USA – TEXAS Law and Practice Contributed by: Taylor Cooksey, Philip Kinkaid, Serena Kramer and David Brooks, Cokinos | Young
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 condi - tions may exist. Due diligence typically includes examination of a survey, a title commitment and recorded title exception documents, and obtaining and reviewing a Phase I environmental site assess - ment. Depending on what the Phase I assess - ment reflects, it may be necessary to obtain a Phase II environmental site assessment and to test for soil or groundwater contamination or the presence of asbestos. Again, depending on the site, the assessment may also include wetlands and endangered species determinations. Improved properties will typically include a report on the physical condition of the property, including foundation, roof, structural elements, mechanical systems, plumbing and HVAC. In jurisdictions outside of Houston, a zoning report should also be obtained. In any event, a review of local zoning and land use regulations (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 ownership and surface rights may be necessary. In Texas, the mineral estate is dominant, and mineral owners and lessees generally have the right to exploit minerals 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 termina -
tion 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 pur - chase and sale transaction is structured AS IS and with limited representations and warranties from the seller. The extent of representations and warranties is negotiated between buyer and sell - er. Typically, the purchase and sale agreement may include representations regarding author - ity to sell, compliance with law, no litigation and others, but (depending on the negotiations) may not include representations and warranties regarding the physical and environmental condi - tion of the property. Typical buyer remedies include termination and a return of the earnest money deposit, or specific performance (provided that suit is filed during a limited period), and may also include the recov - ery of certain types of actual out-of-pocket due diligence costs. After closing, a buyer may also recover actual damages (sometimes capped) that are incurred for a breach of representations and warranties by the seller. False representa - tions can also result in fraud liability under Sec - tion 27.01 of the Texas Business and Commerce Code. The seller’s remedy is typically limited to ter - mination of the agreement and recovery of the earnest money deposit as liquidated damages. Sellers often negotiate a limitation on the sur - vival of the representations and warranties to an agreed period after closing, typically between six and 18 months, and require the buyer to notify the seller of a breach during that period. Section 16.070(a) of the Texas Civil Practice and Rem - edies Code, however, provides that a contract
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