USA – TEXAS Law and Practice Contributed by: Taylor Cooksey, David Brooks, Serena Kramer and Philip Kinkaid, Cokinos | Young
• A special warranty of title is standard in commer - cial real estate transactions, and only protects the buyer against title defects created by the seller or by persons acting through or under the seller. In most deeds, Texas law also implies a warranty against title defects created by the seller and against encumbrances. Texas also permits quitclaims as well as “deeds with - Title insurance is commonly used in Texas. Insurable interests include fees and similar interests, leasehold interests and easements, but not mineral interests. Loan policies are also available to ensure that liens are secured by property interests, including the prior - ity of such liens. In the vast majority of US states, title insurance is based on standardised forms issued by the Ameri - can Land Title Association (ALTA). Texas, by contrast, is one of the few “non-ALTA states” and uses Tex - as-specific forms. Texas offers fewer endorsements than ALTA states, and Texas title insurance rates are strictly regulated, cannot be negotiated, and apply to all insurers. out warranty”. Title Insurance In most real estate transactions, the seller pays the base premium for a title insurance policy, and the pur - chaser pays for any endorsements to that policy. Surveys Although Texas is a non-ALTA state for title insurance purposes, it is common for commercial real estate surveys to comply with the ALTA/National Society of Professional Surveyors (NSPS) survey standards. When an ALTA/NSPS survey is not required, survey - ors typically comply with standards established by the Texas Society of Professional Surveyors. 2.4 Real Estate Due Diligence Typical due diligence conducted by buyers will vary depending on whether the property being acquired is improved or unimproved, and further depending on other factors such as whether the property is income-
producing (and tenants will be inherited) and whether environmental conditions may exist. Due diligence typically includes examining a survey, a title commitment and recorded title exception docu - ments, and obtaining and reviewing a Phase I envi - ronmental site assessment. Depending on the Phase I assessment, it may be necessary to obtain a Phase II environmental site assessment and to test for soil or groundwater contamination or the presence of asbes - tos. Again, depending on the site, the assessment may also include wetlands and endangered species determinations. Improved properties will typically include a report on the property’s physical condition, including founda - tion, roof, structural elements, mechanical systems, plumbing and HVAC. In jurisdictions outside of Hou - ston, a zoning report should also be obtained. In any event, a review of local zoning and land use regula - tions (public and private) should be part of the due diligence process, as should a financial analysis of the property’s income, revenue and potential. For certain developments, an analysis of mineral own - ership and surface rights may be necessary. In Texas, the mineral estate is dominant, and mineral owners and lessees generally have the right to exploit miner - als from the surface, absent the waiver of that right. Purchase agreements typically give the buyer a period in which to terminate the agreement for any reason and to receive a return of its earnest money. The length of the period is negotiable, but 30 to 60 days is common. This termination right must be supported by non-refundable “independent consideration” paid by the buyer. 2.5 Typical Representations and Warranties In Texas, a typical commercial real estate purchase and sale transaction is structured AS IS, with limited representations and warranties from the seller. The scope of representations and warranties is negotiated between buyer and seller. Typically, the purchase and sale agreement may include representations regard - ing authority to sell, compliance with law, no litigation and others, but (depending on the negotiations) may
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