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Los Angeles Real Estate Development Laws

Doron F. Eghbali Commercial Law

What is 1031 Exchange? 

In general, 1031 exchange is a swap of one business or investment asset for another. If you comply with the rules, no or little tax may be incurred upon exchange.


  • The IRS would not impose taxes upon cashing out or recognizing capital gains.
  • The 1031 Exchange would allow your business or investment swap to grow tax deferred.
  • There is no limitation on how many times you can do a 1031 exchange. In other words, you can rollover gain from one piece of property to another, another, and another.
  • Despite having a profit on each swap, you defer paying any taxes until you actually sell the property or investment asset for cash many years later.
  • When you actually sell the asset for cash, then hopefully you will pay only one tax at long-term capital gain rate, currently at 15%.


1.  Delayed Exchange: Usually, it is usually very hard to find somebody who has the property that you want and is willing to buy the property you have. As a result, the majority of exchanges is done in what is termed three-party or “Starker” exchanges, named after the first tax case that made this option available.

  • In a delayed exchange, a middleman holds the cash after you sell the property, and the middleman uses the money to buy you another property. The IRS still recognizes this three-party exchange a swap.

2. Designation of Replacement Property

  • Timing of Notifying the Intermediary within 45 Days of Sale: After sale of property, your middleman or intermediary will receive the cash. It is very important you do not receive the cash in order not to disqualify yourself from using 1031 exchange. Within 45 days of selling the property, you must notify the middleman in writing of the specified replacement property you intend to acquire.
  •  Specifying Multiple Replacement Properties: The IRS allows you to designate up to three replacement properties, as long as you ultimately close on one of them. However, you can potentially designate an unlimited number of potential replacement properties, as long as the fair market value of the replacement properties does not exceed 200% of the aggregate exchanged properties.

Closing on the Designated Replacement Property Within 180 Days of Sale: You have only 180 days, six months, to close on one of your designated properties that you have notified your intermediary of in writing. This is very important to note that the 180 days run concurrently with the 45 days. This means if you notified the intermediary of the replacement property in writing on the 44th day of sale, you only have 136 days left to close the transaction on of the designated properties.

What Does Estoppel Certificate Encompass in Commercial Properties?

by Doron F. Eghbali

Estoppel Certificates serve a salient purpose to landlords, lenders and potential buyers of commercial property. Let us explore the salience and legal effect of such Certificates to some extent and further educate ourselves about them.


An Estoppel Certificate is a signed statement by tenant or landlord certifying certain information as to the commercial premises. Estoppel Certificate is often required by lenders or potential buyers in refinancing or sale of commercial properties. In addition, it is possible for tenants to use Estoppel Certificates while seeking transfer of their interest under the lease, if possible.

Estoppel Certificates could literally derail a potential sale or refinancing, as lenders or buyers dissect the enclosed information as to the viability or liability of the building.


Estoppel Certificate provides some clarification and confirmation to interested parties in sale, refinancing or, to a lesser extent, transfer of commercial properties. The information to be provided on an Estoppel Certificate includes, but not limited to the following:

  • Clarify Whether the Lease Still is Enforceable or Not
  • Clarify Whether the Lease Contains any Changes, Amendments, Modifications, Assignments or Not
  • Clarify Whether the Lease Contains any Defaults
  • Clarify What the Lease’ Essential Terms and Provisions Are, Such As: The Amount of  Rent, The Place of Rent, The Rights Under the Lease Bestowed on Tenant(s).

Hence, by seeking such information, the most salient questions tends to become clearer, i.e. how much money is the property making? What are the existing or potential problems? The following lists some potential pitfalls for lender or potential buyer:

  •  Whether The Tenant is Solvent
  • Whether There are Still Renewal Option for the Property and Whether Such Rights have or Are Being Exercised
  • Whether There Are any Violations of the Lease Agreement
  •  Whether There Are Any Security Deposits, How Much They Are and Where They Are, If Possible


Given the salience of Estoppel Certificate, most leases contain a clause obligating tenant to provide it when requested. It might be possible for the tenant to negotiate a clause which obligates the landlord to provide the same document when and if tenant reasonably requests.


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