessment (ESA) and potentially a Phase II ESA if any potential issues are identified during the Phase I assessment (Hansen & Gammel, 2003). The Phase I ESA would involve a review of historical records, government databases, and a site visit to identify any potential sources of contamination on or near the Property. The Phase II ESA would involve sampling and analysis to confirm the presence or absence of hazardous substances and determine the extent of the contamination.
The proximity of Parcel 4 to Parcel 2 and Parcel 3 could be a cause for concern if there is a potential for contamination to migrate from Parcel 4 to the other parcels. This would need to be evaluated as part of the environmental assessment.
The improperly removed underground storage tank's presence could significantly affect the property's price and suitability. The cost of remediation, if required, would need to be factored into the purchase price. Lumiere, Inc. may also need to consider whether the potential liability for contamination discovered in the future would affect the property's value. Going forward, Lumiere, Inc. would need to ensure that it complies with any regulatory requirements and implements appropriate environmental management practices to mitigate the risk of contamination.
Hazardous waste on the Property could also affect a lender's decision in determining how much to loan on the Property and what a likely income stream would be. Lenders are often reluctant to finance properties with environmental issues due to the potential liability they could face if contamination is discovered. The lender may require Lumiere, Inc. to obtain environmental insurance or agree to indemnify the lender against any future liability.
To make the property more suitable, Lumiere, Inc. could negotiate with the Seller to offset the cost of any necessary remediation or require the Seller to undertake the remediation before closing escrow. Alternatively, Lumiere, Inc. could agree to take responsibility for remediation and negotiate a reduction in the purchase price to reflect this.
Any steps taken to make the property more suitable could affect the time for closing, as the environmental assessment and any necessary remediation could take several weeks or months to complete. Lumiere, Inc. should factor this into its timeline for the transaction and ensure that it has sufficient time to complete the due diligence and any necessary remediation before the close of escrow.
2.
The existence of an ingress and egress easement in the northwest corner of Parcel 2 has significant implications for the value and use of the property. In particular, the easement is critical for Parcel 1 to access and exit its property. If the easement is not maintained, Parcel 1 will become landlocked, which would significantly reduce its value. As such, the existence of the easement may reduce the value of Parcel 2, as it restricts the ability of the owner to use and develop the land as they see fit.
Furthermore, the easement may also affect the use of the land in Parcel 2 in terms of constructing anything on it. The easement may limit the ability of the owner to construct structures on the land, as they may need to ensure that access to the easement is maintained at all times. This may require the owner to limit the size and scope of any construction projects on the land.
The easement's existence may also affect Parcel 3, as it may limit the ability of the owner to use and develop the land in a way that impacts the easement. For example, the owner of Parcel 3 may not be able to construct any structures or landscaping that would interfere with the easement.
An ALTA...