The Commission and Purchase and Sale Agreement

1. The Duttons were approached initially, in April of 2022, by a representative of Public Storage, Inc. That representative, Reid Hastings, had inquired of them whether they would be willing to sell their interest in the small Dutton ranch parcel just to the south of the 15 Freeway. The Duttons realized they needed to engage a real estate broker knowledgeable in this area to represent them in the transaction. They then interviewed several brokers and decided on Kim Hubbard, a broker with Dean Devlin Brokerage of Corona, California. Kim Hubbard was licensed as a sales person, not a broker, but worked under Dean Devlin at Dean Devlin Brokerage. She met with the Duttons several times and negotiations took place for a Commission Agreement. The Commission Agreement contemplated the sale of raw land as there were no improvements on the Dutton ranch parcel; simply fencing and feed and other related agriculture. How would your answer change if Kim Hubbard and her brokerage had represented Public Storage, Inc. in the past and Public Storage had employed them to look for land for storage units on their behalf? What critical elements should go into this Commission Agreement? How should the issue of the existence of the 20-foot Temescal Water Company easement be handled in the Commission Agreement? How long should it last? What can terminate it? Should Kim Hubbard draft a Letter of Intent and, if so, what elements should go into the Letter of Intent? Should the Letter of Intent be binding or not binding, and why?

2. You can now assume that Public Storage, Inc. has accepted the terms of purchase contained in the Letter of Intent generated by Kim Hubbard on behalf of Dean Devlin Brokerage. The purchase price was $30 Million Dollars ($30,000,000.00) and the closing had to take place within 120 days. What warranties and representations would the Dutton family have to make with regard to the land, and in particular, the existence of the Temescal Water Company 20-foot easement? The Duttons do not owe any money on the land and own it free and clear subject to that 20-foot water easement. What problems do you foresee if the Duttons were to give financing back to Public Storage, Inc. in order to lessen the amount of out of pocket money Public Storage was required to come up with and also to lessen the tax burden on the Dutton family? How would you structure such an arrangement and why? What would your concerns be about financing and financeability? What other contingencies can you see being inserted into the Purchase and Sale Agreement by either side? What types of studies and inspections would need to be done by the seller to satisfy itself as to the property’s condition or any long-term issues? What would the effect be, if any, of the proximity of Temescal Canyon Road and, for that matter, Interstate 15 to the north?

3. A Purchase and Sale Agreement has now been agreed upon and entered into and executed by all of the parties. Escrow has been opened and the Dutton family has engages First American Title to prepare a Title Commitment (Preliminary Title Report). The Preliminary Title Report shows the existence of the 20-foot Temescal Water Company water easement and in fact does not show any other conveyances or transfers by or to the Elsinore Municipal Water District. Why is this title defect of significance and what needs to be done to alleviate or resolve it? What resources should be brought to bear to resolve it and what other consultants, advisors or others should be brought in to assist as well? What information would you want to get from First American Title about the existence of the 20-foot Temescal Water Company easement to assist you in determining how to resolve the issue of the easement’s existence? Public Storage has advised you that if the easement isn’t removed, they may not be able to construct a self-storage facility as it would have to built over the easement. The clear language of the easement indicates that the holder has the right to inspect and maintain the waterline. How do you resolve that, and what provisions should (or should have been) made for this situation in the Purchase and Sale Agreement?

4. Public Storage, Inc. has decided that it does not want to carry back financing from the Dutton family for the purchase of the parcel; it can get better interest rates and better terms on the commercial open market than what the Dutton family is willing to offer. As Public Storage has a net worth in the billions of dollars, lenders compete for its business and it has an excellent credit rating. What kind of information is Public Storage going to be required to show its lender as a condition of obtaining a loan? What will the lender want to know about the construction of the facility, its income and expenses, the property management, financial covenants and the background of the companies or persons constructing the works of improvement? How will this information affect the loan terms and can you think of anything that would affect Public Storage, Inc.’s decision about which lender to use, other than the lowest interest rate? Are there any vehicles or other mechanisms if Public Storage, Inc. wants to split up its debt that might work to its advantage? Why or why not? You may assume that the purchase price is $30 Million Dollars ($30,000,000.00) for the purpose of answering this question. I do not need to know exact figures; I am more interested in what methodology you apply in determining choice of lender, cost and other concerns.