Title, tenancy and covenant diligence: the paper that binds the dirt

The preliminary title report's exceptions list is where redevelopment deals are actually decided. Recorded regulatory agreements — a LIHTC extended-use agreement under CTCAC's regulations, a HOME or local inclusionary covenant — carry rent and occupancy limits that run with the land for decades and do not care who owns it.

The other half of the paper is the tenancy file. Every occupied unit has a legal status — under AB 1482, under any local rent ordinance, and under the Housing Crisis Act's protected-unit rules — and on a value-add or teardown thesis, that status is the underwriting.

Read every exception, not just the money ones. Regulatory agreements restrict rents and occupancy regardless of sale — an extended-use covenant has its own recorded term and termination mechanics, so price the restricted years, not a hoped-for release. CC&Rs and private restrictions impose height, view, use and density limits the zoning code will never show, and reciprocal easement agreements on commercial parcels can lock the site plan; these are private rights enforced by neighbors, and the planning counter cannot waive them.

Development agreements bind successors to fee schedules, phasing and exactions on their own contractual terms. A conditional certificate of compliance under the Subdivision Map Act means the parcel's legality carries unmet conditions that surface at your permit. Mello-Roos/CFD special taxes and assessment liens — see the CFD Act — are continuing liens with fixed payoff math: pull the annual special tax, the remaining term and the prepayment formula, then either capitalize the tax or price the payoff.

• Underwriting watch-outs:
• Order and read the underlying recorded instruments, not just the exceptions schedule — the operative limits live in the documents.
• An expired funding program is not an expired covenant; the recorded term controls, and local covenants frequently outlast their program.
• Pull the CFD's rate-and-method and the current levy — the annual special tax belongs in operating expenses from the first pro forma.

Reconcile the rent roll against the actual leases and estoppel certificates — side letters, legacy below-market rents and undocumented occupants surface here. Then classify each unit. AB 1482 caps annual increases at 5% plus regional CPI (10% ceiling) and requires just cause for termination after qualifying tenure, with newer construction exempt on a rolling 15-year basis; a local rent stabilization ordinance, where one applies, is commonly stricter and controls to the extent it is.

For any demolition thesis, run the protected-unit census the Housing Crisis Act requires: occupancy by lower-income households within the past five years, current and historical rent levels or price restrictions, and any Ellis Act withdrawal history. Layer in Section 8: existing HAP tenancies under the housing choice voucher regulations carry inspection regimes and owner-termination and notice rules that do not disappear because the property trades.

• Underwriting watch-outs:
• Recent vacancies do not cleanse a site — the HCA look-back reaches five years, so diligence departures, not just current occupancy.
• Absent documentation, lower-income occupancy tends to be presumed — collect income evidence unit by unit or model the conservative case.
• Estoppels from every unit, not a sample: the outlier lease is the one that reprices the deal.

Before a teardown gets a price, build one table with a row per unit: current rent, lease status, AB 1482/RSO/covenant classification, income-tier evidence, protected-unit flag, replacement obligation (affordability level and bedroom mix), relocation cost estimate, and right-of-return exposure. The column totals are underwriting inputs — how many restricted replacement units the new project must absorb, the relocation line in sources-and-uses, and the return-window rents on units coming back. The protected-units guide covers the legal package behind each column.

On occupied small buildings the relocation line alone is routinely six figures, and the replacement stack — especially where it meets a density-bonus set-aside — can dominate a small project's unit mix. Deals die respectably here in diligence; they die expensively at the approval hearing. The ledger is the bridge from the paper to the pro forma: finish it before the LOI, and let the number carry the risk.