Posted in Commercial Real Estate Litigation, Real Estate Law
By Tony Liu, Founder and Principal Business Trial Attorney
In Summary
If a California real estate contract says a purchase is not contingent on financing, the buyer may bear the risk when a lender refuses to fund—even if the seller knew financing was necessary. Buyers should make critical dependencies explicit, negotiate realistic diligence periods, and understand consent provisions before lender requirements collide with the closing deadline.
“Everybody Knew” Is Not a Contract Term
There is a particular kind of frustration that appears in broken business deals:
Of course they knew I needed financing. We talked about it constantly. It was the entire premise of the deal.
That understanding may have been genuine.
But what does the signed contract say?
That question became critical in the California Court of Appeal’s 2026 decision in Nasey v. Fell Holdings LLC.
The buyer had agreed to purchase two San Francisco properties for $10.5 million. He alleged that the sellers knew throughout their dealings that he needed financing to complete the purchase.
The written agreement, however, said something different.
The offer was for cash.
It expressly stated that the transaction was not contingent on obtaining a loan.
The buyer’s investigation rights were also limited, and invasive or destructive testing required seller approval.
Those provisions became crucial when prospective lenders demanded additional environmental testing and the sellers refused to permit it.
The buyer could not close.
For business owners facing similar conflicts, an Orange County, CA real estate litigation lawyer can help determine whether an important business assumption actually became a contractual right—or remained merely an assumption.
What Is a Financing Contingency in California Real Estate?
A financing contingency generally makes a buyer’s obligation to complete a transaction dependent on obtaining specified financing under the terms established by the agreement.
In practical terms, it addresses a basic question:
What happens if the buyer cannot get the money needed to close?
Financing contingency: A contractual provision that makes the buyer’s obligation to proceed dependent on obtaining financing under specified conditions. Its scope, deadlines, removal requirements, and consequences depend on the language of the particular purchase agreement.
Without that protection, financing problems do not necessarily become the seller’s problems.
That distinction matters particularly in commercial transactions, where sophisticated parties can negotiate which risks each side will assume.
If the agreement expressly states that the purchase is not contingent on obtaining a loan, a buyer should not assume that conversations about financing provide equivalent protection.
The written allocation of risk may become far more important once the transaction fails.
What Happened With the Financing in Nasey v. Fell Holdings LLC?
The financing dispute in Nasey did not arise in isolation.
The original purchase agreement identified the $10.5 million purchase as an all-cash transaction and stated that the offer was not contingent on obtaining a loan.
The buyer nevertheless alleged that the sellers knew he needed financing.
As the transaction continued, the buyer obtained a Phase I environmental report. His prospective lenders’ attorneys later required a Phase II environmental assessment before the lenders would fund the purchase.
That proposed investigation involved drilling several small core samples through concrete.
The sellers refused permission.
The buyer later argued that the refusal prevented him from obtaining financing and therefore prevented him from closing.
The Court of Appeal rejected that theory under the agreement and alleged facts.
Among other problems, the contractual investigation period had expired long before the Phase II request, and the agreement restricted invasive or destructive testing without seller approval.
Most importantly for the financing issue, the court emphasized that the transaction was not contingent on obtaining a loan.
The contract had already assigned that risk.
If the Seller Knows You Need Financing, Does That Create a Financing Contingency?
Do not assume it does.
There is an important distinction between knowledge and contractual obligation.
A seller can know that:
- you plan to obtain a commercial loan;
- your lender will conduct underwriting;
- an appraisal will be required;
- environmental diligence may be necessary; and
- you expect loan proceeds to fund the purchase.
None of those facts necessarily means the seller agreed that your obligation to close would depend on the lender approving the transaction.
That dependency should be addressed in the agreement itself.
The buyer in Nasey alleged that the sellers understood financing would be necessary throughout the parties’ course of dealing. But the court looked to the actual bargain, including the provision stating that the offer was not contingent on obtaining a loan.
That is a critical drafting lesson:
Knowledge of your business problem does not necessarily mean the other party agreed to bear its consequences.
If performance depends on something outside your control, determine who bears that risk before signing.
Why Is a Real Estate Contract Really an Allocation of Risk?
A purchase agreement does more than record the price and closing date.
It decides who bears the consequences when predictable problems occur.
Consider some of the risks in a commercial real estate transaction:
- What if the buyer cannot obtain financing?
- What happens if the appraisal comes in below the purchase price?
- Could environmental testing reveal contamination?
- Will the lender require additional investigation?
- Could permits or governmental approvals take longer than expected?
- Does a landlord, tenant, lender, or other third party need to consent?
- Can due diligence be completed before the contractual deadline?
- Will invasive testing require the seller’s approval?
A well-negotiated agreement does not guarantee these problems will disappear.
It determines what happens when they do not disappear.
That is why a breach of contract dispute cannot always be resolved by asking whether the other side knew what you were trying to accomplish. The agreement may have assigned the relevant risk even though both parties understood it existed.
What Dependencies Should Be Written Into the Contract?
The financing issue in Nasey illustrates a broader problem that reaches well beyond bank loans.
Business owners routinely enter transactions that depend on someone or something outside the immediate agreement.
If your ability to close depends materially on one of those events, consider whether the contract actually addresses it.
Common dependencies include:
- financing;
- lender underwriting;
- appraisal;
- environmental approval;
- zoning or land-use approval;
- permits;
- board or investor approval;
- landlord consent;
- tenant cooperation;
- franchise approval;
- government licensing; and
- third-party consents.
The precise protection will depend on the transaction.
Sometimes the appropriate provision is a contingency.
Sometimes it is a condition to closing.
Other transactions may call for a longer diligence period, an extension right, a termination provision, a specific cooperation covenant, or another allocation of risk.
The drafting mechanism can vary.
The key is making the business dependency visible in the contract.
How Long Should a Due Diligence Period Be?
Long enough to complete the diligence your transaction actually requires.
That sounds obvious. In practice, buyers sometimes accept a standard investigation period before determining what their lender, consultants, or intended use of the property will demand.
Commercial property can complicate that calculation.
An office building may present different diligence concerns than a manufacturing facility, automotive property, dry cleaner, gas station, warehouse, or property with a history of potentially hazardous uses.
If financing is involved, the buyer also needs to account for someone else’s timetable.
A lender may request:
- an appraisal;
- financial documentation;
- title information;
- property condition reports;
- environmental review;
- additional environmental testing; or
- other underwriting materials.
If those requirements appear after your contractual investigation period expires, your leverage may be very different.
The practical question is therefore not:
What diligence period is printed on the form?
It is:
How much time will this particular property, financing structure, and intended use realistically require?
Your contract should reflect the second answer.
Why Do Seller Consent Rights Matter So Much?
Consent provisions can look like minor procedural language.
They may become decisive.
Suppose your agreement permits ordinary inspections but prohibits invasive testing without the seller’s prior written consent.
Later, your lender requires soil sampling, drilling, destructive testing, or another investigation covered by that restriction.
Now three separate pieces of the deal intersect:
Your lender requires the test.
Your financing is not protected by a contingency.
And your seller has contractual control over whether the test occurs.
That is a dangerous combination.
Before signing, ask:
- Is consent entirely discretionary?
- Must consent be reasonable?
- Can it be unreasonably withheld?
- Is there a deadline for responding?
- What happens if the seller says no?
- Can the buyer terminate?
- Does the diligence period extend while consent is pending?
Do not assume the seller will cooperate simply because cooperation makes commercial sense.
If the contract gives the seller a right, assume that right may matter most precisely when the relationship becomes difficult.
Can a Seller’s Refusal to Cooperate Excuse the Buyer From Closing?
Potentially, depending on the agreement and facts.
But Nasey demonstrates why the contractual details matter.
The buyer argued that the sellers prevented his performance by refusing the Phase II environmental testing his lenders required.
The court rejected that theory.
The agreement gave the buyer a defined investigation period, which had expired. It also restricted invasive testing without seller approval. And the buyer had expressly entered a transaction that was not contingent on obtaining a loan.
Under those circumstances, the lender’s requirement did not create a new contractual obligation for the sellers.
This connects directly to the broader question of whether a buyer can stop performing after a seller breaches a real estate contract.
A seller’s refusal may matter greatly if it violates a contractual cooperation obligation or prevents satisfaction of a genuine condition.
The analysis can look very different when the seller is simply exercising a right the contract expressly gave it.
Can an Extension Fix a Financing Problem?
Sometimes, but an extension should not be treated as an automatic cure.
More time may allow a buyer to finish underwriting, obtain another lender, complete additional diligence, or negotiate a solution.
But extending the closing date does not necessarily restore expired investigation rights or create a financing contingency that never existed.
And the amendment itself can change the parties’ positions.
The language used in real estate contract extensions in California can affect existing claims, contingencies, acknowledgments of performance, and the parties’ rights going forward.
If financing remains unresolved, the extension should be read with that specific problem in mind.
Does it merely move the date?
Does it reopen diligence?
Will it permit the lender-required testing?
Are the buyer’s objections preserved?
Have all contingencies already been removed?
A new closing date is useful only if the buyer can actually solve the problem before reaching it.
What Should You Do Before Signing a Non-Contingent Real Estate Deal?
Before accepting the financing risk, work backward from what must happen for you to close.
1. Talk to the lender early.
Find out what underwriting, appraisal, environmental, and property requirements are reasonably foreseeable.
2. Identify every third-party dependency.
Do you need anyone else’s consent, approval, report, signature, or cooperation?
3. Compare those dependencies with the contract.
Determine whether each critical issue is protected by a contingency, condition, cooperation requirement, or other provision.
4. Stress-test the diligence period.
Ask whether there is enough time if the first report creates the need for a second investigation.
5. Examine consent provisions.
Understand whether the seller can refuse something your lender may require.
6. Understand what happens if financing fails.
Can you cancel? Is your deposit at risk? Are you still required to close?
7. Document changes to the deal.
If the parties later agree to accommodate financing, make sure the written amendment accurately reflects what changed.
These questions are far easier to negotiate before the buyer is days away from closing.
What Happens If Financing Falls Apart Near the Closing Deadline?
Do not assume the closing date automatically moves.
A financing problem and a contractual closing obligation can exist simultaneously.
If the agreement contains an effective financing contingency that remains available, the buyer may have contractual options.
If financing is expressly not a contingency, the analysis may be much harder.
The buyer should immediately determine what the agreement says about financing, contingencies, deposits, extensions, seller cooperation, diligence, default, and cancellation.
Waiting can create another problem: the closing date itself.
Once the transaction reaches that stage, the question of what happens when a buyer misses a real estate closing deadline may become just as important as why the lender refused to fund.
The goal is to understand the contractual consequences before the deadline becomes another disputed event.
What Does This Mean for Orange County Commercial Real Estate Buyers?
The properties in Nasey were in San Francisco, but the opinion interprets California law and offers lessons relevant to commercial transactions throughout the state.
For an Orange County buyer, financing and diligence can intersect quickly in acquisitions involving industrial properties, warehouses, automotive businesses, mixed-use buildings, redevelopment sites, or owner-occupied commercial property.
A lender’s environmental or property requirements may arrive late. That does not mean the purchase agreement automatically changes with them.
When those requirements collide with the contract, the transaction can become a real estate litigation matter involving contingencies, inspection rights, seller consent, deposits, alleged prevention of performance, or failure to close.
An Orange County real estate litigation lawyer can examine where the agreement placed the risk and what options remain before a financing problem becomes a default dispute.
Frequently Asked Questions
What happens if a California real estate contract has no financing contingency?
If the purchase is not contingent on financing, inability to obtain a loan may not excuse the buyer from contractual obligations. The result depends on the agreement and circumstances, including other contingencies, conditions, seller obligations, and applicable law. Buyers should understand the consequences before allowing a closing deadline to pass.
Does a seller’s knowledge that I need a loan create a financing contingency?
Do not assume so. A seller’s knowledge that the buyer intends to use financing is different from a contractual agreement making the purchase contingent on financing. If the written contract expressly says the transaction is not loan-contingent, relying on an informal understanding can create substantial risk.
Can a seller refuse environmental testing required by my lender?
It depends on the purchase agreement. Some contracts restrict invasive or destructive testing or require seller consent. If lender-required testing falls within those restrictions, the buyer’s rights will depend on the negotiated provisions, applicable diligence periods, and any standards governing the seller’s consent.
Can a financing contingency protect my deposit?
Potentially. The answer depends on the language of the financing contingency, whether it remains effective, whether applicable deadlines and notice requirements were satisfied, and the agreement’s deposit provisions. Buyers should not assume that every financing problem automatically creates a right to cancel and recover the deposit.
Can I extend closing if my lender needs more time?
Only if the existing agreement gives you that right or the parties agree to an extension. A lender’s delay does not necessarily extend the contractual closing date automatically. Any amendment should also be reviewed for changes to contingencies, diligence rights, defaults, claims, and other provisions.
Put the Business Reality Into the Contract
Business deals are full of things everybody understands.
The buyer needs a loan.
Lender-required diligence must be completed.
A permit has to come through.
Landlord consent may be necessary.
Third-party cooperation could be essential.
Those understandings may feel obvious while everyone wants the transaction to close.
The real test comes when something goes wrong.
At that point, the question becomes whether the agreement protected the dependency—or allocated the risk to you.
The strongest contract is not the one that assumes everyone will remain cooperative. It is the one that anticipates what happens when they do not.
If financing, diligence, or another third-party requirement is threatening an Orange County transaction, Focus Law can help determine what the agreement actually requires and what options remain. Speak with an Orange County real estate litigation lawyer before an assumption becomes a missed deadline.
