Commercial real estate in Washington is bought on the strength of what the buyer learns during due diligence, and most of that learning happens in a short, contractually fixed window. Holmes Law works with investors, owner-operators and small businesses as a Washington commercial purchase attorney, negotiating the purchase and sale agreement, running the legal side of due diligence, reviewing title, survey, zoning and environmental reports, and structuring the acquisition so it fits the buyer’s financing, tax and ownership goals.
Washington adds several layers that buyers from other states do not always expect. The Model Toxics Control Act imposes strict, joint and several liability on current owners of contaminated property. The Growth Management Act, critical areas ordinances and shoreline rules can limit what a buyer can build. The real estate excise tax reaches transfers of controlling interests in entities, not just deeds. And a buyer who acquires a business along with the real estate can inherit the seller’s unpaid state excise taxes. Michael Holmes is admitted in Washington and works remotely with commercial clients throughout the state. This page is general information, not legal advice for your transaction. For the broader practice area, see the Washington real estate page.
How a Washington Commercial Purchase Attorney Structures the Purchase Agreement
Smaller Washington commercial deals are often written on the Northwest Multiple Listing Service commercial and investment form with addenda. Larger transactions usually use a negotiated purchase and sale agreement drafted by counsel. Either way, a Washington commercial purchase attorney will focus on the provisions that allocate risk:
- The feasibility or due diligence period, how it is extended, and whether the buyer can terminate for any reason or only for defined conditions.
- The earnest money: when it is deposited, when it goes hard, and whether forfeiture is the seller’s sole remedy. RCW 64.04.005 caps earnest money forfeited as liquidated damages at five percent of the purchase price when the agreement makes forfeiture the seller’s exclusive remedy.
- Seller deliveries: leases, rent rolls, service contracts, operating statements, environmental reports, surveys, permits and warranties, and the deadline for delivering them.
- Representations and warranties, how long they survive closing, and any cap or basket on the seller’s liability.
- Conditions to closing, including tenant estoppels, SNDAs, lender approval, and no material change in the property.
- Assignment rights, so the buyer can close in a newly formed entity or through a qualified intermediary.
- Casualty and condemnation, prorations and closing costs.
Due Diligence: Title, Survey and Recorded Documents
Title commitment and endorsements
The title commitment identifies the vested owner, liens, easements, covenants, reservations and other exceptions. Commercial buyers typically obtain an extended coverage policy, which requires a survey and an inspection, and negotiate endorsements that address access, contiguity, zoning and other risks. Objection deadlines in the purchase agreement should give time to review every recorded document, not just the commitment summary.
Survey
An ALTA/NSPS land title survey is the standard for commercial property. It shows boundaries, improvements, easements, encroachments, access and flood zone status and ties them to the title commitment. In Washington, surveys often reveal unrecorded access roads, shared parking, utility lines and boundary discrepancies that matter to lenders and future buyers.
Leases and the recording act
Washington is a race-notice jurisdiction under RCW 65.08.070: an unrecorded conveyance is void against a later good-faith purchaser for value whose conveyance is recorded first. Leases for longer than one year must be made by deed under RCW 59.04.010, and many long-term commercial leases are recorded in memorandum form. Tenants in possession can also give notice of their rights. A buyer therefore needs the leases themselves, not just the rent roll, to learn about options to purchase, rights of first refusal, exclusives and co-tenancy clauses.
Environmental Due Diligence and the Model Toxics Control Act
Washington’s Model Toxics Control Act (MTCA), chapter 70A.305 RCW, is the state counterpart to federal CERCLA and is administered by the Department of Ecology. Under RCW 70A.305.040, current owners and operators, past owners and operators at the time of disposal, generators, certain transporters and certain sellers of hazardous substances are strictly liable, jointly and severally, for remedial action costs and natural resource damages. Buying a contaminated site can make the buyer a liable party even though the buyer caused none of the contamination.
MTCA includes an innocent purchaser defense. The buyer must show that at the time of acquisition it had no knowledge or reason to know of the release, after undertaking all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice. The defense is not available to a person who learned of contamination and failed to disclose it to later transferees or who caused or contributed to the release.
A Phase I environmental site assessment is the customary starting point. It is designed to support federal defenses and is usually required by lenders. Depending on the findings, a buyer may need a Phase II investigation with sampling. Washington buyers should also check Ecology’s site databases for listed hazardous sites and cleanup status, ask whether the property has entered Ecology’s Voluntary Cleanup Program, and review any environmental covenants recorded against title, which can restrict use or require ongoing maintenance. Former gas stations, dry cleaners, auto repair shops, industrial sites, orchards with historical pesticide use and properties with heating oil tanks deserve particular attention.
The seller’s commercial disclosure statement under RCW 64.06.013 includes an environmental section. A buyer may expressly waive receipt of the disclosure statement, but under RCW 64.06.010(7), if any question in the environmental section would be answered “yes,” the buyer may not waive receipt of that section. Delivery is due within five business days after mutual acceptance unless the parties agree otherwise. Neither the disclosure statement nor a Phase I replaces careful drafting of environmental representations, indemnities and survival periods.
Zoning, Land Use and Critical Areas
Zoning is local in Washington, but it operates inside a statewide framework. Under the Growth Management Act, chapter 36.70A RCW, most counties and cities plan within urban growth areas and adopt development regulations that include critical areas ordinances for wetlands, streams, geologically hazardous areas, frequently flooded areas and aquifer recharge zones. Critical areas buffers can dramatically reduce the usable footprint of a site. The Shoreline Management Act, chapter 90.58 RCW, adds another layer for property near marine shorelines, rivers and lakes.
Development proposals may also require review under the State Environmental Policy Act, chapter 43.21C RCW. For a buyer, the questions are practical: Is the current use permitted, conditional or legally nonconforming? Can the building be rebuilt if destroyed? Are there open permits, code enforcement actions or development agreements? Is there adequate water, sewer and access for the intended use? Rural and agricultural buyers should also confirm the status of any water rights, which are administered by Ecology and do not automatically transfer with the land in every case. A zoning report or letter from the jurisdiction and a review of the permit history are standard parts of diligence.
Physical Condition, Building Codes and Operating Due Diligence
Unlike a residential seller, a commercial seller usually sells “as is,” and the purchase agreement will often say so expressly. That shifts the burden of discovering physical problems to the buyer. A property condition assessment by a qualified consultant reviews the roof, structure, building envelope, mechanical, electrical and plumbing systems, parking and paving, and estimates near-term capital needs. Older masonry buildings in western Washington raise seismic questions, and some cities have adopted or are considering requirements for unreinforced masonry buildings. Accessibility issues under federal and state law, fire and life safety systems, and elevator permits should be checked as well.
Operating diligence matters just as much for income property. The buyer should review several years of operating statements, the property tax history and any pending appeals, utility bills, service and management contracts, and insurance loss runs. Contracts the buyer does not want should be terminated by the seller before closing. Washington’s energy benchmarking and performance rules under the Clean Buildings law apply to many larger commercial buildings, and a buyer should confirm the property’s compliance status and any planned capital work needed to meet the standard.
Finally, the buyer should confirm the property’s utility service and any latecomer or special assessment obligations, local improvement district assessments and impact fees that will follow the property after closing. These items are often recorded or appear in the title commitment, but their cost is not always obvious.
Tenant Estoppels and SNDAs
For income property, the leases are the asset. A tenant estoppel certificate confirms the lease documents, rent, deposits, term, options, defaults and any claims against the landlord, and it binds the tenant to those statements against the buyer and lender. A buyer should require estoppels from all major tenants as a closing condition and compare them carefully to the rent roll.
Lenders usually require subordination, non-disturbance and attornment agreements (SNDAs). The tenant subordinates its lease to the new loan, the lender agrees not to disturb the tenant after a foreclosure if the tenant is not in default, and the tenant agrees to recognize the lender or foreclosure purchaser as landlord. Because Washington deeds of trust can be foreclosed nonjudicially under chapter 61.24 RCW, lenders care about lease priority and SNDAs at closing.
Asset Purchase or Entity Acquisition
Commercial property is often owned by a single-purpose LLC. The buyer can buy the real estate (an asset purchase) or buy the membership interests in the entity (an entity acquisition).
An asset purchase lets the buyer take title free of the seller entity’s history, obtain a new owner’s title policy and pick which contracts to assume. An entity acquisition can preserve permits, contracts, the existing loan or a favorable property tax position, but the buyer inherits every liability of the entity, known and unknown. That calls for broader diligence, stronger representations and indemnities, and often a non-imputation endorsement to the title policy.
Washington’s real estate excise tax does not disappear in an entity deal. Under chapter 82.45 RCW, the transfer or acquisition of a controlling interest, meaning fifty percent or more, in an entity that owns Washington real property within a 36-month period is subject to REET measured by the true and fair value of the real property. A controlling interest transfer return must be filed with the Department of Revenue.
If the buyer acquires an operating business along with the property, RCW 82.32.140 matters. A successor who acquires a business or its stock of goods must withhold enough of the purchase price to cover the seller’s unpaid state excise taxes. If the seller does not pay within ten days, the successor becomes liable. The protection is to obtain a Department of Revenue receipt showing payment in full or a certificate that no tax is due.
Section 1031 Exchanges on the Buy Side
Many commercial buyers are completing a like-kind exchange under Internal Revenue Code § 1031. The replacement property must be identified within 45 days after the relinquished property transfers, and acquired by the earlier of 180 days or the due date of the tax return, including extensions. The purchase agreement should permit assignment to a qualified intermediary and require the seller’s cooperation at no cost to the seller.
Washington regulates exchange facilitators under chapter 19.310 RCW, including requirements for fidelity bond coverage or other security for exchange funds. A buyer should confirm the intermediary’s compliance before funds are deposited. Because Washington has no personal income tax and its capital gains tax exempts real estate, the exchange is primarily a federal tax strategy for Washington property. The Washington commercial sales page covers the relinquished side of the exchange.
Financing the Acquisition
Commercial loans in Washington are typically secured by a deed of trust under chapter 61.24 RCW, together with an assignment of leases and rents and a UCC security interest in personal property. Loan documents often include recourse carve-outs, commonly called bad-boy guaranties, that make the principal personally liable for specific acts such as unauthorized transfers or environmental problems. The loan’s transfer restrictions also limit future changes in ownership of the borrowing entity, which matters for estate planning and for bringing in new investors. A buyer should review the loan commitment early, because its closing conditions often drive the survey, title and estoppel requirements.
The choice of ownership entity should be settled before closing. The Washington business law page explains how LLCs and operating agreements fit into commercial property ownership.
Frequently Asked Questions
How long is a typical due diligence period in Washington?
There is no statutory period. It is set by the purchase agreement and depends on the property, the tenants and the buyer’s financing. The right length is the time actually needed to complete title, survey, environmental, zoning and lease review.
Do I need a Phase I if the seller gives me an environmental disclosure statement?
Yes. The disclosure statement reflects the seller’s knowledge, not an investigation. MTCA’s innocent purchaser defense depends on the buyer’s own all appropriate inquiry.
Does buying the LLC instead of the building avoid real estate excise tax?
Generally not when a controlling interest of fifty percent or more changes within 36 months. REET applies to controlling interest transfers based on the true and fair value of the real property.
Can I be liable for the seller’s unpaid taxes?
If you acquire a business, yes. RCW 82.32.140 makes a successor liable for the seller’s unpaid state excise taxes unless the successor withholds or obtains a Department of Revenue clearance.
Is Washington a title insurance and escrow state for commercial deals?
Yes. Commercial closings typically use a title insurer and escrow agent, with each party represented by its own counsel in larger transactions.
Speak With a Washington Commercial Purchase Attorney
The time to protect a commercial acquisition is before the earnest money goes hard. Holmes Law can negotiate your purchase agreement, coordinate diligence with your lender and consultants, and structure the ownership entity. If you are also buying or selling a home, see the Washington residential purchase page. Contact Holmes Law to schedule a consultation with Michael Holmes about your Washington commercial purchase.